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.
HMRC What is it and what does it stand for?
HMRC stands for Her Majesty’s Royal Revenue And Customs
It is a British government department responsible for the collecting taxes.
Fraud
when an individual acquires company money for personal gain, through illegal actions.
Profit
Difference between money from sales and the costs
Loss
When More Money is spent then there actually is
What Is The Gross profit Formula?
Total revenue - cost of goods sold
Total Revenue Is Also Known as Sales Revenue
Total revenue Formula? or Sales Revenue Formula?
amount sold x selling price.
Net profit Formula?
gross profit - other expenses
e.g. rent and advertising.
Trade receivables
Credit customers who owe money to the business
buy now pay later – in 30 days usually
Trade payables
Suppliers who the business owe money to
eg. raw materials or stock not requiring immediate payment
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.
Depreciation
an accounting technique used to spread the cost of an asset over its useful life.
Why Do We Record Statements?
Accountants keep a record of all money coming in and going out of the business.
They can keep a track of payment received from customers and payments due to suppliers and other bills.
Without proper records, the final accounts for the year will be inaccurate and the tax calculation wrong.
What are the 3 purposes of accounting?
- Recording Transactions
- Management Of The Business
- Compliance
What Are Financial Transactions?
Financial Transactions are where money goes either in or out of the business
What Are Costs?
Anything that the business has to spend money on, spending too much on assets or expenses
Why do you need to be efficient in collecting money from customers?
So that your balance sheet is balanced!
What will accounting Control?
it will control the money flowing in and out of the business by keeping its records up to date, unusual activity will be spotted and investigated to prevent fraud.
Money owed by customers will be…
chased up and controlled
Money owed to suppliers will be…
watched carefully to make sure that debt does not mount up
What Is Sales Revenue Or Total Revenue
Money received from sales
Name Some Expenses…
rent, electricity, salaries, running costs
What is Tax?
Money paid to the government based on a % profits
What is COGS or cost of goods sold?
Cost of raw materials and making the product/service
What is capital income?
It is a long term investment invested by owners (or investors) as well as money borrowed to set up the business.
What is capital income used to buy
used to buy long term assets (machinery, equipment vehicles etc)
5 Sources of finance for capital income?
- Loan - a a lump sum of money borrowed from a bank (or investor). It is repaid with interest over many years. It is usually secured against the assets of the business
- Mortgage - It is a long term loan usually secured against a property or house for more than 25 years interest is variable and the property can be repossessed if cannot meet repayments.
- Shares - money from individuals who buy shares issued by the business.
- Owners Capital - Personal money of the owners is invested in the business
- Debentures - Contracts given out by big business to large investors who then lend it to business in return for monthly interest repayments
CAPITAL IS EARNT REVENUE IS SPENT!
CAPITAL IS EARNT REVENUE IS SPENT!
Revenue Income What Is It?
Revenue Income is money coming into the business from its day to day activities like selling goods
What is Cash Sales?
Cash Sales are when the customer pays straight away either cash or CARD!
What are Credit Sales?
Credit Sales is when the business permits the customer to repay the business within a certain time period i.e 30 days usually
OR buys now and pays later
4 Sources of Revenue Income?
- Rent Received
- Commission Received
- Interest Received
- Discount Received
What Is capital Expenditure?
Capital Expenditure is money spent on acquiring long term assets usually kept in the business for more than 1yr like machinery and properties.
What is Revenue Expenditure?
Revenue Expenditure is money spent on day to day basis like running costs like wages, rent and stock.
What is Tangible Assets?
Assets that can be touched like machinery or property
What is Intangible Assets?
Assets that cannot be touched like goodwill or patents or brand name
What Are Non Current Assets?
Non Current Assets are kept in the business for more than one year
What are Current Assets?
Assets that are expected to be turned into cash in 1yr
name some tangible capital expenditure assets?
- Buying Land and Buildings and Machinery
Name the 4 INTANGIBLE capital expenditure assets?
- Goodwill -the name and reputation of the business and its loyal customer base
- Patents - An idea that is copyrighted and so cannot be copied.
- Trademarks - symbols, logos, words, colours that make the business recognisable and create customer loyalty
- Brand Name - recognised by customers and associated with expectations of quality or values
Which Financial Document does Long Term Assets appear on?
SOHP - Statement Of Financial Postion
Name the 14 Types of Revenue Expenditure
- Stock
- Rent
- Rates
- Heating & Lighting
- Water
- Insurance
- Administration Expenses
- Salaries
- Wages
- Marketing Costs
- Bank Charges
- Interest Paid
- Depreciation
- Discount Allowed
