Business Accounts Flashcards
What is the trial balance?
Records moey in and out on the basis of bank statements
What is the ALCIE classification?
Asset - currentor non-current
Liability - current or non-current
Capital - injection from owner or investor
Income
Expense
What is a Profit and Loss Account?
Records income minus expenses to arrive at a profit or loss figure for the period.
Never deals with capital
What does a Profit and Loss Account summarize?
Summary of fortunes over a passage of time.
Where is the income shown on the P+L sheet?
At the top
How do you calculate cost of sales?
(opening stock + purchase + expenses) - closing stock
How does the P+L account relate to the balance sheet?
The Net profit (gross profit - all expenses) goes to the bottom of the balance sheet.
via the statement of changes in equity if it is a company
What does a Balance Sheet contain?
A Balance Sheet contains asset, liability, and capital accounts.
What is represented in the top half of a Balance Sheet?
The top half represents net worth or net asset value.
How is net worth calculated?
Net worth is calculated as the value of assets minus the liabilities owed.
What is net book value?
Net book value takes into account depreciation over time.
What is represented in the bottom half of a Balance Sheet?
The bottom half represents the capital invested to achieve that net worth.
What is a key principle of a Balance Sheet?
The two halves of the balance sheet must always balance.
What is depreciation?
A mechanism used in the accounts to deal with the decline in value and to spread the cost of the asset over its useful life.
What is the straight line method of depreciation?
It spreads the depreciation charge evenly over the life of an asset.
What is the reducing balance method of depreciation?
Expressed as a percentage of the reducing balance, it depreciates more in the early years.
How is net book value calculated?
Cost - Accumulated depreciation = Net book value.
What are accruals?
Payments the business will make in arrear (the next year) for services already obtained.
How are accruals shown in financial statements?
Shown as an expense in the P&L account and a current liability in the balance sheet.
What are pre-payments?
Payments that have been paid for already but not received the benefit.
How are pre-payments shown in financial statements?
Shown as an expense in the P&L account and included as a current asset in the balance sheet.
What are bad debts?
When a business knows with certainty that it is never going to receive it.
How are bad debts treated in financial statements?
P+L - add as an expense to the bad and doubtful debts entry
BS - deduc tht ebad debt from the receivables asset entry and record the bad debt as a liability
What are doubtful debts?
When a business is providing for the possibility that a debt might not be paid.
