Businesses and Business Accounts Flashcards
What is a profit and loss account?
Summarises the profit or losses made by the business over the accounting period.
What can a profit and loss account tell you about a business?
Profitability
How efficiently the business is turning income into gross profit.
What is the trading account?
Shows the income generated from selling stock minus the costs of sale.
Can be used to look at the efficiency of the business (sales compared to gross profit).
What is net profit?
Profit after expenses have been deducted.
What is gross profit?
Income generated from operating the business.
Sales less cost of sales.
What is a balance sheet?
Snapshot of the value of business on the last day of the accounting period.
Shows a summary of the assets, liabilities to give the capital.
What does a balance sheet show?
Solvency - If a business can pay its debts as they become due.
Liquidity - How quickly the business can turn current assets into cash to pay off its debts.
How can solvency be checked on a balance sheet?
Comparing the total net assets against the against the total capital employed.
How can liquidity be checked on a balance sheet?
Checking the “net current assets = Current assets minus current liabilities.
What is an asset?
Something that is of economic value to the business.
Can increase or decrease (depreciate in value)
What is a liability?
Financial obligation that has to be paid to another part.
Short term/current = within 12 months.
Long term = more than 12 months.
What are creditors?
Individuals or organisations to whom money is owed.
What are debtors?
Individuals or organisations to whom money is owed.
What is capital?
Assets minus liabilities.
