Weeks 1-3 (exam)

Question 1

Capital

Answer 1

the amount the owner has invested in a business

Question 2

sales

Answer 2

the income earned from selling goods or services

Question 3

expenses

Answer 3

the costs incurred by the business or organisations to enable the business to trade

Question 4

drawings

Answer 4

the amount taken out of the business for personal use

Question 5

the entity concept

Answer 5

recognises that the transactions of a business should be recorded separately from transactions of its owner

Question 6

cash sales

Answer 6

are made when cash is received at the same time as the goods or services are delivered to the customer

Question 7

credit sales

Answer 7

are made when the goods or services have been received by the business but for which payment is made at a later date.

Question 8

overdraft facility

Answer 8

when a business anticipates that its bank balance will be overdrawn in the coming months, so it arranges an overdraft

Question 9

the matching concept

Answer 9

requires expenses to be matched to the revenue that they have generated, in order to arrive at the profit for the year.

Question 10

trade payables

Answer 10

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

Question 11

trial balance

Answer 11

a record of all account balances at a point in time and is used to prepare the final accounts

Question 12

Double-entry bookkeping

Answer 12

an accounting system where every transaction affects at least 2 accounts, ensuring the equation (assets = liabilities + equity) remains balanced

Question 13

capital expenditure

Answer 13

expenditure from which the business will benefit for more than one accounting period

Question 14

example of a capital expenditure

Answer 14

buying a delivery van

Question 15

revenue expenditure

Answer 15

relates to expenditure on day to day expenses

Question 16

example of a revenue expenditure

Answer 16

phone bills

Question 17

revenue income

Answer 17

mainly income from sales or ret received or interest

Question 18

capital income

Answer 18

includes money invested by the owner of the business and loans from third parities

Question 19

statement of profit or loss

Answer 19

shows the revenue income less the revenue expenditure for a financial period.

Question 20

Gross profit

Answer 20

the difference between sales revenues and the cost of goods sold

Question 21

inventories

Answer 21

goods for resale held in stock by a business

Question 22

net profit

Answer 22

profit calculated after all business expenses have been deducted

Question 23

asset

Answer 23

a resource controlled by a business that provides future financial benefits

Question 24

liability

Answer 24

an obligation to pay a creditor or leader

Question 25

non current asset

Answer 25

assets intended for long term use in the business

Question 26

current asset

Answer 26

assets that will be held by the business of less than 12 months

Question 27

current liabilities

Answer 27

amounts that are due to be paid within the next 12 months

Question 28

non current liabilities

Answer 28

amounts that are due to be paid after a year including long term loans

Question 29

estimated useful life

Answer 29

the expected length of time that a non current asset will be used in the business

Question 30

residual value

Answer 30

the estimated amount that a non current asset will be worth at the end of its useful life

Question 31

depreciation charge

Answer 31

the amount charged to the statement of profit or loss to spread the cost of non current assets over their lifetime.

Question 32

accumulated depreciation

Answer 32

the total depreciation that as been charged on an asset since it was purchased

Question 33

net book value (NBV)

Answer 33

found by taking the cost of an asset and deducting the accumulated depreciation that has been charged on that asset since its purchase.

Question 34

the reducing balance method (depreciation)

Answer 34

applies the depreciation rate to the NBV of the asset, so that the depreciation expense is greatest in the first year of ownership and falls every year thereafter

Question 35

consistency concept

Answer 35

guides preparers of accounts to treat all similar items in a consistent manner and to treat them inappropriately a similar way from one year to the next, in order for meaningful comparisons to be made.

Question 36

bad debt

Answer 36

arises when a customer who owes money to the business for goods or services reviewed on credit becomes unable to pay

Question 37

the prevision for doubtful debts

Answer 37

an amount deducted from trade receivables to recognise that a proportion of those amounts will eventually not be received by the business

Question 38

the prudence concept

Answer 38

requires that, when accounts are being prepared, a cautious but realistic approach should be taken to ensure that profits are not overestimated

Question 39

intangible asset

Answer 39

an asset without any physical substance

Question 40

money measurement concept

Answer 40

only transactions that can be quantified in monetary terms are recorded

Question 41

sale

Answer 41

a sale is made when the customer takes delivery of the goods

Question 42

purchase

Answer 42

a purchase is made when the business receives goods from the supplier

Question 43

what are the 6 types of account

Answer 43

assets liabilities capital income expenses drawings

Question 44

debit balance accounts include

Answer 44

expense accounts assets accounts drawings accounts

Question 45

credit balance accounts include

Answer 45

income accounts liability accounts capital accounts

Question 46

when is a trail balance drawn up

Answer 46

at the end of the financial period, usually at the end of the financial year

Question 47

what does the trail balance list

Answer 47

the account balances, showing if there is a debit or a credit balance on each account

Question 48

should the trail balance always balance?

Answer 48

yes

Question 49

calculation for cost of sales

Answer 49

opening inventories + purchases - closing inventories

Question 50

calculation for net profit

Answer 50

gross profit - all other expenses

Question 51

the historic cost concept

Answer 51

requires transactions to be recorded at their original cost to the business

Question 52

the going concern concept

Answer 52

when producing accounts, there is an assumption that the business will continue to operate for the foreseeable future unless there is any evidence to suggest that it will not.

Question 53

Accrual

Answer 53

An accrual is an amount owing a the end of the accounting period for an expense incurred but not yet paid for

Question 54

straight line method (depreciation)

Answer 54

spreads the cost evenly over the assets useful life

Question 55

limitation 1 of the statement of profit or loss (HC)

Answer 55

historical cost: assets are generally recorded as historical cost, which is not always the most meaningful measure

Question 56

limitation 2 of the statement of profit or loss (E&J)

Answer 56

estimates and judgements: the preparer of the statement of profit or loss and statement of financial position has to make a number of estimates and judgements

Question 57

limitation 3 of the statement of profit or loss (MA)

Answer 57

missing assets: the statement of financial position will include all known tangible assets but will not include any intangible assets, except in very specific circumstances.

Question 58

accounting equation

Answer 58

Assets = liabilities = Equity