Preparing financial accounting information

Question 1

Sole trader

Answer 1

• person who sets up and owns their own business
• restaurants,hairdressers

ADVANTAGES

• keep all profits
• easy/ cheap to set up
• make all decisions

DISADVANTAGES

• Unlimited liability
• long working hours
• harder to get loans

Question 2

Role of a financial accountant

Answer 2

-to work with the finances of the business, collect information from business documents , check the accuracy of them,record the transactions appropriately, analyse and present the financial outcome of the business at the end of the financial period

Question 3

Business documents (invoice)

Answer 3

• a bill sent by a provider of a product to the purchaser
  last 3 figures;

x- purchases - Dr
x-VAT-Dr
x- name at top- Cr

IF DISCOUNT, TAKE OFF FINAL AMOUNT (WITH VAT)

Question 4

Business documents(copy invoice)

Answer 4

seller keeps a copy to provide a record of sales
last 3 figure;

x-Sales-Cr
x-VAT-Cr
x-name at side-Dr

Question 5

Business documents(credit notes)

Answer 5

can be used if goods have been returned(goods were damaged/unsuitable)
last 3 figures;

x-RP-Cr
x-VAT-Cr
name at side-Dr

Question 6

Business documents(copy credit notes)

Answer 6

used by the business to record al sales returns
last 3 figures;

x-RS-Dr
x-VAT-Dr
x-name at side-Cr

Question 7

Non- current asset

asset=something you own

Answer 7

things that the business own that will lat longer than 1 year

EQUIPMENT FURNITURE

Question 8

Current assets

Answer 8

items that the business owns that can increase/decrease in the everyday course of trading

CASH INVENTORY

Question 9

Current liabilities

Answer 9

things that the organisation owes that will not be owed after 1 year

OVERDRAFT RENT

Question 10

Long term liabilities

Answer 10

things that the organisation owes that they will still owe after 1 year

MORTGAGE LOAN

Question 11

Debit accounts

Answer 11

furniture F&F
cash equipment
sales returns purchases trade receivable
expenses(wages)
drawings
machinery
buildings
bank

Question 12

Credit accounts

Answer 12

loan                               bank overdraft
purchases returns        trade payable 
sales
 income(rent received)
capital

Question 13

Trial balance

Answer 13

used to check the accuracy of the legers(both debit and credit sides should mathematically match)

Question 14

Income statement

Answer 14

shows profit

Question 15

Statement of financial position

Answer 15

shows how much the business is worth

Question 16

Cash budgets

Answer 16

a plan of the cash in from estimated sales and other incomes, and the estimated cash out(payments) each month
-shows planned cash flow
-alerts the business to any cash flow problems 
-used to help make decisions 
Ways to reduce the deficit ; 
find a cheaper supplier
increase sales
use hire purchase

Question 17

Overheads

Answer 17

indirect costs which are not easily identifiable in the product, but with these costs, the product could not be made.

• rent/rates
• electricity
• heat and light
• insurance
• cleaning

Question 18

Cost unit

Answer 18

• the product or service being produced(the item which the business is trying to work out the cost of
• loaf of bread
• tin of beans
• tyre for a car

Question 19

Cost centre

Answer 19

a department or area of a business where costs can be gathered from, or charged to.
-mixing
-packaging
-storage
-

Question 20

Cost allocation

Answer 20

-means that an overhead can be allocated to a specific cost centre or department, as this is where the overhead arose

Question 21

Cost apportionment

Answer 21

where an overhead cannot be directly allocated or charged to one particular cost centre or department, the overhead will be apportioned( shared or divided) between each cost centre or department
e.g rent would be divided between all the cost centres depending on how much floor space they take up.

Question 22

Cost absorption

Answer 22

once all overheads have been charged to cost centres, a total overhead costs for the business or factories can be determined. The next stage is to charge each product being made with a small proportion of the total overheads

Question 23

methods of overhead apportionment

Answer 23

FLOOR AREA

• rent and rate
• building assurance
• lighting
• cleaning of building

NUMBER OF EMPLOYEES

• canteen costs
• office and admin costs
• personnel and staff welfare costs

VALUE OF FIXED ASSETS
-depreciation of fixed assets

POWER

• electricity
• gas
• water

Question 24

Fixed costs

Answer 24

costs that do not change with changes in production or sales
rent, insurance and loan interest

Question 25

Variable costs

Answer 25

costs that do not change directly with any changes in production or sales cost of materials,electricity,labour wages

Question 26

Break even charts

Answer 26

- easily understood as it compares costs to sales - highlights areas of profit and areas of loss - can calculate profit at various levels of output

Question 27

Contribution

Answer 27

difference between selling price per unit and variable cost per unit(goes towards paying fixed costs, then goes to wards profit)

Question 28

Time based systems hrs worked x rate per hour

Answer 28

payment is made by the hour, week or month irrespective of the level of output or how hard the employee works used when; all workers are doing the same job quality rather than quantity of work is required ADVANTAGES - easy to calculate wages - easy to understand for both employee and employer - wage costs can be predicted fairly accurately DISADVANTAGES - Systems does not provide incentives for workers to work harder - workers have to be paid even if no work is available for them to do - management bust accurately record the time worked by each employee

Question 29

Overtime

Answer 29

``` work longer hours the is stated in your contract paid at a higher rate DOUBLE TIME TIME AND A HALF TIME AND A THIRD ```

Question 30

Piece work | No. of components x price paid per unit

Answer 30

- employer pays a specific amount for each unit produced - suitable for production when large quantities of an identical product are being made ADVANTAGES - simple to operate - incentive to work harder DISADVANTAGES - all units require to be checked to ensure high quality - workers wages can change from week to week - workers may become bored with repetitive work

Question 31

Sources of finance

Answer 31

bank loan - an amount borrowed from the bank - sole trader must put forward a business idea in order for them to secure the investment from others - will have inters on it capital -investment that the sole trader has put in to the business to start it up overdraft - sole trader can approach the bank to ask permission to withdraw funds greater than the amount in the businesses bank account - paid back over a short period of time credit - purchasing inventory and other items such as cars and equipment may be bought now to use and pid for at a later date - will have interest attached