Introduction to bookeeping - Double entry Flashcards
What is the accounting equation
Assets – liabilities = capital
Current assets vs non current
current - short term e.g trade rec (people that owe credit money to the buisness) , inventory and money in the bank
What is a liability
amount owed by the buisness, trade payables (people they have bought credit supplies off), bank overdraft/loan
What is capital
Amount an owner has invested into the business
(businesses use to fund their operations, including cash, machinery, equipment, and other assets.
Funds used to finance a company’s operations and growth, which can come from various sources such as equity and debt)
What is the difference between Capital revenue vs capital income
Specific type of income, and specific type of spending
Capital income: ‘one off’- Money received from non-routine, day to day transactions such as:
income from sale of non-current asset
Owner capital into business
bank loans
Capital Expenditure: money spent on purchasing or improving non-current assets.
delivery costs
installation
legal costs
improvement costs but not repair (e.g new office desks)
revenue expenditure is running costs , capital exp is improvement
Revenue income vs revenue expenditure
Specific type of income, and specific type of spending
Revenue Income: money receives in respect of day to day, routine transactions such as sales.
Revenue expenditure: money spent in day to day running costs of the business:
Fuel and tax
Redecoration
Wages
revenue expenditure is running costs , capital exp is improvement
Gain/loss in capital is only recorded on the statement of ____ and will not effect the _______
only recorded on statement of financial position.
Will not effect profit and loss.
What are some examples of tax deductables
things that are deducted before calculating tax, deducted from gross
Anything that is used in the running of non-current assets
1. Fuel/ road tax
Split these into revenue expenditure / capital expenditure
- Van purchase
- Fuel and road tax
- Factory purchase
- Legal costs
- Air conditioning
- Installation costs
- Redecoration
- New flooring
Capital Expenditure: money spent on purchasing or improving non-current assets.
Revenue expenditure: money spent in day to day running costs of the business
- Van is a capital expense (bc its non-current asset)
- Fuel and road tax = revenue expenditure
- Factory purchase = capital expense as it’s a non-current asset
- Legal costs are also a capital expenditure as they are not a day to day running cost but came with the purchase
- Air conditioning = non-current asset so capital expenditure
- Installation costs = capital expenditure
- Redecoration = revenue expense: not capital expense, as counts as repairs and maintenance.
- New flooring= improvement so capital expenditure,
Revenue - day to day running costs of the business
Fill in wether these are capital or revenue expenditure
Its installation is done by employees= capital expenditure even if carried out internally. Cost calc= wages + installation + flooring
What are 3 debits and 3 credits
Statement financial position = includes assets and liabilities
Statement profit and loss = includes expenditure and income
What are drawings
withdrawals by owner which reduces liability owed to them
A debit entry would increase…. and a credit entry would increase….
e.g a debit entry would increase expenses but decrease liabilties.
A credit entry would increase an item of income, and decrease expenditure
Description of each
- Expenses - everyday running costs of buisness (always debits)
- assets - owned and used by buisness
- drawings - owner taking money out
- liabilites - owed
- income- everyday income, normally sales (always credits)
- Capital - normal capital (equity), capital income and capital expenditure
Dr bank means assets have increased apparently
There are 3 types of capital: normal capital (equity), capital income and capital expenditure. What do each of them describe?
Equity - The amount invested by the owner / partner of the business. It includes any profit / loss generated by the business less any Drawings taken by the owner.
Capital income - One off income streams - e.g. bank loan, selling an asset
Capital expenditure - Expenditure on capital items - non-current assets
The amount owed to a buisness by a credit customer is an …
asset
How would you record the sale of good worth £500 to a credit customer ‘Hotel A’
Debit the account of Hotal A with £500
Credit the sales account with £500 (would be noted from Hotel A)
working - sales are always CRunder whoever you sold it to (e.g sale of £500 to Hotel A would be put in sales). DR off the account that the sale was for (Hotel A)
Sale of good is DR to the business name and CR to the sales account
How would you record the purchase by cheque of a laptop for the office for a cost of £800
Debit the Bank Account with £800. Credit the Office Equipment Account with £800
Dr bank means assets have increased apparently
dont get this. I would do other way around. is it to do with cheque?
If the buisness pays for rent with cheque, what has increased
expenses. This means the account name would go under debit (rent account)
Whats does a sale increase / decrease
Sale is always credit, because a it has increased income, and decreased assets
