Week 3 -introduction to the income statements

Question 1

What is meant by matching concept?

Answer 1

The matching concept requires expenses to be matched to the revenue that they have generated

Question 2

What are trade receivables?

Answer 2

Trade receivables are the amounts owed by customers of the business who, having been sold goods or services on credit, have not yet paid the business.

Question 3

What are trade payables?

Answer 3

These are the amounts owed to suppliers of the business who, having supplied goods or services on credit, have not yet been paid by the business.

Question 4

What happens when someone first puts money in a new business?

Answer 4

The business then receives a investment in the business which is record in the capital account

Question 5

What is meant by “the trial balance”?

Answer 5

Is this a record of all account balances at a point in tue and is used to prepare the final accounts. Will need to compete some for upcoming exams.

Question 6

What is meany by “double-entry book-keeping system?

Answer 6

This is the method of recording the two entries for each and every transaction

Question 7

What are the six difference types of accounts?

Answer 7

Assets
Liabilities 
Capital 
Income
Expenses 
Drawings

Question 8

What are assets?

Answer 8

Items owned by the business. For an example, a printing machine or a computer.

Question 9

What are liabilities?

Answer 9

An amount owed by the business. For an example, someone who is owed for goods supplied by the business

Question 10

What is meant by capital?

Answer 10

Thus us the amount f money that the owner has put into the business

Question 11

What is meant by expenses?

Answer 11

Accounts incurred by the business to allow it to operate on a day-to-day basis. For an example, the rent of a warehouse or salaries paid by the businesses

Question 12

What is meant by Drawings?

Answer 12

Amounts withdrawn by the owners for their personal use

Question 13

When is the trial balance drawn up?

Answer 13

At the end of the financial year

Question 14

What is a definition of a trail balance?

Answer 14

It is a record of all the account balances at that point in time. It is also used to prepare the financial statements

Question 15

What is meant y capital expenditure?

Answer 15

This refers to expenditure where the business will benefit for more than one accounting period.

Question 16

What is meant by revenue expenditure?

Answer 16

Day to day expenses. For an example, telephone or staff salary costs

Question 17

What is meant by revenue incomes?

Answer 17

This is the main income from sales. Other examples are rent received and interest received.

Question 18

What is meant by capital income?

Answer 18

This is money invested by hr owner of the business and loans from third parties.

Question 19

What are inventories?

Answer 19

This is stock or goods for resale held in stock by the business

Question 20

What is a income statement?

Answer 20

The income statement shows the revenue income less the revenue expenditure for a financial period and computes the profit or loss generated.

Question 21

How do you work out the cost of sales?

Answer 21

Opening inventories + purchases - closing inventories = cost of sales

Question 22

What is prepared for a period of time (usually one year)?

Answer 22

Financial statements

Question 23

Explain what a profit or lost is?

Answer 23

A profit or lose is calculated by comparing revenue income with revenue expenditure.

Question 24

What is a trial balance?

Answer 24

A trial balance (usually drawn up at the end of the financial year) is a record of all account balances at that point in time and is used to prepare the financial statements.