Unit 3 Accounting Flashcards
What is capital income?
Money that comes in from the business by the owners
Capital income is not generated from producing products or services.
What is collateral?
An asset that can be given if a loan is not paid for
Collateral can include items like cars or property
What does raising capital mean?
Issuing new shares
This process brings in large amounts of money for the business.
What is revenue income?
Income that comes in from your customers
Revenue can be generated from sales, services, and other sources.
What is the purpose of accounting?
To create information that is needed for decision making/prepare financial reports for stakeholders
What are the benefits of keeping records of transactions?
Helps in making decisions and prevents incorrect tax payments
This process is also known as bookkeeping.
How does accounting assist in management of a business?
Provides vital information for planning, monitoring, and controlling performance
What does compliance in accounting refer to?
Ensuring financial matters are handled according to laws and regulations
This helps prevent fraud and criminal activity.
What does GAAP stand for?
Generally Accepted Accounting Principles
These rules are universal and help accountants in their profession.
Why is measuring performance important in accounting?
To determine whether the business is making a profit or not
What is the formula for sales profit?
Quantity of sales x Selling price
What is gross profit?
How much the business keeps after each sale
What is net profit?
Gross profit - Expenses
How does accounting help in controlling finances?
Allows tracking of incomes, debts, and prevents debt accumulation
What is a loan?
Money given to a business usually from a bank, to be repaid with interest
What is a mortgage?
A loan taken out for a house, secured against the property
What are shares in the context of raising capital?
Issuing new shares brings in funds but dilutes ownership
It can be expensive to get permission from shareholders.
What is owner’s capital?
Small amounts of money funded by the owner’s own savings
What are debentures?
Medium to long term sources of finance used by large companies
What is sales income?
Money coming in from the sales of products or services
What is rent received in a business context?
Income from charging rent to people living in properties owned by the business
What does commission refer to in business?
Earnings from selling products or services of another business on their behalf
What is interest received?
Money earned on savings or lending
What does discount received mean?
A percentage off a sale in return for bulk orders or quick payments
