Introduction to Accounting Flashcards
Four Rules of Double Entry
What are assets?
What the business owns
What are fixed assets?
Property or possessions which are used in the business, that are NOT for resale.
Give examples of fixed assets
-Buildings/Premises
-Machinery
-Fixtures and fittings/Furniture
-Office equipment
-Land
-Vehicles
What are current assets?
assets which are expected to be cashed within one year
Give examples of current asssets
-Closing stock
-Petty cash
-Debtors
-Cash
-Bank
What is closing stock?
The amount of the unsold stock which is lying idle in the business on a given date, waiting to be sold
What is petty cash?
Used to pay for miscellaneous items, i.e. deliveries. A separate way of paying instead of taking money out of the till.
What are debtors?
-People who owe money TO ME
-Occurs when goods are sold on credit to the customer
What are creditors?
Someone I owe money to
What is the pneumonic to remember creditors and debtors?
Politically Correct
Snoop Dogg
Purchases on credit ⇒ Creditors
Sales on credit ⇒ Debtors
What side is debit and credit on a T account?
Debit (Dr)- left
Credit (Cr)- right
What is recorded on the debit side of an Asset T account?
Records assets and increases in an asset
What is recorded on the credit side of an Asset T account?
Records any decrease in an asset
What is a liability?
What the business owes
What are current liabilities?
They are short term debts, that are owed for less than a year
Give examples of current liabilities
-Creditors
-Bank overdraft
-Short-term loans
What is a bank overdraft?
When the bank allows your account to be overdrawn (below zero)
(you owe the bank money, therefore a liability)
What are long-term liabilities?
Money borrowed from others for a considerable period of time (over a year)
OR
Capital invested by the owner/shareholders
Give examples of long term liabilities
-Long term loans
-Capital (or Share Capital)
-Net profit
What is capital and why is a liability?
Capital is when the owner invests their own money into their company. the company still owes the owner the capital/money
It is a liability because the owner is separate from the business, therefore the company still owes the owner the capital/money.
What is recorded on the debit side of a Liability T account?
Records any decrease in the amount owed by the business
What is recorded on the credit side of a Liability T account?
Records liabilities and increases in liabilities
What are the headings for a balance sheet?
- Fixed assets
- Current assets
- Less Creditors Falling due within 1 Year (Current Liabilities)
-Working Capital (CA - CL)
-Total Net Assets (FA + Working Capital) - Financed By (Long-term Liabilities)
-Capital employed (equal to total net assets)
What are expenses?
Any expenditure necessary to carry on the business (or to maintain and repair fixed assets)
What are examples of expenses in the trading account?
-Purchases
-Sales Returns
-Carriage in
-Customs duty
What are 10 examples of expenses in the Profit & Loss account?
-Motor Expenses
-Wages/ Salaries
-Insurance
-Carriage out
-Discount allowed
-Repairs
-Packing materials
-Bank charges
-Travel expenses
-Sundry Expenses (Misc. expenses)
-Telephone
-Rent
-Light & Heat
-E.S.B
-Advertising
-Bad debts
-Commission
-Interest
-Rates
-Postage
-Stationery
What is carriage in?
Cost of transporting goods/materials to the business
What is carriage out?
Cost of delivering goods to customers
What is discount allowed?
Discounts given to good customers (i.e. they pay on time)
What are bad debts?
When debtors are unable to pay you their debts
What are rates?
A charge paid to local council
What are examples of expenses in the balance sheet?
Drawings
What are drawings?
When stock is used for your own personal consumption, the business is no longer able to sell it.
-We treat drawings as a type of expense but they ARE NOT an expense
What side, on a T account, records any expense for the business?
Debit side
What other names are used for gains?
Revenues or income
What is a gain?
Any income earned by the business
What are examples of gains in the trading account?
-Sales
-Purchases return
What are examples of gains in the profit and loss account?
-Discount received
-Rent received (e.g. if you rent out an office)
-Interest received
-Insurance compensation received
-Commission received
-Bad debts recovered
What side, on a T account, records any gains earned by the business?
Credit side
What pneumonic is used to remember what increases on the debit side and credit side?
DEAD CURL
Debit
Expenses
Assets
Darling
Credit
Ur (your)
Revenues
Liabilities
What are the headings on an income statement/Trading, Profit and Loss account?
-Sales
-Less cost of sales
-Cost of goods available for resale
-Cost of goods sold
-Gross profit (Sales - Closing stock total)
-Add gains
-Less expenditure
-Net profit (Gross - Less Expenditure)
-Reserves (Net profit - less dividends)
