Learning Aim C

Question 1

Purpose of accounting (5) ?

Answer 1

Measuring performance
Management of business
Control
Compliance
Recording of transactions

Question 2

What is recording of transactions?

Answer 2

Accountants record all money coming in and out of a business.

Enabling them to keep track of payments received and ensure bills and taxes are paid.

Must have 6 years of transactions on record to avoid trouble with HM revenue and customs (HMRC)

Question 3

What is management of a business ?

Answer 3

Manger of a business is responsible for: planning, monitoring, controlling.

Question 4

What is compliance ?

Answer 4

All businesses have the responsibility to comply with financial reporting requirements in accordance with laws and regulations

Helps to combat and avoid fraud

Question 5

What is control ?

Answer 5

The tracking of the amount a business is owed - trade receivables. And the amount a businesses owes - trade payables.

Helps to meet businesses day to day expenses.

Question 6

What is measuring performance ?

Answer 6

Accountants measure how well the business is performing financially through: gross and net profit, sales revenue, efficiency in collecting owed money, expenditure and costs

Question 7

Types of income (2) ?

Answer 7

Capital income

Revenue income

Question 8

Types of capital income (5) ?

Answer 8

Loan
Mortgages
Shares
Owners capital
Debentures

Question 9

Types of revenue income (6) ?

Answer 9

Cash sales
Credit sales
Rent received
Discount received
Commission received
Interest received

Question 10

What is a loan ?

Answer 10

A loan is an amount of money lent to a business or business owner from a bank or other financial institution

Question 11

What is a mortgage ?

Answer 11

A mortgage is similar to a bank loan, but tends to be for a longer period of time E.g.25 years and a larger sum of money

Question 12

What are shares ?

Answer 12

When a business becomes a company they can issue shares to shareholders. Shareholders are owners of a business and contribute towards capital income

Question 13

What is owners capital ?

Answer 13

Owners capital is money invested in a business from the owners personal savings

Question 14

What is debentures?

Answer 14

Debentures are medium to long term sources of capital income.

Debentures can be secured against an asset

Question 15

What are sales ?

Answer 15

Sales or sales turnover is money coming into the business from the sales of goods and services

Question 16

What is rent received ?

Answer 16

When a business owns property they will charge others for the use of all or part of the property and receive income as rent received

Question 17

What is commission received ?

Answer 17

A business may sell products or services as an agent on behalf of other businesses and for each sale they make, they receive commission

Question 18

What is interest received ?

Answer 18

Interest received is money earned on savings or lending E.g. if a business has a positive bank balance it will receive interest on this

Question 19

What is discount received ?

Answer 19

Discount received is when a business is given a percentage off a sale

Question 20

Types of expenditure (2) ?

Answer 20

Capital expenditure
Revenue expenditure

Question 21

Non-current assets ?

Answer 21

Land
Building and premises
Machinery and equipment
Vehicles
Fixtures and fittings

Question 22

Intangible assets ?

Answer 22

Goodwill
-when you buy an existing business it has reputation which increases the value of the business.

Patents
-a legal protection of an invention

Trademarks
-a symbol, logo or brand name to set one business apart from its competitors

Brand name
-recognised by customers to differentiate the business from its competitors

Question 23

Revenue expenditure (18) ?

Answer 23

Inventory
Rent
Rates
Heating and lighting
Water
Insurance
Administration
Telephone
Postage
Stationary
Salaries
Wages
Marketing
Bank charges
Interest paid
Straight line depreciation
Reducing balance depreciation
Discount allowed