Business Accounts Flashcards
Definition of a ‘fixed asset’:
A fixed asset must be held by the company for over a year and provide some long-lasting benefit to the company.
Current assets:
Cash and items owned by the business/owner to the business which can quickly be turned into cash e.g. within one year.
Current liabilities vs. Long-term liabilities:
Current liabilities: broadly due to be paid within a year.
Long-term liabilities/non-current liabilities: due after one year.
Expenses:
Business pays for services/buys items that it won’t hold for a very long time.
e.g. buying bread = day to day living expense.
Profit & loss account - basic formula:
Income - expenses = net profit
Balance sheet vs. P&L account:
P&L account relates to a period (often a year); balance sheet relates to a snapshot relevant on a given date.
Balance sheet - tells the reader:
The net worth/net asset value of the business. The value of the assets minus liabilities.
The capital invested in the business.
These 2 figures must balance. The top half demonstrates how the money invested by the owners of the business has been used.
What are accruals?
Accruals are amounts of money that have been spent but not yet paid.
e.g. Ben Beauty Salon has used solicitors numerous times in the last year. The prelim. trial balance includes a balance of £27,000 in the legal fees account. At year end, BBS has not received a bill of costs for some recent work done - £5,000 worth.
£32,000 must be included in the legal fees expense account and shown in the P&L account.
The £5,000 owed must be included as an accrual current liability account and shown in the Balance Sheet.
What are accruals?
Accruals are amounts of money that have been spent but not yet paid.
e.g. Ben Beauty Salon has used solicitors numerous times in the last year. The prelim. trial balance includes a balance of £27,000 in the legal fees account. At year end, BBS has not received a bill of costs for some recent work done - £5,000 worth.
£32,000 must be included in the legal fees expense account and shown in the P&L account.
The £5,000 owed must be included as an accrual current liability account and shown in the Balance Sheet.
What are pre-payments?
Opposite of accrual. The business has paid for something in advance but does not get the benefit of all/some of what was paid for until the next year.
What is a bad debt?
A debt is a bad debt when a business knows with certainty it will never receive it - the bad debt needs to be written off. Removed from the Receivables entry in the accounts.
What is a doubtful debt?
Possibility that the debt/debts may not be paid.
Bad debts represent a cost to the business vs. Doubtful debts, which represent potential costs.
When must a private company file its accounts at CH?
A private company must file its accounts within 9 months after the end of the relevant accounting reference period.
When must a public company file its accounts at CH?
A public company must file its accounts at CH within 6 months after the end of the relevant accounting reverence period.
What is called up share capital?
The amount of the nominal value of the shares the company has required its shareholders to pay on each class of issued shares.
