financial records for sole traders

Question 1

what are financial records and their purpose?

Answer 1

financial records outlines the financial activities of a business. their purpose is to provide information about the financial position of a business/enterprise.

Question 2

what are financial statements?

Answer 2

financial statements are records that show the business activities and financial performance of a business. at the end of the accounting period, businesses keep bookkeeping records to prepare some of its financial statements. these are audited(officially inspected) by government agencies, accountants,firms, etc, to ensure accuracy, tax purposes etc.

Question 3

what are the types of financial statements?

Answer 3

1. statement of cash flow/cash flow statement
2. income statement(profit and loss)
3. statement of financial position(balance sheet)

Question 4

what is cash flow?

Answer 4

cash flow is the movement or flow of money in and out of your business. if a business has a positive cash flow, it has more money coming in than what is being spent. if it has a negative cash flow, it has more money going out than coming in.

Question 5

what are some obligations a business must meet and consider when making a cash flow forecast?

Answer 5

1. suppliers need payment for goods purchased
2. landlords need rent for use of premises
3. workers hired need to be paid.
4. expenses incurred by the business- electricity,water,stock of goods,raw materials and other reoccurring expenses, along with other unplanned expenses

Question 6

what is a cash flow forecast?

Answer 6

a cash flow forecast shows a month by month or week by week breakdown of the cash that is expected to be received and paid out for a project over a time period.

Question 7

what is a cash flow statement?

Answer 7

a cash flow statement is a statement of cash receipts and payments over a given period. it will indicate if the business has enough money to carry out its transactions or even to expand.

Question 8

what is bookkeeping?

Answer 8

bookkeeping is the process of recording financial transactions making it well organized for reference and preparation of financial statements.

Question 9

what is accounting?

Answer 9

accounting is the process of systematically recording, measuring and communicating information about financial transactions.

Question 10

what is the difference between accounting and bookkeeping?

Answer 10

once the bookkeeper has entered all the information in the accounting system, the accountant can now access the information to create reports and carry out other accounting tasks.

Question 11

what are the bookkeeping tasks?

Answer 11

• preparing and sending out invoices
• monitoring and recording invoices
  recording, processing and paying invoices from suppliers
• recording payments from customers
  -monitoring late payment and sending out payment reminders
• processing petty cash transactions
  -processing payroll
  -categorizing credit card and other daily expenses

Question 12

what are the accounting tasks?

Answer 12

-tax preparations
-loan application
-report analysis
-provision of consultation
-preparing company financial statements

Question 13

what are the types of bookkeeping systems?

Answer 13

single-entry bookkeeping
double-entry bookkeeping

Question 14

what is single entry bookkeeping?

Answer 14

single-entry bookkeeping is a system of recording information in which transactions are recorded ONLY ONCE.

Question 15

what is double entry bookkeeping?

Answer 15

double-entry bookkeeping is a system of recording information in which transactions are recorded TWICE; each transaction is entered in two accounts. one entry shows what the business has received and the other shows what leaves (what has been parted with).

Question 16

what is an account?

Answer 16

an account is a record in the general ledger that documents debit and credit entries of accounting transactions and is evidence of the transactions’ existence.

Question 17

what is an income statement (profit and loss)?

Answer 17

it is a financial statement that is used to calculate and monitor the profit and loss made by the business. the purpose of the income statement is to show how well a business has been controlling its costs and to calculate, report and monitor revenues, costs and profits of a business.

Question 18

what is gross profit?

Answer 18

gross profit is the profit made after taking out all expenses directly related to the making and selling of a businesses’ goods or services from total revenue.

Question 19

what is net profit?

Answer 19

this is the profit made after taking out working expenses (indirect expenses) from gross profit.

Question 20

what is a balance sheet (statement of financial position)?

Answer 20

a balance sheet is a financial statement that provides an overview of the assets, liabilities and capital in a business, at a particular point in time. it shows the balance of income and expenditure over a particular period.