Financial Statements Of A Business Flashcards
The ultimate aim of an accounting system for a business is to produce a set of financial statements at the end of the year although a full set of accounts for a business are very long and can contain many different pieces of information there are two main documents that they contain what are they?
The balance sheet and the statement of profit and loss
Complete the following sentence
The balance sheet of a business shows a ________ position of a business meaning the assets they own and the liabilities the business owes
The balance sheet of a business shows a financial position of a business meaning the assets they own and the liabilities the business owes
What are the three accounting equations in which assets liabilities and capital are used
Note however we choose to rearrange the equation it should always still balance
Assets - liabilities = capital (proprietors interest)
Assets = Capital (proprietors interest) + liabilities
Assets - capital = liabilities
Note whether the following statements are true or false
1) Assets plus liabilities are equal to capital
2) Capital less assets are equal to liabilities
3) Capital plus liabilities are equal to assets
1) false
2) false
3) true
Classify each of the following items as an asset or a liability
1) Machinery
2) Bank overdraft
3) money owing to suppliers
1) Asset
2) Liability
3) liability
Below is a mix of both assets and liabilities use these to figure out the total amounts for both assets liabilities and capital
Motor-vehicle is £53,230
Premises £98,300
Inventories £3954
Trade payables £12,568
Cash at bank £2944
Trade receivables £8400
Bank loan £63,000
Assets = £166828.00
Motor-vehicle is £53,230 Premises £98,300 Inventories £3954 Cash at bank £2944 Trade receivables £8400
Liabilities = £75568.00
Trade payables £12,568
Bank loan £63,000
Capital = £91260.00 (assets - liabilities = capital)
The statement of profit and loss shows the financial performance of a business it contains two types of items what are they?
Income such as sales to customers or bank interest received
Expenses such as purchased of stock rent or salaries
What are the three more common transactions that you will encounter?
Sales of goods and services
Making purchases and paying expenses
Payment into and out of the bank account
Transactions are often split between cash (those settled immediately) and credit (those settled at a later date) These transactions will generally have some form of source document that records and what are they?
Cash transactions (sales or purchases) will often be accompanied by receipt, a till roll, or even a cheque-book stub
Credit transactions will normally be accompanied by an invoice and invoice is a demand for payment at some point in the future (remember that credit transactions are not settled immediately) invoices will state the credit period given
The first step in the flow of information is to record transactions in the book of prime entry also known as BOPE
For each transaction undertaken by the business we have to decide which of our books of a prime entry it needs to be recorded in
Name each prime book of entry and the definition
Cashbook receipts
This will list all receipts into the bank account and would include check payments made by customers or proceeds of selling assets
Discounts allowed day book
Facebook list will prompt payment discounts that customers have taken advantage of
Cashbook payments
this lists all payments out of the bank account that would include BACS payroll runs and written checks to material suppliers or to the landlord for rent
Discount received day book
this will list all the prompt payment discounts that have been taken up from suppliers
Sales day book
All sales made on credit (sales invoice sent to credit customers)
Purchases day book
All purchases made on credit (purchase invoices received from credit suppliers)
Sales return day book
To record returns of goods by customers (lists all purchase credit notes received)
Purchases returns day book
To record returns of goods to suppliers (list all purchase credit notes received)
Journal book
This lists various transactions not initially recorded in any of the above
Petty cash book
Records small cash transactions paid for out of the Petty cash tin (purchase of stamps)
What are the 2 other names for the General Ledger?
Nominal Ledger
Main Ledger
Complete the following sentence
Once the trial balance has been completed we would be in the position to draw up our year end ____________ __________
Once the trial balance has been completed we would be in the position to draw up our year end financial statements
