Business accounts Flashcards
(20 cards)
What is a trial balance?
A trial balance is a list of all the balances on all of a business’s ledgers/accounts as at the end of an accounting period.
Define the ALCIE accounts:
Asset-something a business owns.
Liability-something a business owes.
Capital-usually identifiable as an injection of value from an owner or investor.
Income-money earned by the business.
Expense-money spent on overheads.
What is a fixed and current asset?
Fixed asset-any asset owned by a business that will enable it to make profit, held for over a year.
Current assets include cash and items owned by a business which can quickly be turned into cash within one year.
What is a current and long-term liability?
Current liability-amount owed by the business to somebody else, due to be paid within a year.
Long-term liability-amount owned by the business to somebody else, falling due after one year.
What does the contents of a balance sheet reveal?
Net worth or net asset value of the business-top half of balance sheet
Capital invested to achieve that net worth-bottom half of balance sheet.
What are year-end adjustments?
Transactions or modifications to the account entries on the trial balance.
What is the accruals/matching concept?
This concept requires that:
-all income and expenditure must be matched to the relevant accounting period; and
-all current obligations must be anticipated as liabilities and all asset values must be assessed to make sure they can be recovered through future profits in conditions of uncertainty
What is depreciation?
Depreciation is a mechanism used in the accounts to deal with the decline in value of a fixed asset over several years, in order to spread the cost of the asset over its useful life.
Outline the straight-line method of depreciation and when it is used.
An asset such as shelving will use the straight-line method because the asset is being used up consistently over its lifespan and generating a consistent amount of income.
-spreads the depreciation charge evenly over the lie of the asset; and
-gives rise to the same charge for depreciation each year
This asset is used where the service provided by the asset continues through its useful economic life on a consistent basis.
Outline the reducing balance method of depreciation and when it is used.
An asset such as a van, will produce much more revenue for the business in its earlier years of use and will tend to lose a large part of its value at this time hence the reducing balance method will be more relevant.
-the depreciation charge each year is expressed as a percentage of the reducing balance (ie the net value of the asset at the start of the relevant accounting period)
-more depreciation is thus charged in earlier years than in later years as the value of the asset reduces year on year
What is an accrual?
An accrual occurs when a business has had the benefit of something in one accounting period but will not pay for it until the next. Making an adjustment in this way complies with the accruals/matching concept.
What is a prepayment?
Prepayments occur when a business has paid for something in advance during one accounting period but does not get the benefit of all or some of what it has paid for until the next.
What is a bad debt?
A debt is a bad debt when a business knows with certainty that it is never going to receive it-for example, if the debtor has gone into an insolvency procedure.
What is a doubtful debt?
A doubtful debt occurs when a business is providing for the possibility that a debt or debts may not be paid.
When does a company’s accounting reference date fall?
Under s391(4) CA 2006, a company’s ARD is the last day of the month in which the anniversary of its incorporation falls.
When must a private company/public company file its accounts with Companies House?
Private company: must file accounts at CH within nine months after the end of the relevant accounting reference period.
Public company: must file accounts at CH within six months after the end of the relevant accounting reference period.
What is the share premium account?
This represents the difference between the nominal value of the shares and the amount that the shareholders actually paid for the shares e.g the subscription price (if greater).
What is a dividend?
Shareholders’ return on their investment is the dividend that they may receive. A dividend is an appropriation of profits (after tax).
Define the following:
-final dividend
-declared dividend
-interim dividend
Final dividend-declared after the year end and paid some time thereafter.
Declared dividend-approved by the shareholders, constitutes an enforceable debt.
Interim dividend-paid during, and in respect of, the current accounting period.
What is required for a company to issue a final dividend?
An ordinary resolution by the company’s shareholders.
