accounting Flashcards
1
Q
define stakeholder
A
anyone who has influence in the buisness
2
Q
What is the accounting equation
A
capital = assets-liabilities
3
Q
equation for cash flow
A
flow= cash in- cash out
4
Q
what is a current and non-current asset
A
non-current = long term >1 year
(cannot be converted into cash for firs year)
current= short term <1 year
5
Q
what is a liability
A
money a company owes
6
Q
what is equity
A
what the company is worth
7
Q
what is an asset
A
what the company owns/resource controlled by the firm
8
Q
what is a tangible asset
A
anything you can touch and see/ computer/chair/table/machiene-
usually non-current
9
Q
what is an intangible asset
A
not physical- patent right/ intellectual property right
10
Q
what is an available for sale asset
A
stock or bond/ can buy and sell it instantly
11
Q
examples of current assets
A
cash/ inventory (stock) the value of unsold stock that company hasn’t sold at a point in time/ trade recieveables anyone in debt to business on trade terms (klarna) / pre-payemnt
12
Q
what is ending inventory on a finance sheet
A
inventory (stock) the value of unsold stock that company hasn’t sold at a point in time/ stock left over end of year
13
Q
non-current liability
A
expected to settle in more than a year
14
Q
current liability
A
expected to be payed back in a year/ short term borrowing/ trade payables
15
Q
what are the only 3 things that should be in the balance sheet
A
assets, liability and capital
16
Q
accounting question-
What is the
-statement of financial position on January 1st-3rd
include cash and capital and liabilities
- and what is the overall profit made by the business in the 3 days
asset- what company has
liability- what company owes
capital = assets-liability
A
on credit= not paid for yet
Jan 1/ business [assets] has £10,000, and no liabilities as no transactions yet. Capital= £10,000
Jan 2/ “he bought” = “business bought”
assets= what the business has. It has a van, £3000 worth of stock is hasn’t paid for yet or sold, and £4000 cash left over from buying the van.
liability= £3000 owed to supplier bought credit from
Jan 3/ inverory= 0 because he sold the all goods he bought. cash= still £4000 nothing paid in or out.
still liability; company hasn’t paid supplier yet
profit/ calculated either by change in capital or goods sold
17
Q
liability= what company owes
asset= what company has
A
notes before answer:
1/ £2000 borrowed is a liability (has to be paid back) long/short term depending on wether they want to be paid back in less than a year
2/ you sold £4000 worth of stock [half of £8000] for £6000, making £2000 worth profit
notes on answer:
capital section is not the original £3000 and £2000 loan, it is the original £3000 and then the £2000 profit. Cannot include liability in capital
assets always = capital+ liability
18
Q
class the information into asset and liability, so you can work out capital
A
19
Q
ending capital= (opening capital +additional capital + profit) - (loss) - (drawings)
capital= assets - liabilities
A
20
Q
ending capital= (opening capital +additional capital + profit) - (loss) - (drawings)
capital= assets - liabilities
A
21
Q
what is an income statement
A
statement that shows is a business makes a profit or a loss during a particular period
22
Q
revenue is a branch of income. What does it refer to
A
income you get from normal trade (e.g selling goods)
- bank interest rates is not a form of revenue
23
Q
if a company buys £8000 worth of computers for the company does that go in expense or asset?
A
asset
24
Q
what is revenue expenditure
A
day to day running costs (salary/ rent/ electricity)
25
what is the accrual concept
revenue is reordered when something is sold not when money is received
26
27
28
29
30
31
32
classify these accounts as an asset/ liability/capital account
-loan account
-revenue/sale account
-withdrawal account
-building account
-loan account = liability
-revenue/sale account = asset
-withdrawal account= capital account
-building account= asset (what the company owes)
33
for T accounts, the sides are opposites
-If one side increases the account value, the other side decreases it but these **sides are not set** [the credit side is not always the decrease or increase side]
34
on which side do
assets, expenses, liabilities, income and capital go on a T account
**all elephants like ice cream**
-they go on the side **that they increase**
[e.g liabilities increase credit, and assets increase debit, however paying off loans decreases liability so must be recorded on the debit side]
35
this company ownes plants and machinery
-what account would this be under
-and what increases the value of this account
asset
to increase value of this asset account= the company must buy plants and machinery
-this goes on debit side of T table
36
what type of account would a sales/revenue account be
-and which side of the T account would it fall under debit or credit
income
-credit side
-if you see the sales account on the credit side it means a sale was made and the company is earning money
-if you see the sales account on the debit side it means a sale return
37
Which side of the T account would these be recorded as
-a company buys and asset [e.g £10,000 car]
-when the company sells that car
-buying the car= increases assets= put on the debit side
-selling the car= decreases assets and is an income= put on credit side
38
what would a sales account include
anything earned from sales
39
what type of account is rent
-and would this be recorded under the debit or credit side of a T account
expense
-recorded under debit
40
what type of account would this go in
-and would this be recorded under the debit or credit side of a T account
this would be on the **debit** side **not** the credit
-anything recorded on the credit side will increase liability
-however, if you have a pay back loan, as you pay off the loan you are **decreasing liability** so this cannot be recorded under the credit side
41
what account type would this be under
and therefore what side of a T account, debit or credit
the company now owns a machine so this is an **asset**
-this money is recorded under debit as asset has increased
42
what would the 30,000 mean if it was recorded on the debit side vs if it was recorded on the credit
on debit side= the company just bought 30,000 worth of machinery as asset increases are recorded on the debit side
credit side= the company must have sold 30,000 worth of machinery because it is income side
43
is someone who is in debt recorded as an asset, expense, liability, income or capital
-therefore if someone owes something to the company is it recorded on the debit or credit side
asset
-recorded on debit side
44
if someones name is in a category on the debit side of the T account what does this mean vs if they were on the credit side
debit side= that person owes the company
credit side= the company owes that person
45
if there is an increase in the sale account, which side is an increase recorded on
-debit or credit
increase in sale account= increase income
**credit**
46
would this be recorded in the debit or credit side of the table
cash is the money currently **owned** by the company not owed which is an **asset**
-cash account is asset
**debit side** as asset is increased
47
would this be recorded in debit or credit side of a T account
customer is paying back the money they owe to a company, which is **decreasing liability** and the money the company is owed is an asset therefore
-would be recorded on **debit** side
48
would this be recorded in debit or credit side of a T account
-owning a vehicle is an asset and therefore when you sell that the assets decrease
-**credit side**
49
what type of account should this go under
-cash account
-sale account
-trade receivables
-trade payable account
the company has made the sale but is owed money by the customer
-so it is an asset and debit side
-**trade receivable**
50
what category would a sales account fall into
income
51
-purchase account
-cash account
-trade payable account
-asset account
a purchase is an expense but the company hasn't paid for it yet; they still owe the supplier
-**trade payable**
52
what is generally recorded in a trade payable account
money the company owes [to mostly other suppliers] / how much debt the company has
-e.g raw materials they have bought on credit
53
-asset account
-expense account
-liability
-income
**expense** account
54
-asset account
-expense account
-income account
trade payable- money the company owes [to mostly other suppliers] / how much debt the company has
trade receivables- the other companies getting their money back
-**asset account** somehow
55
what is the difference between a cash transaction vs a credit transaction
56
what is the **accruals concept**
that income and expense should be recorded right away; doesn't matter if the customer/company has paid immediately or not
-it is recorded as it happens
57
if there is a cash sale, it will go into income (sale) account
-if the client payed immediately in cash it will go into the cash bank account
-if the client hasn't payed yet it goes into trade receivable
58
if the company has paid for materials from a supplier it hasn't payed for yet
what account does this transaction go under
payable account
59
if the company has paid for materials from a supplier it hasn't payed for yet
what account does this transaction go under
payable account
60
if the transaction was instead done by cheque, how would the account name change
would change to bank
61
Tom buys a product from a company on credit
-what account would this transaction be under
-and would it be credit or debit side
under trade receivable [debtor to the company]
-but you would put the name instead of writing this as the company will have many debtors
debit- as this is an asset the company has even though it hasn't been payed yet
62
this shows that Tom owes the company £100 as it Is recorded on the debit side
-how is this recorded when Tom pays the company this money
-trade receivable is decreasing as Tom is paying back the money
-asset will increase as the company cash increases [just gained £100 in cash]
-when the cash is recorded on both sides of the "Tom"account it means it cancels out
-His money is also put into the "cash" account debit side
63
what does this mean
£100 was spent at Happy ltd as a **raw material**
-as debit side increases so asset increases
the credit side means that the company owes Happy ltd £100, so it must have been paid for on credit
64
this is a company buying £100 worth raw materials from Happy ltd **on credit**
-how would this change when the company pays back the £100
the two sides on the "happy" account cancel out
65
what order would these have been filled in as
1- the customer buys on credit so it is recorded under receivables as debit [asset increases even though money hasn't gone through yet]
- simultaneously as an opposite, this is recorded in a ""revenue account" on the credit side because making the sale increase revenue
2- customer pays back money so it needs to be cancelled out under "receivables account"
-simultaneously recorded on debit side under "bank account" because asset has increased when direct cash is payed [cash held by company increases]
66
what is the difference between trade discount and cash discount
trade discount: when you buy in bulk suppliers lower price when you make the purchase
cash discount: scheme to encourage customers who pay on credit to pay faster [e.g if customer pays within 10 days they will get 10% discount]
-**dont record** anything in the book with **trade discount**
-do record cash discount
67
what account would a "cash discount" to a customer be recorded under
debit side-it is under expense
because giving a discount to a customer is an expense to the company
credit side- is under trade receivable
68
where would "trade discount" go in the table
-if cash discount is expense to the company, trade discount will be....
discount received is a **type of income**
therefore credit side because it is money earned by the company
-company owes less money to supplier so it **reduces trade payables**/ liabilities decrease
69
1.recorded under "trade receivables" heading on the debit side because it increases assets
2.when the customer pay back money (-5%) it is recorded under "bank" on debit side because the company has received cash [always on debit side]
2a. simultaneously recorded on credit side under trade receivables
3.must record the discount; this goes under "discounts allowed heading". Because the discount is an expense to the company it goes under debit side
70
1.the company owes money to mr Jones so he is a trade payable [on credit as this payment is a company liability]
2. The company pays £95. Recorded under bank on credit side because the company is paying money out/ reducing asset
3. Bank recorded on debit side under 'payables' because the company have now payed Mr Jones [goes on opposite side to balance out]
4.discount received goes on credit side because discount received is **classified as income**
71
debit- someones owes you money
credit- you owe someone money
72
discount received table is classified as income/ so if you get a discount that you dont have to pay, put it on credit side of 'discount received account'
73
what is the difference between revenue expenditure and capital expenditure
revenue- salary (day to day expenses)
capital- money used to buy a fixed asset they can use for long term [e.g car, machine]. Cost of additions such as installation or training on the machine is in this category **however** maintaining the expense is a revenue expense [e.g buying oil for the machine or car]
74
75
we ignore the initial account amount of £1,800; anything in profit and loss account from last year will not be carried forward into the next year [this is not the same for asset, liability and capital etc, we dont refresh]
76
what does this mean
1. sale on debit side meaning the company has received £200 by cash sale
2. credit side, means company has payed £50 for staff wages, reducing their bank balance
77
how would you balance this account
add balance c/d to the side that needs balancing
1. draw a single line under that
2. then write total with double underline
3. carry the balance c/d to the other side- this is the final balance
77
what does it mean if the final balance c/d is on the debit side vs the credit side under "bank"
-on credit side, the bank is that amount in overdraft/ on liability side/ the company owes that much to the bank
-debit side the bank has increased its asset
78
translate this
company spent £50 and £80 from bank on wages
1. balance c/d on other side
2.line and double line above and below total
3. then carry balance c/d to other side
meaning in that year the company spent £130 on wages in total
79
what types of things would be on either side of a profit and loss account
79
what types of things would be on either side of a profit and loss account
80
what is the top balance b/d
balance carried over from last year [ company still has a £250 loan]
81
what are the only factors carried forward from one year to the next
asset, liability and capital
82
label each of these asset, expense, income, capital or liability
83
produce a trial balance in the template
they just go on the side where they increase debit or credit
-motor vehicle is asset as it is something the company has/ it is an asset/ capital expense or long term asset
84
**note**- drawings/dividends are in the balance sheet, not in the profit and loss account
85
what is gross profit or direct cost
profit after deducting cost of production
86
gross profit is cost of sale
we only consider the cost of producing the 10 pens that were sold
87
what is the difference between gross profit and net profit
gross profit= cost of sale [all items sold-cost of how much it took to produce all items sold]
net profit= gross profit - expenses
also known as the 'last line' value
88
where would an accountant's vs deliver drivers salary go under
accountants salary- administrative costs
drivers - selling and distribution cost
89
**note** - remember to write the titles in black when doing either statement
90
A company has produced 200 pens for £500, but have only sold 100 pens £250
what is recorded in the profit and loss account
£250
-only record the amount sold, not how many produced
91
what is rent
an expense
92
what is recorded in a profit and loss account
this account is only for 12 month periods
so only half of it is accounted for
93
this is a 12 month contract. What should be recorded in the profit and loss account
93
this is a 12 month contract. What should be recorded in the profit and loss account
have to pay for 12 months as profit and loss account records 12 months.
94
what is cost of sale
how much it costs to produce something sellable
95
a company has 200 pens at the start of the year -this is inventory
-they bought them for £500 and this is recorded under **assets** in the balance sheet
-where would this be recorded when 100 pens are sold
-£250 asset gone (100 pens worth of asset)
-the cost of sale is £250 and recorded as an **expense**
96
**calculation of cost of sales**
-had 50 pens at start of year
-made 150 extra pens to sell
-cost of pens available for sale 100+300
-during the year only 100 pens are sold
-100 pens left over at end of year
-**what Is the cost of sales**
200
97
opening inventory is inventory you start the year with. Period purchases are cost of production for this inventory
-this needs to be transferred to the table called **cost of sales** to make this asset sellable
-how would you transfer A and B to cost of sales
-you need to basically get rid of everything under 'opening inventory' because you want it to be under cost of sales
-so you need to **cancel it out** on the other side
-inventory moved to **debit side** under cost of sales
-do the same thing with purchases
98
closing inventory- unsold goods at the end of year
where would C go in the 'cost of sales table'
Have to move C back into inventory
-C is part of A and B so obviously cost of sales will decrease if you dont sell all the product
99
what would be the cost of sale
100
what is historical cost accounting for non-current assets and what is NBV
buying something like a machine that you still use in your company 3 years later [non-current asset]
-it would have gone down in value so you cant record it as the value it was bought for
NBV- **net book value** how much the asset should be worth
101
where does depreciation go in an income statement and is it debit or credit side
expenses- debit side
102
there are 2 ways of calculating depreciation, which is the straight line method and which is the reducing balance method on this graph
103
there are 2 ways of calculating depreciation,
what is the difference between the two methods
straight line- asset depreciates by same value each year and is recorded in the account as such [residual value is value the asset is worth after x amount of years the company wants to use it for]
reducing balance- in the first year the value drops drastically, then deprecation amount becomes smaller and smaller every time
104
using the straight line method, what is the depreciation amount per year
105
what is net book value in this context
the amount the (non current) asset should be worth at that moment in time
106
a company is going to sell their non-current asset, what determines wether they make a profit or a loss on the sale of this product
NBV- the amount it should be worth at that point in time
if they sell it for more than the NBV then they make a profit and visa versa
107
you buy a laptop for £1000
-it has a depreciation rate of 10%
-you use if for two years
-then sell it for £800
did you make a profit or loss using the straight line method and then the reducing balance method
108
a financial statement is everything payed in and out in a **year**
-an electricity bill pays for 3 month periods
-invoices are received at end of October and end of January
-we record the October payment on debit side, then cancel it out on **credit side when it is payed**
-for the January payment that is still on debit, where do you record is as credit at the end of December, when it hasn't actually been payed yet
credit side under accurals
109
what are accruals
when you havent paid something yet, but the price has been incurred by the end of the year (e.g using electricity but hasn't paid the bill yet)
-it is recorded as an accrual
-sometimes the exact cost isn't known so it has to be estimated
110
this is an accrual (an expense that hasn't been paid at the end of the year but which will be payed in the future)
-how is this re-recorded when the payment is made
goes on the opposite side to cancel out but goes under **payable**
-then under the payable section goes as a credit (opposite side to under accrual)
111
this accrual was estimated from last year
-how would this be re-recorded when the accrual is payed but the actual amount ended up being **more than estimated**
B >> A
(B being payed amount and A estimated)
- A is cancelled out under "payable"
-accrual A moves under payable heading
(same as if it was same amount)
-but you add the extra money payed as an expense, and also under payables (because it is also money you paid to that person/business)
-red boxes are only additions
-ignore red line at top
112
what is the difference between accrual and payable
payable is an expense and accrual is a liability
payable- the company knows who they owe money too
accrual- the company owes money to someone but they haven't received the invoice for it yet so cannot put it down as a payable. However it is still an expense occurred so it is put down as accrual
113
a company receives an invoice for £900 of electricity and pays it. What is the double entry book keeping for this
-what categories does this go under
114
the company receives an invoice for 3 months rent and pays it, what headings is this transaction recorded under
recored under cash not payable because the company pays it straight away (doesn't owe anyone)
115
for accruals- payment at end of [3 month] period (end of period runs into next year) - haven't actually paid for something that has been used in that financial year yet
prepayment- payment at start of [3 month] period (end of period runs into next year)- already payed for something which runs into next financial year
116
in this example, the company pays £1200 rent for 3 months dec, nov and January
-how is this recorded in the following tables for a financial statement that ends in December
cannot put all £1200 into rent expense account because one month of it doesn't belong to the finance year
prepayment goes to asset because it is the amount the company has already paid for something it has not used yet- this is an asset
117
in this example, the company pays £1200 rent for 3 months dec, nov and January
-these are what the tables look like for the financial period ending December
-how does this change when the amount it paid in January
tables are cleared because they are for a new financial year but you have **balance brought down** to show for the balance left
-to cancel it out you put it on credit side and under the heading expense because you have now paid it
118
how does a company write off a bad debt
(debt that someone cannot pay them)
-this 12,000 will go into the profit and loss account as expense
move it from receivables and move it to expense
119
provision for doubtful debt goes under selling and distribution costs
120
which types of businesses are incorporated and incorporated entities
121
what is the difference between the two
122
what is interest on a loan considered
an expense
123
what is the **taxable profit** for each of these businesses
-one has a lank loan so pays 10% interest on their profit
-one has no bank loan but gives out dividends to share holders
124
what is the nominal value of a share
the minimum value the share is worth set by the owners (usually 10p-£1)
