Accounting principles and procedures Flashcards
What is a balance sheet?
A statement or list of assets and liabilities at any given date.
What are the typical assets you might expect to see on a balance sheet?
- Cash in the bank
- Money owed to the business in the form of debtors (WIP)
- Stock
- Tangible assets such as equipment, furniture, etc.
What are the typical liabilities you might expect to see on a balance sheet?
- Next overdraft due to bank
- Money owed to suppliers
- Loans to the business
- Money owed to HMRC in the form of VAT on taxes
What is a profit and loss account?
A profit and loss account will display the business income from sales, bank interest and other income.
The expenses are subtracted from the sales to calculate how much profit or loss a business is making.
What would you typically expect to see on a profit and loss account?
Turnover and other sources of income at the top
Business expenditure underneath such as cost of sales, business expenses and cost of equipment.
What is a cash flow statement?
Summary of how money flows into and out of the business during a specified period of time.
What is the purpose of a cash flow statement?
- How the company obtains and spends cas
- Why there may be a difference between net income and cash flows
- If the company generates enough cash to pay existing debts as they mature
- If the company generates enough cash to sustain the business.
What is the Companies Act 2006?
Requires all companies to file their accounts on Companies House.
What is equity?
Amount of money vested in a business by shareholders, owners and partners.
What are capital allowances?
Allows a certain amount of money to be spent on fixed assets before corporation tax is applied (vans, property, etc)
What is ‘lock up’ days?
Lock-up is defined as the time it takes to convert work in progress (WIP) and debtors into cash.
