Section C Flashcards
What is the purpose of accounting?
The purpose of accounting is to provide the information that is needed for sound decision making.
What are the 5 purposes of accounting?
Record transactions, management of the business, compliance, measuring performance, control.
Why is it important to record transactions?
It will assist in making informed, efficient, and precise decisions at any time.
Why should a manger understand the accounts of the business?
It allows them to make informed decisions about the direction of the company. It can allow them to plan staffing levels, monitor levels of stock and control costs such as wages and budgets.
What does compliance mean?
Compliance means making sure that a company’s financial matters are being handled in accordance with laws and regulations. It also means that you prevent fraud.
What do you need to measure to ensure accurate accounting so a company can track it performance?
Sales revenue, gross profit, and net profit.
What does control mean in accounting?
Control of its finances is essential to the prevention of fraud and goes hand in hand with compliance.
What are the two different types of income?
Capital and Revenue
What is capital income?
Capital income is income that comes from capital invested in the business by investors/ owners of the business. It doesn’t come from any form of production or work.
What is capital income spent on?
It is used to buy assets for the business like premises or equipment.
Sources of capital income?
Loans, mortgages, shares, owners capital, debentures.
What is a debenture?
Medium to long term sources of finance. Large companies use them to secure income. These debt instruments pay an interest rate and are redeemable or repayable on a fixed date.
What is revenue income?
Revenue income is the money that is flowing into the business via the day to day operation of the business.
What is the two types of expenditure?
Capital and revenue
What is capital expenditure?
Capital expenditure is funds used to acquire or upgrade physical assets such as property, buildings or equipment and also intangibles.
