Introduction to Bookkeeping (ITBK) 2 Flashcards
Double entry bookkeeping
Statement of profit or loss (SPL)
This summarises the effects of trading – the income and expenses, and shows the financial performance of the business f
Statement of financial position (SoFP)
This presents a snap shot of the financial position of the business at a specific moment in time, summarising the assets and liabilities of a business.
Sales revenue
Income generated from the trading activities of the business.
Cost of sales
The cost of buying or producing the goods for resale.
Gross profit
The profit remaining, after the cost of sales have been deducted from sales revenue.
Sundry income
Other types of income that are not generated by the primary trading activities of the business.
Examples: Commission received, bank interest received, rent received.
Expenses
The day to day running costs of the business.
Examples: Heat and light, rent and rates, stationery and entertainment.
Net profit or loss
The profit or loss remaining after expenses have been deducted.
Asset
Something owned or controlled by the business, available for use by the business.
Examples: Buildings, Vehicles, Inventory, Receivables, Bank and Cash.
Non-current asset
An asset which is to be used for the long term and not resold as part of the trading activities.
Examples: Buildings, Vehicles, Plant and Machinery.
Current asset
A short term asset of the business which is either cash or will soon be converted into cash.
Examples: Inventory, Receivables, Bank and Cash.
Receivable
An example of a current asset – a receivable is someone who owes the business money. A receivable is created when the business sells to a customer on credit.
Liability
An amount owed by the business. It is an obligation to pay money at a future date.
Examples: Loans, Mortgages, Payables and Bank Overdraft.
Non-current liability
An amount owed by the business and due to be paid in the longer term (after 12 months).
Examples: Loan, Mortgages.
Current liability
An amount owed and due to be paid by the business in the short term (less than 12 months).
Examples: Trade payables, Bank overdraft, VAT payable.
Payable
An example of a current liability – a payable is someone the business owes money to. A payable is created when the business buys goods on credit from a supplier.
Capital/Equity
The amount which the owner has invested in the business – this is owed back to the owner and is therefore considered to be a special liability of the business.
Drawings
Amounts withdrawn from the business by the owner for the owner’s personal use. Drawings can either be cash or inventory.
Accounting Equation
Assets = Liabilities
Assets = Liabilities + Capital
Assets - Liabilities = Capital
Assets - Liabilities = Capital + Profit* - Drawings
- When a Loss is made then: - Loss
Capital income
Income received from the sale of a non-current asset
Example: the proceeds received from selling a vehicle
Revenue income
Income received from the trading activities
Example: the proceeds received from selling goods (inventory) or services
Capital expenditure
Expense of acquiring or improving non-current assets
Examples: buying a piece of machinery, removing single glazed windows and replacing with double glazed windows
Revenue expenditure
Day to day running expenses of the business, including the repair and maintenance of non-current assets
Examples: gas, electricity, rent, repairs and maintenance
