Accounting Principles Flashcards
What is ‘financial statements’ often called as well?
‘The accounts’
What do ‘users’ refer to?
The different groups of people who may look at the accounts of a company.
What does being ‘on the public record’ mean?
Being able to go on Company’s House and download any company’s set of accounts.
Who are the 5 main user groups?
- Owners/Shareholders
- Suppliers
- Banks
- Staff
- Customers
Why might owners/shareholders be interested in looking at the accounts?
To work out the level of return they are receiving on their investment and whether they should keep it or sell it.
Why might suppliers be interested in looking at the accounts?
To work out if they are likely to be paid if they offer credit to a company.
Why might banks be interested in looking at the accounts?
To identify whether a company is a good credit risk for agreeing to a loan request.
Why might staff be interested in looking at the accounts?
To look at the security of their jobs and whether they are likely to receive a bonus based on the success of the company.
Why might customers be interested in looking at the accounts?
To check that a company is likely to still be trading in a year or two when the customer wants to buy again.
What is the importance of producing a set of accounts?
- A business needs to have a system in place to record all the transactions in a meaningful and logical way.
- The business must also be able to produce a set of accounts that will summarise all the transactions that occurred throughout the period, and the position the business is in at the end of its accounting period.
What are the general aims (4) of the accounting system?
- To identify how well the business has performed in the period (by calculating the profit or loss generated in the period).
- To identify the value of the assets and the liabilities.
- To help understand the cashflow positions of the company. Many businesses go bust because they do not generate enough cash to pay their bills.
- To communicate these things to the users of the accounts in as clear a manner as is possible.
What are the 4 main transaction types?
- Cash sales
- Cash expenditure
- Credit sales
- Credit expenditure
What is a ‘cash’ sale?
A sale that is settles immediately by the customer (this doesn’t mean it’s been settled by actual coins and notes, e.g., if you write a cheque for something you are settling it immediately so this would be a cash transactions, so would using a debit/credit card.
What is a ‘credit’ sale?
A sale where the customer is given a period of time, i.e., the credit period, before they have to pay for what they bought. This is normally 30 or 60 days.
Describe ‘sale’ vs ‘expenditure’
A sale is where we generate income by providing goods or services to a customer who will pay for it.
Expenditure is where we pay for something that we need in our business.
What are 3 other ways ‘sales’ is referred to as?
Revenue, income, turnover
What sort of document generally accompanies a cash transaction?
Receipts, till roll, cheque book stub
What sort of document generally accompanies a credit transaction?
Invoice
What is an invoice
A demand for payment at some point in the future
What are primary documents sometimes referred to as?
Source documents — they are the initial documentation which is produced when a transaction takes place
What does ‘BOPE’ stand for, and what is its purpose?
Books of Prime Entry — they are the first place we enter transactions into our accounting records
Name all the different BOPE (10).
- Sales day book
- Sales return day book
- Purchase day book
- Purchase returns day book
- Cash book receipts
- Cash book payments
- Discounts allowed day book
- Discounts received day book
- Journal book
- Petty cash book
Define sales day book
All sales made on credit (sales invoices sent to credit customers)
- On credit terms
Define Sales returns day book
To record returns of goods by customers (lists all sales credit notes issued)
- On credit terms
Define Purchases day book
All purchases made on credit (purchase invoices received from credit suppliers)
- On credit terms