Chapter 6 Flashcards
Is the income statement and a profit loss account the same thing?
Yes
At law, when you are doing financial accounting what three things do you need to present
An income statement, a balance sheet and a cash flow
What basis is a cash flow done on?
On an actual basis
What basis is an income statement/ Profit loss account done
On an accrual basis
What does ‘on an accrual basis’ mean?
You account for money in even if you haven’t been paid it. You’ve invoiced it but may not have been paid it. if you have a bill that you still haven’t settled, it’s counted as money out and accrual.
A broker raises a new business premium on a 60 business credit date. Even though the insurer won’t receive the money for 60 days they will include the income under what basis
an accrual basis
What does ‘on an actual basis’ mean?
When you only count money when it actually goes out/ You only count money in when it actually comes in
What does the income statement/ profit loss account and cash flow show?
It enables you to see how well the company is trading/ how well the credit department is working
What is a balance sheet?
A snapshot of what the company owns (an asset), what it owes (a liability) and what is worth (equity)
What does it mean when it has to be a true and fair view on the balance sheet?
When you assess the the view of the value of the asset you must do it true and fairly.
How does a balance sheet ‘balance’
By balancing net assets with equity
What are net assets? (Important)
What you own minus what you owe. NOT TOTAL ASSETS!
What are assets?
What we own
What is a liability?
What we owe
How are assets split?
Into non- current assets (also known as fixed) and current assets
What are non-current (fixed assets)
Something that you keep for more than 12 months (buildings, computers, cars, machinery etc)
Can non- current assets be depreciated against tax?
Yes, when we purchase them we don’t take the entire amount against tax for one year. You do bit by bit over it’s life time
What is the depreciation formula of depreciating non current assets (important)
The asset value minus the residual value divided by the years it’s going to be kept
ASSET VALUE - RESIDUAL VALUE / YEARS IT’S GOING TO BE KEPT
Deprecation non current asset example: A car you buy for £20,000 Residual value: £4,000 Years you keep car: 4 What is the depreciation value?
Asset value (£20k) - residual value (£4k) / Years you are keeping it for (4)
Depreciation will be £4k per year.
What is a straight line depreciation?
The same as depreciating non current assets. Same amount is deducted every year. Doesn’t matter if first year or second year or third.
Brian buys a company car for £20,000. He is going to keep it for 4 years and in 4 years time the residual value is estimated to be £4,000 what depreciation will be in year two only?
£4,000.
Will always be the same figure. It is a straight line depreciation. This will ALWAYS be the case for every question on the exam. Will always be the same figure every year.
Are all non-current assets depreciated (go down in value each year)
Yes, unless they can’t lose value such as land.
What are the big three current assets? (IMPORTANT)
Stock, Cash (money in your bank account) and Debtors (debt- to you: people that owe you money)
If an exam asks you what stock, cash and debtors is are these non-current assets or current assets?
CURRENT ASSETS NEVER NON-CURRENT ASSETS