Week 3 -introduction to the income statements Flashcards
What is meant by matching concept?
The matching concept requires expenses to be matched to the revenue that they have generated
What are trade receivables?
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.
What are trade payables?
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.
What happens when someone first puts money in a new business?
The business then receives a investment in the business which is record in the capital account
What is meant by “the trial balance”?
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.
What is meany by “double-entry book-keeping system?
This is the method of recording the two entries for each and every transaction
What are the six difference types of accounts?
Assets Liabilities Capital Income Expenses Drawings
What are assets?
Items owned by the business. For an example, a printing machine or a computer.
What are liabilities?
An amount owed by the business. For an example, someone who is owed for goods supplied by the business
What is meant by capital?
Thus us the amount f money that the owner has put into the business
What is meant by expenses?
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
What is meant by Drawings?
Amounts withdrawn by the owners for their personal use
When is the trial balance drawn up?
At the end of the financial year
What is a definition of a trail balance?
It is a record of all the account balances at that point in time. It is also used to prepare the financial statements
What is meant y capital expenditure?
This refers to expenditure where the business will benefit for more than one accounting period.
What is meant by revenue expenditure?
Day to day expenses. For an example, telephone or staff salary costs
What is meant by revenue incomes?
This is the main income from sales. Other examples are rent received and interest received.
What is meant by capital income?
This is money invested by hr owner of the business and loans from third parties.
What are inventories?
This is stock or goods for resale held in stock by the business
What is a income statement?
The income statement shows the revenue income less the revenue expenditure for a financial period and computes the profit or loss generated.
How do you work out the cost of sales?
Opening inventories + purchases - closing inventories = cost of sales
What is prepared for a period of time (usually one year)?
Financial statements
Explain what a profit or lost is?
A profit or lose is calculated by comparing revenue income with revenue expenditure.
What is a trial balance?
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.
