Accounting Flashcards
Define Owners Equity with the use of an example
Owners investment in the business which include other assets that the owner has contributed to the business ; that is what the business will owe the owner if the business ceases to exist.
(Example: retained profit, capital)
Define Revenue with the use of an example:
The money coming into a business from the sale of goods and services.
(Example: sales, fees from services)
Define creditor with the use of an example
Someone or another organisation that the business owes money to
Example: a business owner will purchase stock from their supplier therefore they now owe that organisation money
Define debtor with use of an example
Someone or an organisation that owes the business money
Example: a customer buys a good on credit (and pays later) from a business and now owes them money
Define mark-up with the use of an example
A percentage on the cost of goods to make a profit
Example: a business will purchase stock and sell it for 50% more than what they paid to make a profitState the structure of state parliament:
Differentiate between an asset and a liability with the use of an example
Asset: possessions of people or businesses
Example: vehicle, stock, debtor
Liability: the money owed to another business
Example: creditor, loan
What is the accounting equation for a balance sheet?
Assets = liabilities + owners equity
Explain the importance of keeping financial documents such as a balance sheet and a profit and loss statement,
Records all transactions to allow the owner to keep track of their business.
Balance sheet: shows how a business is going.
- debtors are paying on time
- spending to much on stock
- paying to much to creditors
Profit & Loss statement: shows the revenue earned and expenses incurred during a period of time
- making a profit or loss
- spending to much on wages
- see if your sales are higher enough
Explain the purpose of a statement of receipts and payments
Shows each and every transaction made identifying the money coming in and out of the business and categorising the payments and receipts in numbered order.
Describe how a small business may i,prove its financial position by using a profit and loss statement
The revenue and expenses of a small business will indicate what changes need to be made to benefit the company. (Example: 50,000 bills is such a waste and it can be avoided)
Distinguish between payments and receipts
Payments: money coming into the business either to purchase something or pay something back
(Use cheque book)
Receipts: money coming into a business from the sales. (Use receipt book)
Define ‘sundry’ with use of an example
Sundry is used in a statement of receipts and payment and are the other items received or paid that can not be categorised. (Tea and coffee)
In a statement of receipts and payments how do you work out cash surplus and cash at end.
Surplus:
Total receipts - total payments = surplus
Cash at end:
Surplus + cash at start
What is COGS?
AN EXPENSE:
The cost of getting the goods into the business
How do you work out gross profit and net profit in a profit and loss statement?
Gross profit:
Revenue - COGS
Net Profit:
Gross profit - expenses
