Chapter 24 Flashcards
What is an account?
Financial record of a firms transactions
Who are accountants?
Accountants are qualified people who have the responsibility of keeping accurate accounts of the business, and producing the final accounts.
What are final accounts?
Final accounts are produced at the end of each year, providing information on the profits and losses faced by company that year, and how much the business is worth.
Why is profit important?
Reward for risk taking: in a company, managers, and investors take risks to provide capital for the company, thus profit is a reward and allows payments to be made (dividends).
Source of finance (retained profits)
Indicates success
What is an income statement?
A business account that records cash inflows and the outflows used to generate income over a year. This shows if the business is making a profit.
Why would an income statement be used?
To compare the profitability of the company in previous years, and to compare with competitors to see if it has higher profits. Important indecision making as if a business is deciding to relocate, a forecast (predicted) income statement in both locations and compare.
What is revenue?
Revenue is the income of a business from the sale of goods over a period of time.
What is cost of sales?
Cost of producing the goods that are sold by the business over a period of time. Neglecting fixed costs.
Gross profit?
Profit that is remaining after subtracting cast of sales from revenue. This is before reducting fixed costs.
What is a trading account?
A trading account shows how a business calculates their gross profit.
What it net profit?
This the profit after all profits are subtracted from revenue, including fixed costs.
