Accounting and Budgeting Flashcards
What are assets?
What the business owns
What are liabilities?
What the business owes
What is capital?
All the money, goods and property a business can use to make an income
What are the five main types of capital?
Fixed or physical capital Financial capital Share capital Working or operating capital Start-up capital
What is fixed capital?
Goods used to produce other goods or services. Machines, tools, factory buildings, trucks
What is financial capital?
The source of funds for a business. E.g. a loan
What is share capital?
The money invested by the owners of a business. Usually used to buy fixed capital
What is working capital?
The money needed to run a business from day to day.
What is start-up capital?
The money needed to start a new business
What are the two types of assets?
Non-current assets and current assets
What are current assets?
Assets that can be converted into cash within the next year. E.g. inventories, debtors, cash in the bank
What are non-current assets?
Assets that can not be converted into cash within the next year. E.g. land and buildings, vehicles, equipment, investments
Give examples of liabilities.
Bank loans and share equity
What are the two types of liabilities?
Non-current liabilities and current liabilities
What are current liabilities?
Debts that have to be paid within the next year. E.g. creditors, overdraft
What are non-current liabilities?
Long-term loans, such as mortgages and bonds
What is a profit?
When a business has more income than expenses
How is a business operating if its expenses are greater than its income?
It is operating at a loss
What is an expense?
A payment for services or consumable goods that the business buys to keep running.
Is an expense an asset?
No
What are fixed expenses?
They are costs you have to pay each month no matter how much you produce or sell.
They are a noose around your neck!
What is another name for fixed expenses?
Overheads (or a noose around your neck)
Give examples of fixed expenses.
Rent Telephone accounts Water and electricity Monthly wages A noose around your neck
What are variable expenses?
Expenses related to the goods and services produced by a business
What happens to variable expenses if sales increase?
Variable expenses increase
Is packaging a fixed expense?
No, it is variable. It increases as sales increase
What is the aim of a business?
To make a profit
What is a loss?
A decrease in financial value caused by expenses being greater than income in a certain period
What does it mean to break even?
To make no profit or loss
What is a budget?
A budget is a written plan on how spend income
What does a budget show?
Estimated income and expenses for a business or person for a specific period or time
What is the advantage to a family of having a budget?
You can ensure that you don’t spend more than you earn
Which expenses in a budget should ideally be paid first?
Essential expenses such as rent, electricity, school fees, food
What do governments budget for?
Tax income and expenditure
Once you’ve made a budget, do you leave it alone?
No, you check and update it regularly
When is budget information used in a business?
Throughout the management process.
What is saving?
Putting money aside for future use
When can you save?
If you don’t spend all your income
What forms can saving take?
Bank account
Spending less on electricity
etc
Why do people save?
To pay for future expenses such as education and retirement
To pay for emergencies such as accidents and unemployment
List some ideas for how to save.
Never spend more than you earn Buy what you need first Pay off debt Always have cash to buy the things you need Keep an emergency fund Learn from the past Make long term goals
What is interest?
Money earned on the money you save in a bank (or money charged on a loan from the bank)
What is credit?
When you buy now and pay later
A noose around your neck
What are a business’s suppliers?
Business from which the business buys goods and services
What is a loan?
Money borrowed from a bank or financial institution
What is income?
Money earned by a business
What does it mean to deposit?
Put money into a bank account
What does it mean to withdraw?
Remove money from a bank account
What is a current account?
A bank account used for daily transactions, sometimes known as a cheque account
What is a transaction?
A business deal
What is a source document?
A record of a transaction - eg. a receipt
What does per annum mean?
per year
What is an interest rate?
The percentage of interest you earn on your savings per year
What is a tenant?
Someone who rents a building, house or flat
What is property?
buildings, homes, offices or land
What is insurance?
When a company agrees to pay for your future loss of (or damage to) your property in exchange for a monthly fee (called a premium)
What is a statement of net worth?
a list of assets and liabilities
What is investing?
taking money you have saved and doing something with it to make more money
What is a deficit?
When your expenses exceed your income
What is expenditure?
The money you spend
