Section C - Understand the purpose of accounting Flashcards
What are the types of income?
Capital income
Revenue income
What is capital income spent on?
Items that will stay in the business fo a medium-to-long period of time, for example, premises, vehicles or equipment
What are the types of capital income?
Loans Mortgages Shares Owner's capital Debentures
What is a loan?
An amount of money lent to the business or business owners from a bank or other financial instiution.
What is a mortgage?
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.
What are shares?
A company is when a business is registered with Companies House and issues shares to its shareholders.
What is owner’s capital?
The money invested in a business from the owner’s personal savings
What is a sole trader?
A person who owns a business on their own.
Why is a sole trader high risk?
As the sole trader is responsible for the debts of the business.
What is a partnership?
When two or more people join together to set up a business as partners.
What are debentures?
Are medium to long term sources of capital income.
Who often uses debentures?
Large companies.
How do debentures work?
Interest is payable, normally at a fixed rate, and the debenture is repaid as a lump sum, normally on a pre-agreed date.
What are the different types of revenue income?
1) Sales
2) Rent Received
3) Commission Received
4) Interest received
5) Discount received
What is sales?
Sales is the money coming in from the sales of goods or services.
What is rent received?
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.
What is commission received?
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.
What is interest received?
Interest received is money earned on savings or lending.
What is discount received?
Discount received is when a business is given a percentage off a sale, normally in return for quick payment or a bulk order.
What are the types of expenditure?
1) Capital expentiture.
2) Revenue expenditure
What is expenditure?
Is money spent by a business.
What are the different types of Capital expenditure?
1) Non-current assets
2) Intangibles
What are non-current assets?
Non-current assets are items owned by a business that will remain in the business for a reasonable period of time.
What is an intangibles asset?
An intangible asset is something owned by the business that cannot be touched but adds value to the business
What are the four common intangibles that exist within a business?
1) Goodwill
2) Patents
3) Trademarks
4) Brand Name
Explain what goodwill is (Intangible asset).
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.
Explain what a patent is (Intangible asset).
A patent is the legal protection of an invention, such as a unique feature of a product or a new process.
Explain what a trademark is (Intangible asset).
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.
What do trademarks influence?
A key influence on consumer choice and build a strong brand loyalty.
Explain what a brand name is (Intangible asset).
A feature of a business that is recognises by customers and distinguishes the business from competitors.
What is revenue expenditure?
Is the spending on items on a day-to-day or regular basis.
What are some examples of revenue expenditure?
Inventory Rent Rates Heating and lighting Water Insurance Administration Salaries Wages Marketing Bank charges Interest paid Depreciation Discount allowed.
What are the different types of insurance?
1) Buildings Insurance
2) Contents Insurance
3) Public Liability Insurance
4) Employer’s Liability Insurance
Explain what buildings insurance is.
To protect the physical building from damage that may be caused by events such as fire.
Explain what contents insurance is.
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.
Explain what public liability insurance is.
To protect people within the building who may be harmed or injured from an event such as an accident.
Explain what employer’s liability insurance is.
This means that if the employee is injured at work, the business is protected against any claims for compensation or any legal costs incurred.
What is the difference between salaries and wages?
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.
