Section 3 - 3.4 financial accounts

Question 1

Appropriation account

Answer 1

Refers to the final section of a Profit and loss account and shows how the net profit after interest and tax is distributed, i.e. Dividence to shareholders and/or retained profit kept by the business

Question 2

A balance sheet

Answer 2

Contains financial information on an organizations assets, liabilities and the capital invested by the owners on one specific day, thus showing a ‘snapshot’ of the Firms financial situation

Question 3

Book value

Answer 3

Is the value of an asset as shown on a balance sheet. The market value of assets can be higher than its book value because of intangible assets such as the brand value or the goodwill of the business

Question 4

Costs of good sold (COGS)

Answer 4

It’s shown in the trading account and represents the direct costs of producing or purchasing stock that has been sold

Question 5

Depreciation

Answer 5

Is the full in the value of fixed assets overtime, from wear and tear or obsolescence

Question 6

Financial accounts

Answer 6

Are the published annual financial statements that all limited liability companies are legally obliged to report. I.e. the balance sheet and profit and loss accounts

Question 7

Fixed assets

Answer 7

Are items owned by a business not intended for sale within the next 12 months, but used repeatedly to generate revenue for the organization e.g. land, premises and machinery

Question 8

Goodwill

Answer 8

Is an intangible asset which exists when the value of a firm exceeds its book value (the value of the firms net assets)

Question 9

Gross profit

Answer 9

Is the difference between the sales revenue of a business and it’s direct costs incurred by making a purchasing the products that have been sold to its customers

Question 10

Historical cost

Answer 10

Refers to the purchase cost of a particular fixed asset

Question 11

Intangible assets

Answer 11

Are fixed assets that do not exist in a physical form EG Goodwill, copyright, brand names and registered trademarks

Question 12

Net assets

Answer 12

Show the value of a business by calculating the value of all its assets minus its liabilities. This figure must match the equity of the business and its balance sheet

Question 13

Net profit

Answer 13

Is the surplus that a business makes after all expenses have been paid for out of gross profit

Question 14

Profit and loss account

Answer 14

Is a financial record of a firms trading activity over the past 12 months consisting of three parts the trading account, the profit and loss account and the appropriation account

Question 15

Reducing balance method

Answer 15

Is a method of depreciation that reduces the value of fixed asset by the same percentage each year throughout its useful life. This is more realistic method to use

Question 16

Residual value

Answer 16

Is an estimate of the scrap or disposal value of the asset at the end of its useful life

Question 17

Retained profit

Answer 17

Is the amount of net profit after interest, tax and dividends have been paid. It is then reinvested in the business for its own use

Question 18

Share a capital

Answer 18

Refers to the amount of money raised through sales of shares. It shows the value raised when shares were first sold rather than the current market value

Question 19

Shareholders funds

Answer 19

Shows the equity of the owners Ayesha capital invested by the owners and the retain profit and reserve that have been accumulated

Question 20

Straight-line method

Answer 20

Is a method of depreciation that reduces the value of a fixed asset by the stable value each year throughout its useful life. This is the relatively easy a message to calculate

Question 21

Trading account

Answer 21

Is the first section of the profit and loss account, showing the difference between a firm sales revenue and it’s direct cost of trading i.e. shows the gross profit of a business

Question 22

Window dressing

Answer 22

Refers to the legal active creative accounting by manipulating financial data to make the results look more flattering