Financial Accounting Flashcards
What is the Statement of Profit or Loss (SoPL) also known as?
Income Statement
What is the Statement of Financial Position (SoFP) also known as?
Balance Sheet
The SoFP and SoPL provide useful information for whom?
Lenders, Investors and other creditors
Why are lenders, investors and other creditors interested in a business’s SoPL & SoFP?
The SoPL & SoFP provide useful information which help make users make economic decisions.
What are the 3 main ledgers?
- Sales Ledger
- Purchases Ledger
- General Ledger
What is the Sales Ledger?
The sales ledger comprises of individual customer accounts.
It does not use double-entry
What is the Purchases Ledger?
The purchases ledger comprises of individual supplier accounts
It does not use double-entry
What is the General Ledger?
The general ledger comprises of all the other ledgers.
Includes accounts such as wages, investments, loans etc.
It is used to prepare the trial balance.
What is a Subsidiary Account?
A subsidiary account comprises of the different bank accounts a business may have. It is part of the sales ledger and purchases ledger so is not included in the trial balance
What is a Control Account?
A control account is the Master Account of all the subsidiary accounts. It forms the Sales Ledger Control Account and the Purchases Ledger Control Account in the general ledger. It is a part of the trial balance.
What is the Sales Ledger Control Account?
It comprises of Trade Receivables
What is the Purchases Ledger Control Account?
It comprises of Trade Payables
What are the 5 main types of General Ledger Accounts? (ALICE)
Assets
Liabilities
Income
Capital
Expenses
Which of the 5 main types of general ledger accounts form the SoFP?
Assets
Liabilities
Capital
Which of the 5 main types of general ledger accounts form the SoPL?
Income
Expenses
What do Debit inputs consist of? (DEAD)
Debits
Expenses
Assets
Drawings
What do Credit inputs consist of? (CLIC)
Credits
Liabilities
Income
Capital
What is the Accounting Equation?
Assets - Liabilities = Capital
What are assets?
Things owned by the business
What are Liabilities and Capital used for?
Capital and Liabilities are what are used to fund the assets the business owns.
How is capital calculated?
Opening Capital
+ Profit
- Drawings
= Closing Capital
How are is the Net, VAT & Gross organized in the general ledger for a Purchases Day Book?
Gross -> Cr PLCA
VAT -> Dr VAT
Net -> Dr Purchases
How are is the Net, VAT & Gross organized in the general ledger for a Sales Day Book?
Gross -> Dr SLCA
VAT -> Cr VAT
Net -> Cr Purchases
What are the stages of the Accounting System?
- Financial Transactions
- Financial Documents
- Books of Prime Entry
- The ledgers (double entry)
- Trial Balance
- Financial Statements
Explain the stages of the Accounting System
- Financial Transactions - An exchange of goods, services or assets for payment
- Financial Documents - Evidence of a transaction
- Books of Prime Entry - Gathering and summarising accounting information
- The ledgers (double entry) - Record dual aspect of business transactions
- Trial Balance - Arithmetic checking of double-entry bookkeeping
- Financial Statements - SoPL / SoFP
What is a trial balance?
A Trial Balance is a list of general ledger account balances.
How is the SoPL Calculated?
Income - Expenses = Profit or Loss
How is the SoFP Calculated?
Assets - Liabilities = Capital
What does the SoPL show?
Performance for an accounting period (part of double entry bookkeeping).
What does the SoFP show?
Financial position as at the end of an accounting period.
What is the Adjustment Column in an Extended Trial Balance usually used for?
- Irregular Transactions
- Correction of Errors
What changes must be made to the accounts at the end of the year?
All Income and Expenses Accounts are closed off (transfer to SoPL)
All Assets, Liabilities & Capital Accounts are balanced and carried forward.