Accounts Flashcards
2 meanings of accounts
Day to day record of business transactions
And
Accounting year end summary
What does the profit and loss account tell us
How profitable the business is through calculation income - expenditure = profit
How is the profit and loss account set out
All income grouped together followed by all the expenses
What do brackets show
A minus figure or figure to be deducted
What are the columns on a profit and loss account
On trial balance it is CR and DR
But otherwise the left is workings and right is main figures
Which account gives the best indicator if business can pay its debts
Balance sheet
What does trading account show
Gross profit by income from sales- cost of sale (cost of buying stock)
Where is the gross profit from trading account transferred to
Profit and loss account
Which businesses have trading accounts
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
What does balance sheet show
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
What must balance sheet be headed with
The date of preparation
What are the two parts of the balance sheet
1 assets - liabilities owed to third party (employment of capital)
2 amount owed to propitiator as capital ( capital employed)
How is balance sheet set out
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
What are the three figures shown in the capital employed section of the balance sheet
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
What are net current assets and what does it show
Current assets - current liabilities
Shows business liquidity
What are net assets
What does it show
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
What does drawing accounts show
Money withdrawn by owners across the year
What does capital employed section show
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
Adjustments for final accounts
Outstanding expenses Prepayments Work in progress Closing stock Bad and doubtful stock Depreciation and revaluation Disposing of assets
Outstanding expenses
Expense in profit and loss account
Current liability in balance sheet under accruals
Prepayments
Current asset in balance sheet called prepayment
Reduce value of expenses paid in profit and loss account
Work in progress
Asset on balance sheet
Income called profit costs on profit and loss
Closing stock
Asset on balance sheet
Bad and doubtful debts
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
Depreciation
Expense in profit and loss account
Depreciation is determined as a percentage of the value of the asset
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
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
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
How is buy back of shares shown in accounts
Issued share capital is reduced by the nominal amount
When an S sells shares to third party how is this shown in accounts
It is not shown in final accounts
How are dividends show in accounts
Not included in profit and loss account but once paid cash figure is reduced
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
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
How is Ds salary shown in accounts
Expense in profit and loss account
What do reserves show
What company owes to S
Would be paid to S if company wound up
Can reserves be distributed
Capital reserves cannot be distributed but revenue reserves can be
What kind of reserve is a profit and loss reserve
A revenue reserve
What does profit and loss reserve consist of
Company profits after tax and after payment of dividends
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
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
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
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
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
What does Ps capital account show
Ps have one each
It shows the amount contributed by each P
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)
What is a medium sized company
Balance sheet total no more than £18m
Turnover not more than £36m
No more than 250 employees
CA 2006 accounting requirements
Companies must keep adequate accounting records and prepare accounts for every financial year
Must also have accounts audited
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
What is the employment of capital section called on a company balance sheet
Assets
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
What must D ensure before approving accounts
That they provide a true and fair view of assets and liabilities
Where do companies file their annual accounts
With registrar of companies
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
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
Who must receive a copy of the annual accounts and reports each financial year
S
Debenture holders
Anyone entitled to receive notice of GMs
