lecture 1 Flashcards
define accounting
collecting , analysing and communicating financial informatino
State the two types of accoutning
Financial
Managment
what is financial accounting to do with
collecting , reporting and conveying information to external stkh of a company
Financial accounting gives a business the tool to
communicate with external stakeholders
whats a stkh
anyone with an interest in the business
example of external stkh
suppliers , gov , community
what is managment accounting to do with
collecting , analysing and reporting information to internal stkh ( within an org)
give examples of internal stkh within managment accounting
e.g - sale and production dpt , cost dpt bring numbers together and give it to sales dpt so they can set a price for the product
How many main financial statements are there
3
What are the 3 main financial statements
Income Statement / profit and loss account
Balance Sheet / Statement of financial position
Cash flow statement (we don’t learn about this )
what does the income statement show
how much of a profit/loss business has made in a particular period
in terms of periods when talking about (income) statements what are the 2 types of periods
annual statement/account (12 months)
interim account ( 6 months )
due to the accounting standard what must a limited company do in relatino to income statements
got to produce and publish annual statements to everyone (so we are able to see)
What does a balance sheet show
shows financial position of a company
why is the financial position of a business important
a company can make profit but still go bankrupt - so profit is not all we need to know about - we also need to consider the assets and liablities they’ve got and if they’re able to pay this off
what does a cash flow statement show
shows cash flowing in and out of the business
INCOME STATEMENT SLIDES
state the 4 components of an income statement
income
expenses
profit
loss
define income
any increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decrease of liabilities
simple version of income
how much firm earns during that period
what is revenu
income earned in a period from normal/main trading activities
if a company sells ice cream what would the revenue be
income from selling ice cream
if a company has lots of cash and you put this in a bank account and earn interest at the end of the year and the earn interest on this - is it revenue and provide reasoning
its not revenue it is income
because it is not part of the main trading activities
what is the first line in the income statement and what is it called
revenue
it is called sales
there is a company renting out , individual has ot pay a deposit - should the company record this as revenue and reason
no
because a deposit isn’t part of their main trading activities
give me an example of a source of a revenue from a company renting out housing
rent from tenants
what are expenses
day to day running costs the business has to pay
not all spending count as …..
expenses
expenses aka
revenue expenditure
expenses must be listed in the
income statement
examples of expenses
rent
wages
salaries
cleaning
why do business owners want to minimise profit
so they can pay less tax
What is the only type of spending that can be put in the income statemtn
spending that classifies as an expense
businesses can’t avoid tax because
they must go with the accounting standard
if a house renting company bought furniture to fully furnish house does this count as an expense - provide reasoning
no
because
-this counts as an asset
-it’s not a part of daily operations of the business ~ daily operations more so to do with calling , clients , doing inspections
why would £800 each month for mortgage interest count as an expense for a renting company as got to pay it every year and is involved with being able to run your bs day to day
got to pay it every year
it’s involved with being able to run your bs day to day
why is paying council tax in this renting company considered an expense
got to keep paying if you want the house to continue operating
why is tax an expense
there is a tax line in profit and loss accounting so it is an expense
any item in the income account is either
income or expense
a company buying furniture and paying money to install it is - why is it called expenditure and what type of expenditure is it
called expenditure becasue we’re spending money to pay for something
capitla expenditture as expenditure on capital goods
only revenue expenditure can be classified as
expenses
