btec business Flashcards
Give 5 purposes of accounting
Control
Compliance
Management of the business
Recording transaction
Measuring performance
What is meant by accounting control?
Control the flow of money in and out of a business
Spotting unusual activity to prevent fraud
Helps ensure business can meet day to day expenses
What are trade payables?
Money the business owes from supplies purchased but not yet paid for
What do accounts tell you?
How a business is performing
Who may want to look at a company’s accounts?
Owner, employee, new investor accounts?
What is a financial transaction?
Actions by a business that involve money either going into or out of a business
What is involved in recording financial
transactions?
Records should be accurate and up to date.Failure to do this may result in the
business not being paid what it is owed or
pay what it owes. Which would cause them to be in trouble with the
HMRC.
How does accounting aid the management of a business?
Able to make informed decisions and plans for the future
Help ensure they have sufficient funds to
pay bills
Explain what is meant by compliance
All businesses have a responsibility to comply with financial reporting requirements in accordance with laws and
regulation
Explain what is meant by measuring performance
Accounts are needed to know if a business is making a profit or a loss
What are the key indicators of financial
performance?
Gross profit, Sales Revenue, Net Profit,
Value owed to the business and value
owed by the business
What is meant by profit?
Surplus achieved when total revenue from sales is higher that the total costs
What is meant by loss?
Shortfall suffered when total revenue is lower than the total costs
What is meant by Gross profit
Sales revenue – costs of goods sold
(the costs of the actual materials used to
produce the quantity of goods sold)
What is meant by Sales revenue?
Quantity sold X selling price
What is meant by Net profit?
Gross profit - expenses
What are the two types of income?
Capital and Revenue
What is meant by capital income?
Money invested by the owners or other investors that is used to set up a business or buy additional equipment (fixed assets)
Stays in the business for a long period of time
Identify sources of capital income
Loans, Mortgages, Shares, Owners Capital,
Debentures
What is a fixed asset?
Items of value owned by a business that
are likely to stay in the business for more
than one year (non-current assets)
What is meant by an asset?
Any item if value owned by an individual
or business
What is meant by revenue income?
Money that comes into the business from
performing its day to day function
(selling goods or providing a service)
Identify sources of revenue income
Sales, rent received, commission received,
Interest received, Discount received
What is meant by discount received?
When a business is given a % off a sale,
usually for quick payment or a bulk order
What is meant by expenditure?
Money spent by a business
What are the two types of expenditure?
Capital expenditure
Revenue expenditure
What is capital expenditure?
Used to buy capital items which are assets
Stay in the business for a long time
They are non-current assets and intangible
assets
What are capital items?
Assets bought from capital expenditure
such as machinery and vehicles
Stay in the business for more than a year
What are non-current assets and where do
they appear?
Items owned by the business
Stay in the business for more than a year
Shown on the Statement of Financial
Position
e.g. land, machinery, equipment, vehicles
and fixtures and fittings
Fixed assets / Non-current assets lose value over time, what is this known as?
Depreciation
There are 2 type of capital expenditure
identify them and give example for each
one
Non-current assets: vehicles
Intangible assets : trademarks
Explain what is meant by intangible assets
Nonphysical items that cannot be touched
but add value to the business for example brand name
Identify four common intangible assets
Goodwill
Patents
Trademarks
Brand Name
What is meant by Goodwill?
When someone buys a business its name
and reputation is already established.
They will have a customer base
This increases the value of the business
and therefore the selling price of the
business
What is a patent?
Legal protection of a invention
Unique features of a product or new
process
Stops others from copying the idea
Business can charge a higher price
What are trademarks?
Symbol, logo, brand name, words or even
colours
Set apart a business’s goods or service
Key influence on consumer choice and
loyalty
What is meant by brand name?
Feature recognised by customers
Distinguishes them from competitors
Promise of what to expect
What is meant revenue expenditure?
Spending on items on a day to day or
regular basis
Shown on the profit and loss account /
statement of comprehensive income
Identify 12 examples of revenue
expenditure
Inventory
Rent
Rates
Salaries
Wages
Marketing
Bank charges
Heating and lighting
Water
Insurance
Administration
Interest paid
Depreciation
Identify 2 methods of how to calculate
depreciation
Straight line method
Reducing balance method
What is meant by fraud
When individual acquires company money
for personal gain through illegal actions
What is the HMRC?
Her Majestys Revenue and Customer
British government department
responsible for the collection for all taxes
