L2: Structure of a business and accounting principles Flashcards
What does ‘Ltd’ mean?
Private limited company - shares cannot be purchased by anyone, must have at least one director
What does ‘Plc’ mean?
Public limited company, shares for sale to general public, must have at least 2 directors
Describe businesses as legal entities
- Has rights (e.g. may enter into contracts)
- Separate from owners (who have limited liability, don’t need to pay if business goes into debt)
What is the difference between the shares of a Plc and Ltd company?
Ltd: few shares which represent large percentage of ownership, may be owned by founders/directors
Plc: many shares, small percentage per share. Often owned by many different people
How are assets, equity and liabilities linked?
Assets = equity + liabilities
What are claims?
Equity and liabilities
What groups can assets be sorted into?
Current, non-current, tangible, intangible
What are the three financial statements?
Balance sheet, income (profit and loss) statement, cash flow statement
How do the three financial statements link?
The income and cash flow statements show how we got from position 1 to position 2 (represented by 2 balance sheets)
What are accounting principles used for?
To create accounts to describe profits & performance of a business in a practical and pragmatic way
What are the three fundamental accounting principles?
Matching, dual aspect of transactions, cost
What is GAAP?
Generally accepted accounting principles, common set of rules which must be followed when companies make their accounts
