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Accounting 1 > Accounting for Business 1 > Flashcards

Accounting for Business 1 Flashcards

1
Q

what are the 3 different types of business entities

A

sole traders
partnerships
limited companies

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2
Q

what are the to types of limited companies

A

private limited

public limited

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3
Q

private limited companies are notated by

A

Ltd

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4
Q

public limited companies are notated by

A

PLC

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5
Q

Features of a soletrader

A

one business owner who take total responsibility for the failure or success of their business

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6
Q

examples of sole traders

A

taxi drivers
sports coaches
barristers
hairdresers

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7
Q

is there a limit on liabilities for sole traders

A

no

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8
Q

what is a partnership

A

two or more individuals running a business together

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9
Q

in partnerships do all partners take an equal part in running the business

A

yes

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10
Q

do partnerships have limited liabilities

A

no

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11
Q

examples of partnerships

A

bricklayer and plasterer

accounting firm

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12
Q

what does it mean to say that a limited company has its own legal identity

A

it is regarded as separate to the people that own and manage the company

it has its own distinct name, in which it can enter into contacts and be sued

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13
Q

how can a limited liability company be formed

A

pay a registration fee and register to the Registrar of Companies

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14
Q

cash used to pay for shares in a company change the sofp how

A

increase cash in the company

increase share capital

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15
Q

what is capital introduced

A

this is how sole traders and partnerships put their own money into their business

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16
Q

to buy shares means you buy

A

part ownership of that compan

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17
Q

what is share capital

A

cash financed by selling shares

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18
Q

what is the perpetual life of most sole traders and partnerships

A

usually dies with owners

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19
Q

what is the perpetual life of limited companies

A

shares are passes onto beneficiaries and directors are always assigned.

The business is quite separate from the people who own it so it has a much longer life

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20
Q

can private limited companies sell shares to the public

A

no

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21
Q

can public limited companies sell shares to the public

A

yes

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22
Q

what does LSE stand for

A

london stock exchange

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23
Q

what does NYSE stand for

A

new york stock exchange

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24
Q

what is a negative effect of being in a public limited liability company

A

stock exchange rules
corporate governance codes to improve ethics and accountability

more complex financial reporting regime

under pressure to do well and extreme scrutiny by journalists and financial analysts

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25
Q

example of public limited companies

A

shell
aviva
kerry group

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26
Q

what does AGM stand for

A

annual general meeting

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27
Q

what happens at an AGM

A

directors present annual report to shareholders

shareholders come together an appoint a new director

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28
Q

What do voting rights at annual AGMs depend on

A

the number of shares held

one share = one vote

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29
Q

what is the role of an auditor in a limited liability company

A

appointed by shareholders and are not involved in the day to day running of the company

They verify the annual report

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30
Q

what is the role of an auditor in a limited liability company

A

appointed by shareholders and are not involved in the day to day running of the company

They verify the annual report

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31
Q

What is the role of a director in a limited liability company

A

run the day to day operations

32
Q

What is the function of the stock exchange

A

to enable companies to raise new finances

to enable investors to sell their securities

33
Q

what does EGM stand for

A

extraordinary general meeting

34
Q

do sole traders and partnerships have to get their accounts audited or publish them publically

why do these companies prepare annual reports

A

no

theses companies only prepare annual reports to determine tax on profits and present to banks to apply for loans

35
Q

What would happen if financial statements weren’t regulated by auditors

A

directors could provide shareholders with false or misleading statements about the company’s financial situation which may lead users to make poor economic decisions

36
Q

How is finance introduced into sole traders and partnerships

A

capital introduced

(start up capital to buy non current assets eg machinery amd meet the day to day expenses before revenue starts to flow in from sales)

37
Q

What three things make up equity

A

share capital
share premium
retained earnings

38
Q

the potential rewards available to shareholders reflect

A

the risk that they are willing to take

39
Q

what are ordinary shares

A

the primary shares in a company

may only receive from profits once all of the company’s other claims have been settled

40
Q

what are the advanatges of having ordinary shares

A

potential for very high dividends

potential for value of shares to rise many times over

carries votes in the compnay meetings

41
Q

what are the limitations of owning ordinary shares in a company

A

very high risk

may receive no dividends at all

may lose their entire value in a liquidation

42
Q

what are preference shares

A

shares that guarantee when dividends are paid, these shareholders will receive theirs first before any dividends are paid to ordinary share holders

43
Q

what is a negative of being a preference shareholder

A

THey have a fixed dividend rate

this means that even if profits are higher, they can only receive a maximum amount of dividends

which means that an ordinary share holder could receive more than a preference share holder at times

44
Q

on winding up or liquidation, how do preference shareholders get preference

A

once all creditors have been paid, preference shareholders receive their capital back before ordinary share holders

45
Q

what are the restrictions on preference shareholders

A

fixed dividend rate

no right to vote in general meetings

46
Q

who decides on the nominal (par value) of shares

A

the owners

47
Q

does the par value of a share need to be permanet

A

no

48
Q

why might splitting and consolidating of shares be used

A

to make shares more marketable

49
Q

what is splitting shares

A

eg halving the value of shares

issuing each shareholder twice as many shares with half the original nominal value

50
Q

what is consolidating of share

A

eg doubling the price of shares

51
Q

to increase the price of shares

A

consolidating

52
Q

to decrease the price of shares

A

splitting

53
Q

what are reserves

A

Reserves are profits and gains that a company has made and which still form part of the shareholders’ equity.

54
Q

revenue reserves are also known as

A

reatined earnings

55
Q

what are revenue reserves

A

the company’s trading profits as well as gains on the disposal of non-current assets.

56
Q

what are capital reserves

A

earnings made from issuing shares at above their nominal value

revaluing (upwards) non current assets

57
Q

what is share premium

A

any amount over and above the par value of the shares issued

58
Q

when are bonus issues issued

A

when there is a large surplus on retained earnings not yet distributes to shareholders as dividends

59
Q

what are bonus earnings

A

when retained earnings are capitalised by turning distrubtable earnings into non distributable share capital

60
Q

why might a company issue bonus issues

A

to save profits

61
Q

what does a 2 for 5 bonus issue mean

A

for every 5 shares an existing shareholder has, 2 are given free

62
Q

what are rights issues

A

new shares are issued to raise cash

these shares are issued to the existing shareholders

63
Q

why are rights issues in place

A

to prevent the dilution of existing shareholders’ interests in a company’s share capital

64
Q

at what price are rights issues sold at

A

discount to the market price

65
Q

why are rights issues sold at a discount to the market price

A

to encourage existing shareholders to take up their rights and subscribe more cash

66
Q

is issuing shares at a discount (below par value) legal

A

no

67
Q

what are dividends

A

distribution of profits to shareholders

68
Q

are dividends an expense

A

no

69
Q

is there a legal obligation to pay dividends

A

no

70
Q

where are dividends deducted from

A

directly from retained earnings in SOFP

71
Q

if a company has made a loss can they pay dividends

A

no

72
Q

example of a short term finance option for a business

A

bank overdraft

73
Q

can a bank demand for overdrafts to be repaid on demand

A

yes

74
Q

how might a business finance itself in the medium to long term

A

bank loans

75
Q

What is the function of the stock exhange

A

to enable companies to raise new finances

to enable investors to sell their securities

76
Q

what are limited liability companies

A

once shareholders have paid what they agreed to pay inshares, and the companies creditors are satisfied, shareholders have no further liabilities for the debts of their company

The liability of the shareholders is restrcited to the amount they have subscribed to in shares

77
Q

what is markup

A

Markup is the difference between a product’s selling price and cost as a percentage of the
cost.

Accounting 1 (10 decks)

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