Basics of accounting Flashcards
Accounting equation?
Assets=Capital + Liabilities
Assets = Capital + Liabilities + Income - Expenses
When can capital change
only change if the owner puts more money into the business or takes it out to share
What does Credit (on time) mean
cash has not changed, payment under liabilities and is waiting to be received
What are current assets?
short term (inventory and stock)
What are non-current assets?
long-term, over a year (equipment, machinery)
What are returns inwards
customers returning goods
what are returns outwards
returns to suppliers
Explain the debit rules
Debit:
Dividends
Expenses
Assets
Credit:
Liabilities
Owners equity
Revenue
what does the Income statement show
shows the revenue and expenses
Explain in detail the income statement
Sales
Less COGS:
- Add purchases
- Less returns out
- Carriage inwards
Less Closing inventory
Gross profit
Less Expenses:
- wages and salaries
- carriage outwards
- communication expenses
- insurance
Net profit
What is a balance sheet
details a companies assets, liabilities and equity
Explain in detail what’s in the balance sheet
Non-current assets:
Current Assets:
bank and cash
inventory
trade receivables
total current assets
Total assets:
Non-current liabilities:
loans
Current liabilities:
Trade payables and other payables
Total Liabilities:
Capital:
capital
retained profit
Total capital
Total liabilities and capital :
simple financial statements and key concepts
need to do
What are retained earnings
Net profit - dividends
(essentially the total of net profit that isn’t paid out and kept in the business).
Where is returns inwards and outwards included in the income statement?
Returns inwards are deducted from the sales revenue
Returns outwards are deducted from the cost of goods sold
Where is carriage inwards on the income statement?
Included in cost of goods sold, to calculate gross profit
Where is carriage outwards on the income statement?
not included in the gross profit calculation but the net profit calc
Cost of goods sold equation
Opening inv + purchases - closing inv
Where are bad debts included on balance sheet and income statement
Income statement - bad debts expense to reduce the net profit value
Balance sheet - allowance for doubtful debts reduces the value of trade receivables on the balance sheet (under the heading Current assets)
Where is depreciation included on the income statement and balance sheet
Income statement - that year’s depreciation expense used to calculate net profit
Balance sheet - accumulated depreciation used to reduce the book value of fixed asset.
Depreciation on balance sheet
assets:
equipment (original cost) x
Less accumulated depreciation (x)
Net book value equipment x
Total assets
