C Understand the purpose of accounting Flashcards
Financial transactions
actions by a business that involve money either going into or out of a business – e.g. making a sale or paying a bill.
HM Revenue and Customs (HMRC)
HM is the abbreviation for Her Majesty’s and the HMRC is a British government department responsible for the collection of all types of taxes.
Fraud
when an individual acquires company money for personal gain, through illegal actions.
Profit
surplus achieved when total revenue (income) from sales is higher than the total costs of a business.
Loss
shortfall suffered when total revenue from sales is lower than the total costs of a business.
Gross profit –
sales revenue minus cost of goods sold (the cost of the actual materials used to produce the quantity of goods sold).
Sales revenue
quantity sold multiplied by the selling price.
Net profit
gross profit minus other expenses, e.g. rent and advertising.
Trade receivables
money owed to the business from sales made but not yet paid
Trade payables
money the business owes from supplies purchased but not yet
Fixed assets
items of value owned by a business that are likely to stay for more than one year – e.g. machinery.
Asset
any item of value owned by an individual or firm.
Commission
is a fee paid to a salesperson in exchange for services in facilitating or completing a sales transaction. Commission could be a flat fee or a percentage of the revenue, gross margin or profit generated by a sale. It could also be charged by brokers to assist in the sale of security, properties, etc.
Capital items
assets bought from capital expenditure such as machinery and vehicles that will stay in the business for more than a year.
Statement of financial situation
a financial document that shows the net worth of a business by balancing its assets against its liabilities. It is often called a balance sheet.
