Level 1 - Accounting Principles Flashcards
What is the difference between Management and Financial accounts?
Management accounts are used internally by business owners and managers to improve operations.
Financial accounts are used by investors, market analysts, and creditors to evaluate a company’s financial health of the company.
Financial accounts are required by section 394 of the Companies Act 2006 that directors of every company must prepare accounts for the company for each of its financial year (unless except).
HMRC for corporation tax purposes.
What is Profit and Loss?
Shows the companies income and expenditure and profit for a particular period.
What is revenue?
Revenue that the business receives from it services it provides.
What is revenue expenditure?
Revenue expenditure is monies spent on the day-to-day running of a business.
What is corporation tax?
Tax levied on company profits. UK corporation tax is currently 25% for all limited companies
What is VAT?
Value added tax, it is charged to companies with a turnover of more than £90,000.
What is a Balance Sheet?
Shows the company’s assets, liabilities and equity also known as shareholders’ funds.
What is an Asset?
An asset is any resource owned or controlled by a business or an economic entity.
I.e. Property, land, computers, machinery, vehicles, cash in bank. debtors.
What is meant by depreciation in relation to an asset?
Depreciation involves loss of value of assets due to the passage of time and obsolescence.
This could be office equipment, computers, machinery, buildings,
Does land depreciate in accounting?
No, land is not a depreciable property and cannot be depreciated as it is considered to last forever and not have a useful life.
Does property depreciate in accounting?
Buildings have a limited useful life and, therefore, are depreciable assets.
What is a liability
Any outstanding costs / amount which are yet to be paid.
Vat, loans, interest on loans, creditors
What is a creditor
Refers to a party that has delivered a service or loan and is owned money.
What happens if a company’s liabilities are greater than its assets?
The company is insolvent. This means that the company does not have enough assets to cover its debts.
What is a capital expenditure
Capital expenditure is the money spent by a firm to acquire assets or to improve the quality of existing one.
