Useful Terms

Question 1

What are drawings?

Answer 1

• When a sole trader takes value from their business it is called drawings
• The capital of a sole trader represents the value remaining in the business which belongs to the owner at the end of the year

Question 2

How are drawings calculated?

Answer 2

Capital at the start of the year + Profit for the year (or minus loss for the year) = Capital at the end of the year

Question 3

What are the two methods of calculating depreciation?

Answer 3

1) Straight line = cost - residual(remaining) value/useful economic life of the asset
2) Reducing balance = a set % on the net book value of the asset

Question 4

What are returns in (sales returns)?

Answer 4

Where you have sold something but the customer sends it back

Question 5

Are returns in (sales returns) a debit or a credit and where would it be found?

Answer 5

Debit - treated as an expense of the business and would appear in administrative costs or in selling and distribution costs

Question 6

What are returns out (purchase returns)?

Answer 6

Where you buy something but send it back to the supplier

Question 7

Are returns out (purchase returns) a debit or a credit and where would it be found?

Answer 7

Credit and is found in cost of sales

Question 8

What is carriage in?

Answer 8

Carriage is an expense paid by the business to get goods transported from a supplier, it is treated as a cost in cost of goods sold

Question 9

What is carriage out?

Answer 9

Carriage out is an expense where a business pays to send goods to a customer, this is either an administrative expense or a selling and distribution expense

Question 10

What are net assets (Capital)?

Answer 10

Net assets = total assets - total liabilities