Elements of Costing CH1: Introduction to costing systems

Question 1

What are the three different types of businesses?

Answer 1

• Soletrader
• Partnership
• Limited Company

Question 2

Soletrader

Answer 2

Someone who trades under their own name.
One person owns and controls the business.
Owner contributes capital to the business.

Question 3

Partnership

Answer 3

Two or more people trading together.

Each partner contributes capital and takes drawings

Question 4

Limited Company

Answer 4

The owners are shareholders of the business. Business is often run by managers separate from the owners. Profits paid out in the form of dividends.

Question 5

What are the three types of industry

Answer 5

• Manufacturing
• Retail
• Service

Question 6

Manufacturing Industry

Answer 6

Makes goods to sell to other businesses.

Buys raw materials and employs people to make them goods.

Question 7

Retail Industry

Answer 7

Buys in ready-made goods to sell on to a customer.

Tends to buy finished goods and employ people to sell them.

Question 8

Service Industry

Answer 8

Provides a service

Doesn’t buy many physical goods but employs people to provide a service.

Question 9

What are the two types of expense?

Answer 9

• Capital Expense

- Revenue Expense

Question 10

Capital Expense

Answer 10

Expenditure resulting in the acquisition of non-current assets.
Not charged to the statement of profit or loss but written off over time as a depreciation charge.

Question 11

Revenue Expense

Answer 11

Incurred for the purpose of trade. Charged to the statement of profit or loss

Question 12

Management Accounting

Answer 12

Supplying information to managers for the purpose of planning, control and decision making.

Question 13

Factors of management accounting

Answer 13

• Distributed internally for use within business
• Management decide how to present them
• Help management in planning, control and decision making
• Looks at past data and estimates future data
• Not legally required to prepare them
• Include both financial and non-financial information
• Can include estimated figures

Question 14

Factors of Financial Accounts

Answer 14

• Used for external reporting to investors, lenders, suppliers and HMRC
• Requirement of company law and accounting standards for LTDs to prepare
• Look at past data only
• Usually include financial information only
• Detailed results for a defined period
• No estimates generally