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What is Financial Accounting? Flashcards

1
Q

What is accounting known as?

A

‘the language of business’

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2
Q

What is accounting essential for?

A

recording and presentation of business activities in the form of accounting records and financial statements

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3
Q

What does financial accounting involve?

A

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

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4
Q

Businesses need to record transactions in the financial accounting system for what purposes?

A

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

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5
Q

In detail, show/explain the financial accounting system

A
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6
Q

What are the two ways of producing accounting records?

A

written, computer

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7
Q

History and modern times on written accounting records

A
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8
Q

Computer accounting records - layout, advantage, disadvantage

A
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9
Q

When maintaining financial accounts, what should you bear in mind?

A

accurate
up to date
confidentiality

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10
Q

When answering practice questions, what should you bear in mind?

A

be neat in the layout of your work
use ink - use of pencil shows indecision and can be altered easily

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11
Q

What do business transactions generate?

A

documents

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12
Q

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?

A

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

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13
Q

What are cash sales?

A

where payment is immediate, whether it is cash, by cheque, by debit card, by credit card, or by bank transfer

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14
Q

Do all cash sales require an invoice to be prepared by the seller?

A

No, shops normally issue a cash receipt for the amount paid and record the sale on their till roll.

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15
Q

What are credit sales?

A

Where a sale invoice is issued to the purchaser, with payment to be made at a later date (often 30 days)

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16
Q

What is a trade receivable?

A

an individual or a business who owes you money when you sell on credit

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17
Q

What are cash purchases?

A

where goods are bought and paid for immediately, whether in cash, by cheque, by debit card, by credit card, or by bank transfer

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18
Q

What are credit purchases?

A

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?

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19
Q

What is a trade payable?

A

an individual or a business to whom you owe money when you buy on credit

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20
Q

What is a credit note? What does the credit note state?

A

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

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21
Q

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….

A

…..source documents for bank account transactions

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22
Q

What is the sales journal?

A

list of credit sales made, compiled from invoices issued

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23
Q

What is the purchases journal?

A

a list of credit purchases made, compiled from invoices received

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24
Q

What is the sales return journal?

A

a list of returns inwards (goods returned by customers) compiled from credit notes issued

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25
What is the purchases return journal?
a list of returns outwards (goods returned by the business to suppliers) compiled from credit notes received
26
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
27
What is the general journal?
a record of non-regular transactions, which are not recorded in any other journal
28
What is double-entry bookkeeping?
making two entries in the accounts for each transaction e.g. if you're paying wages by cheque you will make an entry in bank account and entry in wages account
29
What are the sources for the entries you make?
the books of prime entry
30
Why is the ledger divided into a number of sections?
because the large number of accounts involved
31
What is the sales ledger or receivables ledger?
personal accounts of trade receivables (customers to whom the business has sold on credit)
32
What is the purchases ledger or receivables ledger?
personal accounts of trade payables (suppliers to whom the business owes money)
33
What is the general ledger?
the remainder of the accounts: income and expense accounts eg sales, purchases, wages, and accounts for assets and liabilities of the business eg non current assets, inventory, cash, bank, non current liabilities, owner's capital
34
What does the trial balance do?
effectively checks the entries made over a given period of time and will pick up most errors - arithmetic check sets out the balances of all the double-entry accounts (totals of the accounts for a certain period) it is the source of valuable information, which is used to help in the preparation of the financial statements of the business
35
The financial statements of a business comprise of what?
the income statement and the statement of financial position
36
What is the income statement?
income - expenses = profit or loss
37
What is the income statement also known as?
the statement of profit or loss
38
What is the object of the income statement?
to calculate profit or loss due to the owner of the business after the deduction of costs of sales to give gross profit,and also the deduction of all expenses (overheads) to give profit for the year
39
Where are the figures for the calculations found?
taken from double-entry system - sales revenue, purchases, expenses of various kinds
40
What are assets?
items the business owns
41
What are non current assets?
items bought for the use in the business eg premises, vehicles, computers
42
What are current assets?
items used in the everyday running of the business eg inventory, trade receivables, cash, money in the bank
43
What are liabilities?
items that the business owes eg bank loans, overdrafts, trade payables (money owed to suppliers)
44
What is capital?
money or assets introduced by the owner of the business: capital is in effect owed by the business to the owner. The amount of owner's stake in the business.
45
What is the accounting equation?
assets - liabilities = capital
46
Does the statement of financial position always balance in numerical (money) terms?
yes
47
What does every business transaction do to the statement of financial position?
changes it
48
What is business entity?
the accounts record and report on the financial transactions of a particular business
49
What problems may occur when a business is run by a sole trader?
the owner's financial transactions can be sometimes mixed with the business' financial transactions the 2 should be kept separate!
50
What is money measurement?
the accounting system uses money as the common denominator in recording and reporting all business transactions It is not possible to record loyalty of a workforce or quality of a product because they cannot be reported in money terms.
51
What is bookkeeping?
basic recording of business transactions in financial terms - 'keeping the books of the accounts'
52
Who can carry out bookkeeping?
anyone - owner or full-time or part-time bookkeeper
53
What is the bookkeeper's role?
record the day to day financial transactions including: maintaining account records entering transactions in the books of prime entry(journals) and ledger accounts checking the accuracy of the bookkeeping
54
What does accounting involve?
the financial accountant taking the financial information recorded by the bookkeeper and preparing and presenting it in the form of financial reports to the business owner or managers
55
What does the accountant ensure?
accounting concepts are applied the financial statement show a true and fair view of the business
56
What do financial reports help the owner or managers to do?
monitor the financial progress of the business, and to make decisions for the future
57
What will the accounting system be able to give information about?
-purchases of goods (for resale) to date -revenue (cash and credit sales) to date -expenses and overheads to date -trade receivables - total amount owed to the business, and also the names of individual trade receivables, and amount owed to each trade payable -assets owned by the business -liabilities eg bank loans, owed by the business -profit made by the business during a particular time period
58
Who is interested in the accounts of a business and Why?
-managers -owners, want to know how profitable the business is and what it may be worth -providers of finance eg bank manager if the business wants to borrow from the bank -suppliers, who wish to assess the likelihood of receiving payment from the business -customers, who wish to ensure that the business has the financial strength to continue selling the goods and services that they buy -employees and trade unions, who wish to check on the financial prospects of the business -tax authorities, who will wish to see that the tax due by the business on profits and for value added ax has been paid -competitors, who wish to assess the profitability of the business -potential investors in the business -the local community and national interest groups, who may be seeking to influence business policy -government and official bodies eg Companies House, who need to see the financial statements of limited companies
59
What are accounts?
financial accounts, where business transactions are entered
60
What are journals?
books of prime entry of a business
61
What is the ledger?
the set of accounts of a business
62
What are purchases?
goods bought - whether on credit or for cash - which are intended to be resold later
63
What are sales?
the sale of goods - whether on credit or for cash - in which the business trades
64
What is revenue?
the total of sales, both cash and credit, for a particular time period
65
What are sales returns?
goods returned by customers -also known as return inwards
66
What are purchases returns?
goods returned by the business to suppliers -also known as return outwards

A Level Accounting (4 decks)

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