Business Accounts Flashcards
List the two main financial statements prepared at the end of an accounting period.
The two main financial statements are the profit and loss account and the balance sheet.
What is the relationship between a business and its owner regarding capital contributions?
A business is treated as a separate entity from its owner, meaning that if an owner contributes capital, the business ‘owes’ that capital back to the owner.
Define ‘nominal ledger’ in the context of book-keeping.
A nominal ledger is a record where transactions of a similar type, such as payments for rent and electricity bills, are grouped together.
How does book-keeping contribute to financial management in a business?
Book-keeping contributes to financial management by providing a clear record of all transactions, which aids in budgeting, forecasting, and financial analysis.
How does a purchase of an asset affect the accounts in double entry book-keeping?
When a sole trader purchases an asset for £5,000, there is a £5,000 reduction in cash and a £5,000 increase in assets.
What must be true about the sum of debits and credits in double entry book-keeping?
The sum of all debits must equal the sum of all credits over the relevant accounting period.
Describe the business structure of Mr X.
Mr X operates as a sole trader running the business of XYZ Trading.
Define a trial balance.
A trial balance is a list of all the balances on a business’s ledgers/accounts at the end of an accounting period, showing debit balances in one column and credit balances in another.
Explain the relationship between a trial balance and financial statements.
A trial balance forms the basis of information from which financial statements, such as the profit and loss account and balance sheet, are compiled.
What are payables in a trial balance.
Payables represent the amounts owed by the company to creditors, indicating the company’s short-term liabilities.
What role do receivables play in a trial balance?
Receivables indicate the amounts owed to the company by customers, reflecting the company’s assets.
Identify the types of revenue included in a trial balance.
Revenue in a trial balance typically includes sales income, service income, and any other income generated by the business.
Explain the significance of the provision for doubtful debts in a trial balance.
The provision for doubtful debts accounts for potential losses from uncollectible receivables, impacting the net asset value.
Describe the relationship between purchases and inventory in a trial balance.
Purchases increase inventory levels, and the cost of goods sold is reflected in the expenses, impacting the overall profitability.
Identify the five types of accounts represented in a trial balance.
The five types of accounts are asset, liability, capital, income, and expense (ALCIE).
Describe the importance of the ALCIE classification in financial statements.
The ALCIE classification is important as it helps in categorizing different types of accounts, which is essential for preparing accurate financial statements like balance sheets.
What is a balance sheet.
A balance sheet is a financial statement that summarizes a business’s assets, liabilities, and equity at a specific point in time.
What is in a balance sheet extract.
A balance sheet extract typically includes fixed assets, current assets, current liabilities, long-term liabilities, and net assets.
Define net book value in the context of a balance sheet.
Net book value is the value of an asset after accounting for accumulated depreciation.
What are current assets in a balance sheet.
Current assets represent the assets that are expected to be converted into cash or used up within one year, indicating liquidity.
What are long-term liabilities in a balance sheet.
Long-term liabilities are obligations that are due beyond one year, impacting the company’s financial stability and leverage.
Discuss the importance of cash at bank in current assets.
Cash at bank is crucial as it represents liquid assets available for immediate use, impacting a company’s liquidity and operational flexibility.
How long must a company hold a fixed asset for it to be classified as such?
A company must hold a fixed asset for over a year for it to be classified as a fixed asset.
What are fixed assets also known as?
Fixed assets may also be called ‘non-current assets’.