What is Financial Accounting? Flashcards
What is accounting known as?
‘the language of business’
What is accounting essential for?
recording and presentation of business activities in the form of accounting records and financial statements
What does financial accounting involve?
recording business transactions in financial terms
reporting financial information to the owner of the business and other interested parties
advising the owner and other stakeholders how to use the financial reports to assess the past performance of the business, and to make decisions for the future of the business
Businesses need to record transactions in the financial accounting system for what purposes?
to quantify items such as sales, expenses and profit
to present the accounts in a meaningful way so as to measure the success of the business
to provide information to the owner of the business and to other stakeholders
In detail, show/explain the financial accounting system
What are the two ways of producing accounting records?
written, computer
History and modern times on written accounting records
Computer accounting records - layout, advantage, disadvantage
When maintaining financial accounts, what should you bear in mind?
accurate
up to date
confidentiality
When answering practice questions, what should you bear in mind?
be neat in the layout of your work
use ink - use of pencil shows indecision and can be altered easily
What do business transactions generate?
documents
When a business buys or sells a good or a service, the seller prepares an invoice stating what?
Then, who is sent the sales invoice?
the amount owing
when it should be paid
details of the goods sold or services provided
the sales invoice is then sent to the purchaser
What are cash sales?
where payment is immediate, whether it is cash, by cheque, by debit card, by credit card, or by bank transfer
Do all cash sales require an invoice to be prepared by the seller?
No, shops normally issue a cash receipt for the amount paid and record the sale on their till roll.
What are credit sales?
Where a sale invoice is issued to the purchaser, with payment to be made at a later date (often 30 days)
What is a trade receivable?
an individual or a business who owes you money when you sell on credit
What are cash purchases?
where goods are bought and paid for immediately, whether in cash, by cheque, by debit card, by credit card, or by bank transfer
What are credit purchases?
where a purchases invoice is received from the seller for goods bought with payment to be made at a later date (often 30 days later?
What is a trade payable?
an individual or a business to whom you owe money when you buy on credit
What is a credit note? What does the credit note state?
If the buyer returns goods which are bought on credit (they may be faulty or incorrect) the seller will prepare a credit note, which is sent to the buyer, reducing the amount of money owed
The credit note states the money amount and the goods or services to which it relates
Businesses need to pay in money, draw out cash and make payments.
Paying-in slip counterfoils, cheque counterfoils, bank transfers and information from bank statements are used frequently as….
…..source documents for bank account transactions
What is the sales journal?
list of credit sales made, compiled from invoices issued
What is the purchases journal?
a list of credit purchases made, compiled from invoices received
What is the sales return journal?
a list of returns inwards (goods returned by customers) compiled from credit notes issued
What is the purchases return journal?
a list of returns outwards (goods returned by the business to suppliers) compiled from credit notes received
What is the cash book?
the business’ record of the bank account and the amount of cash held, compiled from cash receipts, till rolls, paying-in slip counterfoils, cheque counterfoils, bank transfers and information from bank statements
