Section C - Understand the purpose of accounting

Question 1

What are the types of income?

Answer 1

Capital income

Revenue income

Question 2

What is capital income spent on?

Answer 2

Items that will stay in the business fo a medium-to-long period of time, for example, premises, vehicles or equipment

Question 3

What are the types of capital income?

Answer 3

Loans
Mortgages
Shares
Owner's capital
Debentures

Question 4

What is a loan?

Answer 4

An amount of money lent to the business or business owners from a bank or other financial instiution.

Question 5

What is a mortgage?

Answer 5

Similar to a bank loan, but it tends to be for a larger sum of money and over a longer period of time typically 25 years.

Question 6

What are shares?

Answer 6

A company is when a business is registered with Companies House and issues shares to its shareholders.

Question 7

What is owner’s capital?

Answer 7

The money invested in a business from the owner’s personal savings

Question 8

What is a sole trader?

Answer 8

A person who owns a business on their own.

Question 9

Why is a sole trader high risk?

Answer 9

As the sole trader is responsible for the debts of the business.

Question 10

What is a partnership?

Answer 10

When two or more people join together to set up a business as partners.

Question 11

What are debentures?

Answer 11

Are medium to long term sources of capital income.

Question 12

Who often uses debentures?

Answer 12

Large companies.

Question 13

How do debentures work?

Answer 13

Interest is payable, normally at a fixed rate, and the debenture is repaid as a lump sum, normally on a pre-agreed date.

Question 14

What are the different types of revenue income?

Answer 14

1) Sales
2) Rent Received
3) Commission Received
4) Interest received
5) Discount received

Question 15

What is sales?

Answer 15

Sales is the money coming in from the sales of goods or services.

Question 16

What is rent received?

Answer 16

A business that owns property and charges others for use of all or part of that property will receive rent as their main source of income.

Question 17

What is commission received?

Answer 17

A business may sell products or services as an agent of another business. They sell another business’s products on their behalf and, for each sale they make, they get paid a percentage on that sale.

Question 18

What is interest received?

Answer 18

Interest received is money earned on savings or lending.

Question 19

What is discount received?

Answer 19

Discount received is when a business is given a percentage off a sale, normally in return for quick payment or a bulk order.

Question 20

What are the types of expenditure?

Answer 20

1) Capital expentiture.

2) Revenue expenditure

Question 21

What is expenditure?

Answer 21

Is money spent by a business.

Question 22

What are the different types of Capital expenditure?

Answer 22

1) Non-current assets

2) Intangibles

Question 23

What are non-current assets?

Answer 23

Non-current assets are items owned by a business that will remain in the business for a reasonable period of time.

Question 24

What is an intangibles asset?

Answer 24

An intangible asset is something owned by the business that cannot be touched but adds value to the business

Question 25

What are the four common intangibles that exist within a business?

Answer 25

1) Goodwill
2) Patents
3) Trademarks
4) Brand Name

Question 26

Explain what goodwill is (Intangible asset).

Answer 26

When you buy an existing business, its name and reputation will already be known, and it may already have an established customer base or set of clients.

Question 27

Explain what a patent is (Intangible asset).

Answer 27

A patent is the legal protection of an invention, such as a unique feature of a product or a new process.

Question 28

Explain what a trademark is (Intangible asset).

Answer 28

A trademark is a symbol, logo, brand name, words or even colour that sets apart one business’s goods or services from those of its competitors.

Question 29

What do trademarks influence?

Answer 29

A key influence on consumer choice and build a strong brand loyalty.

Question 30

Explain what a brand name is (Intangible asset).

Answer 30

A feature of a business that is recognises by customers and distinguishes the business from competitors.

Question 31

What is revenue expenditure?

Answer 31

Is the spending on items on a day-to-day or regular basis.

Question 32

What are some examples of revenue expenditure?

Answer 32

Inventory
Rent
Rates
Heating and lighting
Water
Insurance
Administration
Salaries
Wages
Marketing
Bank charges
Interest paid
Depreciation
Discount allowed.

Question 33

What are the different types of insurance?

Answer 33

1) Buildings Insurance
2) Contents Insurance
3) Public Liability Insurance
4) Employer’s Liability Insurance

Question 34

Explain what buildings insurance is.

Answer 34

To protect the physical building from damage that may be caused by events such as fire.

Question 35

Explain what contents insurance is.

Answer 35

To protect what is inside the building in terms of machinery, fixtures and fittings and stock from damage that may be caused by events such as flooding.

Question 36

Explain what public liability insurance is.

Answer 36

To protect people within the building who may be harmed or injured from an event such as an accident.

Question 37

Explain what employer’s liability insurance is.

Answer 37

This means that if the employee is injured at work, the business is protected against any claims for compensation or any legal costs incurred.

Question 38

What is the difference between salaries and wages?

Answer 38

Salary is an annual figure paid to an employee divided into monthly payments.
Wage is an hourly rate paid to an employee, meaning there is a direct link between the number of hours worked and the amount of money paid.