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Accounts Flashcards

1
Q

2 meanings of accounts

A

Day to day record of business transactions
And
Accounting year end summary

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2
Q

What does the profit and loss account tell us

A

How profitable the business is through calculation income - expenditure = profit

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3
Q

How is the profit and loss account set out

A

All income grouped together followed by all the expenses

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4
Q

What do brackets show

A

A minus figure or figure to be deducted

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5
Q

What are the columns on a profit and loss account

A

On trial balance it is CR and DR

But otherwise the left is workings and right is main figures

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6
Q

Which account gives the best indicator if business can pay its debts

A

Balance sheet

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7
Q

What does trading account show

A

Gross profit by income from sales- cost of sale (cost of buying stock)

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8
Q

Where is the gross profit from trading account transferred to

A

Profit and loss account

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9
Q

Which businesses have trading accounts

A

Businesses which buy and sell goods having trading accounts ( preliminary accounts)
In addition to profit and loss account
Businesses providing professional services don’t need trading account

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10
Q

What does balance sheet show

A

Assets and liabilities on last day of accounting period
Shows how much business is worth on day of preparation

Shows assets- liabilities = net worth of business

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11
Q

What must balance sheet be headed with

A

The date of preparation

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12
Q

What are the two parts of the balance sheet

A

1 assets - liabilities owed to third party (employment of capital)
2 amount owed to propitiator as capital ( capital employed)

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13
Q

How is balance sheet set out

A 
Vertically
Fixed assets
Current assets
Current liabilities 
Long term liabilities 
Value to proprietor

Assets in increasing order of liquidity so buildings at top and cash at bottom

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14
Q

What are the three figures shown in the capital employed section of the balance sheet

A

Opening figure- money owner paid into business when they started it

Net profit figure- money business made since it started trading

Drawings figure - money business owner has taken out of business since it began trading

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15
Q

What are net current assets and what does it show

A

Current assets - current liabilities

Shows business liquidity

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16
Q

What are net assets

What does it show

A

Fixed and current assets- Short and long term liability

This is the amount owing to business owner as capital at the end of the year

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17
Q

What does drawing accounts show

A

Money withdrawn by owners across the year

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18
Q

What does capital employed section show

A

The value of the business to the owner

Balance on capital account (money put in by owner), net profit from Profit and loss account (Money made across year)
Deduct balance in drawings account

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19
Q

Adjustments for final accounts

A 
Outstanding expenses 
Prepayments 
Work in progress 
Closing stock 
Bad and doubtful stock
Depreciation and revaluation 
Disposing of assets
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20
Q

Outstanding expenses

A

Expense in profit and loss account

Current liability in balance sheet under accruals

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21
Q

Prepayments

A

Current asset in balance sheet called prepayment

Reduce value of expenses paid in profit and loss account

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22
Q

Work in progress

A

Asset on balance sheet

Income called profit costs on profit and loss

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23
Q

Closing stock

A

Asset on balance sheet

24
Q

Bad and doubtful debts

A

Debtors are current asset on balance sheet
Bad debts - expenses on profit and loss and deduct from debtors asset figure on balance sheet
Doubtful debts- expense on profit and loss and subtract from debtors asset figure on balance sheet

25
Depreciation
Expense in profit and loss account | Depreciation is determined as a percentage of the value of the asset
26
Showing disposal of asset in accounts
If sold for cash total assets don’t change but balance sheet does Fixed assets figure is reduced and cash figure increases If sold for more than amount recorded in accounts as its value (book value) this is shown in profit and loss account as profit If sells for less than book value it is recorded in profit and loss account as reduction in net profit
27
How is the introduction of money to a business recorded in the accounts
Unincorporated business - capital account for each contributor Companies - share capital account ( for all S, not one each) premium in share premium account
28
What is the capital employed section of a balance sheet called for companies
Capital and reserves Financed by Or Equity If there are different types of shares these are show separately on balance sheet
29
How is buy back of shares shown in accounts
Issued share capital is reduced by the nominal amount
30
When an S sells shares to third party how is this shown in accounts
It is not shown in final accounts
31
How are dividends show in accounts
Not included in profit and loss account but once paid cash figure is reduced
32
What is the profit and loss reserve made of
Balance of net profits after tax and dividends These are retained profits These don’t form part of capital of company so can be distributed as dividends
33
How is tax shown in accounts
Unincorporated - not shown because it is is the P or ST that pay tax Company- CT is shown in company account Profit and loss account shows profits before and after tax Tax due is current liability on balance sheet When tax is paid it disappears from current liabilities and cash decreases in current assets section
34
How is Ds salary shown in accounts
Expense in profit and loss account
35
What do reserves show
What company owes to S | Would be paid to S if company wound up
36
Can reserves be distributed
Capital reserves cannot be distributed but revenue reserves can be
37
What kind of reserve is a profit and loss reserve
A revenue reserve
38
What does profit and loss reserve consist of
Company profits after tax and after payment of dividends
39
If parent company in group produces balance sheet and profit and loss account for group do individual companies still need to produce their own
Yes
40
How is net profit shown if a P leaves or joins part way through an accounting period
It is apportioned between the period before and the period after the change 2 appropriation accounts are prepared 1st shows allocation of profits earned before the change and 2nd shows allocation of profits after change
41
What are Ps owed
Net profits If only 1 then credited directly to capital account If several Ps they have separate current accounts for each P to which the appropriation of net profit (incl salary and interest) is added and from which drawings are deducted
42
How are Ps accounts shown on balance sheet
Capital and current account balances of each P are shown separately on Balance sheet in capital employed section
43
What do separate Ps records show
How much capital P contributed, how much profit is owed to each P and how much they withdrew that year
44
What does Ps capital account show
Ps have one each | It shows the amount contributed by each P
45
How are Ps salary and interest on their contributions logged in the accounts
Everything P receives is logged as profit even if they consider it salary or interest Appropriation account shows how net protons is divided between Ps ( for LLP and general partnership)
46
What is a medium sized company
Balance sheet total no more than £18m Turnover not more than £36m No more than 250 employees
47
CA 2006 accounting requirements
Companies must keep adequate accounting records and prepare accounts for every financial year Must also have accounts audited
48
Which companies are exempt from having the accounts audited
Small and dormant companies are exempt but S holding 10% or more of the nominal issued share capital may require an audit
49
What is the employment of capital section called on a company balance sheet
Assets
50
What are current and long term liability called on company balance sheet
Amounts falling due within 1 year | Amounts falling due within more than 1 year
51
What must D ensure before approving accounts
That they provide a true and fair view of assets and liabilities
52
Where do companies file their annual accounts
With registrar of companies
53
what are the sections on a company’s profit and loss account
Income Expenses Profit generated by trading/ operating activity from other items such as finance costs Items are grouped into categories such as administration expenses CT liability shown at end of profit and loss account
54
What are the choices of format (company accounts)
Must prepare either companies act individual accounts or international standard individual accounts complying with IFRS or FRS102 Both need profit and loss acc and balance sheet IFRS and FRS 102 need additional reports and accounts
55
Who must receive a copy of the annual accounts and reports each financial year
S Debenture holders Anyone entitled to receive notice of GMs

BLP (22 decks)

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