Business Accounts A&Q

Question 1

What are the financial statements prepared in respect of each accounting period?

Answer 1

1. A profit and loss account and
2. A balance sheet

Question 2

When are financial statements prepared?

Answer 2

in respect of each accounting period of a business

Question 3

How long is an accounting period?

Answer 3

Usually a full year.

*Every business is free to choose its own accounting period

Question 4

What is book-keeping?

Answer 4

The process by which businesses record money transaction

Question 5

What is double entry book-keeping?

Answer 5

The principle of this system of book-keeping is that every money transaction that business undertakes will have a dual effect in its account. One aspect will be recorded as a ‘debit’ entry and other as a ‘credit’ entry.

Question 6

What is trial balance?

Answer 6

A list of all the balances on all of a business’s ledger/accounts as at the end of an counting.

The trial balance shows debit balances in one column and credit balances in another column. The total of each of the two columns should be the same (and thus balance).

Question 7

What is the purpose of a trial balance?

Answer 7

Forms the basis of information from which the financial statements, principally the profit and loss account and balance sheet are then complied.

Question 8

What are the different the different characterisation of account?

Answer 8

ALICE:

Asset

Liability

Capital

Income

Expense

Question 9

What is an asset account?

Answer 9

Something a business owns.

A business will have a separate account for each category of asset (e.g loans, trade, debts)

Question 10

What is a liability account?

Answer 10

Something a business owes.

A business will have an account for each liability (e.g loan, trade, debts)

Question 11

What is a capital account?

Answer 11

Usually identifiable as an injection of value from an owner or investor rather than money generated by the business.

Question 12

What is a income account?

Answer 12

Money earned by the business, usually from a regular source.

Each main income source of the business will have a separate account.

Question 13

What is a expense account?

Answer 13

Money spent by the business. Each different type of expense is recorded in a separate account

Question 14

What is a fixed assets?

Answer 14

Any asset, tangible (such as a building) or intangible (such as a trade mark), owned by a business that will enable it to make profit.

*IT MUST BE HELD BY THE COMPANY FOR OVER A YEAR & PROVIDE SOME LONG-LASTING BENEFIT TO THE COMPANY.

Question 15

What is a tangible fixed asset?

Answer 15

A physical asset

Question 16

What is an intangible fixed asset?

Answer 16

Does not have a physical existence, for example, a trade mark, patent or goodwill

Question 17

How long does a asset must be held by a company to constitute as a fixed asset?

Answer 17

Over a year

Question 18

What is current assets?

Answer 18

Cash and items owned by the business (or owed to the business) which can quickly be turned into cash (as a rule of thumb, within one year)

Question 19

What are the elements of a current asset?

Answer 19

Asset owned (or owed) to the business

that are continually flowing through the business

and

have a short-term nature

Question 20

What is the elements of a fixed asset?

Answer 20

any asset (tangible and intangible)

owed by a business

for over a year

providing some long-lasting benefit to the company.

Question 21

What are the two types of assets?

Answer 21

1. Current asset
2. Fixed asset

Question 22

What are the two types of liability?

Answer 22

1. Current liabilities
2. Non-current liabilities

Question 23

What are current liability ?

Answer 23

Broadly those due to be paid within a year

Question 24

What are non-current liability?

Answer 24

Broadly those due after one year.

Question 25

What should happen before the trail balance can be used to prepare the financial statements?

Answer 25

A year-end adjustments will need to be made to some of the figures to ensure they are accurate for the relevant account.

Question 26

What is a profit and loss account?

Answer 26

Records the income of a business throughout an accounting period

minus

Expenses incurred in that period,

=
to arrive at a profit (or a loss) figure for the period.

(income - expense = profit/loss for the period)

Question 27

What is the general rule for profit and loss account ?

Answer 27

Only the income and expenses entries from the trial balance are transferred into the profit and loss account

Question 28

Where is the income entries are formatted the profit and loss account?

Answer 28

All income entries from the trial balance are put at the top of the profit and loss account.

Question 29

What does the heading of a profit and loss account include?

Answer 29

The accounting period to which the profit and loss account relates to.

Question 30

How do you calculate the gross profit?

Answer 30

Total income - cost of sales

Question 31

How to calculate the net profit?

Answer 31

Gross profit - Total expenses

Question 32

Where is the net profit located in the profit and loss account?

Answer 32

At the end

Question 33

How do you calculate the Cost of sales?

Answer 33

Opening stock + Purchases -Less Closing Stock

Question 34

Does cash at bank appear in a profit and loss account? and where?

Answer 34

No, it is an asset account, so it is not included.

Question 35

Does sales appear in a profit and loss account? and where?

Answer 35

Yes, and it appears on top of the profit and loss account.

Question 36

Does postage appear in a profit and loss account? and where?

Answer 36

Yes, it is a business expense and appears in the expenses section of the profit and loss account.

Question 37

What is a balance sheet?

Answer 37

A balance sheet will record the position of a business in respect of its asset, liability and capital accounts from the trail balance.

Question 38

Can a profit and loss account on its own, constitute as a record of a business’s financial statement position?

Answer 38

No, as it only records 2 categories of account (income and expenses accounts)