Introduction to Bookkeeping (ITBK) 2

Question 1

Statement of profit or loss (SPL)

Answer 1

This summarises the effects of trading – the income and expenses, and shows the financial performance of the business f

Question 2

Statement of financial position (SoFP)

Answer 2

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.

Question 3

Sales revenue

Answer 3

Income generated from the trading activities of the business.

Question 4

Cost of sales

Answer 4

The cost of buying or producing the goods for resale.

Question 5

Gross profit

Answer 5

The profit remaining, after the cost of sales have been deducted from sales revenue. ​

Question 6

Sundry income

Answer 6

Other types of income that are not generated by the primary trading activities of the business. ​

Examples: Commission received, bank interest received, rent received.

Question 7

Expenses

Answer 7

The day to day running costs of the business. ​

Examples: Heat and light, rent and rates, stationery and entertainment.

Question 8

Net profit or loss

Answer 8

The profit or loss remaining after expenses have been deducted.

Question 9

Asset

Answer 9

Something owned or controlled by the business, available for use by the business. ​

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Examples: Buildings, Vehicles, Inventory, Receivables, Bank and Cash.

Question 10

Non-current asset

Answer 10

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.

Question 11

Current asset

Answer 11

A short term asset of the business which is either cash or will soon be converted into cash. ​

Examples: Inventory, Receivables, Bank and Cash.

Question 12

Receivable

Answer 12

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.​

Question 13

Liability

Answer 13

An amount owed by the business. It is an obligation to pay money at a future date. ​

​Examples: Loans, Mortgages, Payables and Bank Overdraft.

Question 14

Non-current liability

Answer 14

An amount owed by the business and due to be paid in the longer term (after 12 months). ​

Examples: Loan, Mortgages.

Question 15

Current liability

Answer 15

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.

Question 16

Payable

Answer 16

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.

Question 17

Capital/Equity

Answer 17

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.

Question 18

Drawings

Answer 18

Amounts withdrawn from the business by the owner for the owner’s personal use. Drawings can either be cash or inventory.

Question 19

Accounting Equation

Answer 19

Assets = Liabilities

Assets = Liabilities + Capital

Assets - Liabilities = Capital

Assets - Liabilities = Capital + Profit* - Drawings

• When a Loss is made then: - Loss

Question 20

Capital income

Answer 20

Income received from the sale of a non-current asset

Example: the proceeds received from selling a vehicle

Question 21

Revenue income

Answer 21

Income received from the trading activities

Example: the proceeds received from selling goods (inventory) or services

Question 22

Capital expenditure

Answer 22

Expense of acquiring or improving non-current assets

Examples: buying a piece of machinery, removing single glazed windows and replacing with double glazed windows

Question 23

Revenue expenditure

Answer 23

Day to day running expenses of the business, including the repair and maintenance of non-current assets

Examples: gas, electricity, rent, repairs and maintenance