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Accounting > Equity and loans > Flashcards

Equity and loans Flashcards

1
Q

What are the 2 ways a company can raise finance?

A

equity and debt

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2
Q

What is equity?

A

shareholders invest money into the business

therefore own shares

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3
Q

What rights do shareholders have?

A

No right to money back

Dividend if the company makes a profit

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4
Q

What is debt?

A

Borrowing money from lenders

Lenders lend money

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5
Q

What rights do lenders have?

A

Legal right to money back

Can receive interest

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6
Q

Does a company have a legal obligation to pay back lenders?

A

Yes

Therefore has a liability

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7
Q

Does a company have a legal obligation to pay back investors?

A

No

therefore no liability

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8
Q

What is the double entry for a loan?

A

Credit - liability
Debit - cash

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9
Q

What is the double entry for loan interest repayment due?

A

Credit - payable
Debit - P&L (finance costs)

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10
Q

What is the double entry for loan interest repayment paid?

A

Credit - cash
Debit - payable

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11
Q

What is the double entry for when the loan is paid off entirely?

A

Credit - cash
Debit - loan

both for the full amount

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12
Q

What is the double entry for when investors buy new shares?

A

Credit - equity (share capital)
Debit - cash

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13
Q

What is the double entry for purchase of premium shares?

A

Credit - share capital
Credit - share premium
Debit - cash

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14
Q

When does a credit need to be allocated to the share premium account?

A

When shares are sold above nominal value

Allocated the value above nominal value

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15
Q

What is the double entry for a bonus issue of shares?

A

Credit - share capital
Debit - share premium

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16
Q

What is the credit every time new shares are issued?

A

share capital

17
Q

What is the double entry if shares issued exceeds share premium?

A

Credit - share capital
Debit - entire share premium
Debit - Retained earnings

18
Q

What is the double entry for a dividend made?

A

Credit - cash
Debit - retained earnings

19
Q

How are redeemable shares viewed?

A

As a debt

20
Q

How are preference shares with a fixed dividend viewed?

A

As a debt

21
Q

What are 2 immediate effects of changing to the break up basis?

A

Assets transferred from non-current to current

Assets valued at resale value

22
Q

Where should depreciation of delivery vehicles be in the P&L?

A

Distro costs

23
Q
A

Accounting (14 decks)

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