Accounting 2 Flashcards
What can incorporated businesses be registered as?
A Private Limited Company (Ltd)
A Public Limited Company (plc)
What’s the main difference between Ltd and plc?
plc can offer shares for sale to general public, whereas Ltd cannot. plc may offer shares for sale on the Stock Exchange. These can then be re-traded so ownership of a plc may constantly be changing
What are the 4 main financial statements?
Income Statement
Statement of financial position
Statement of changes in equity
Statement of cash flow
What regulations must an Annual Report follow?
Statutory Regulation
Accounting Standards
Stock Exchange
What is an Audit?
Independent examination of the financial statements to establish that they show a true and fair view of the financial performance (profit) and position (value/worth) of the company
Does not cover all the information in the Annual Report
What are the concepts that underly the preparation of the financial statements?
Separate Entity (Company is its own person. Can sue and be sued)
Double Entry (Every transaction affects two accounts)
Materiality (Items reported if they make a difference to users. No material omissions or mis-statements in the accounts)
Accruals/matching (Expenses are matched to the revenues that they help generate.Accounted for when they are earned, not when cash flows)
What does the Income Statement do?
Details the profit that a company has made over the year
Provides information on financial performance
In the Income Statement what should Revenue include?
Should only include income from main business (lines of operation) that the company is involved in
Income from other investments or one off sources should be included elsewhere
In the Income Statement what should Cost of Sales include?
Includes all expenses/costs that are involved in manufacturing and producing the product that the company sells
Includes opening inventory, add purchases, less closing inventory, add production costs
In the Income Statement what is Gross Profit?
Basic guide of how successful the core business of a company is. Compares the revenue from selling the product a company produces directly with the costs of that production
In the Income Statement what should Distribution Expenses include?
Includes all the selling, marketing and distribution costs incurred by a company
In the Income Statement what should Administration Expenses include?
Includes all the office based costs of a company. These might include accountant and lawyer fees, debt collection services, invoicing and some director costs
In the Income Statement what is Operating Profit?
Highlights the profit the business has generated from its operation. Figure likely to be more volatile than gross profit figure because one off costs can be included in administration and distribution costs. Important in competitive market place
In the Income Statement what are Finance Charges?
Payments of interest on loans, leases and overdraft. A business would be in trouble if the finance charges were more than operating profit
