Business Accounts

Question 1

prepayment

Answer 1

deducted as an expense in the profit and loss account and included as a current asset in the balance sheet

Question 2

accruals

Answer 2

included as an expense in the profit and loss account and current liability in the balance sheet

Question 3

closing stock/work in progress

Answer 3

included as income in the profit and loss account and a current asset in the balance sheet

Question 4

opening stock/work in progress

Answer 4

deducted from income in the profit and loss account and there is not entry in the balance sheet

Question 5

depreciation

Answer 5

• current year’s depreciation is therefore included as an expense in the profit/loss account
• the accumulated depreciation to date is deducted from the value of the asset in the balance sheet to give its ‘net book value’ (its value at the current time)

Question 6

bad debts

Answer 6

included as an expense int he profit and loss account and deducted from the debtor’s figure in the balance sheet

Question 7

doubtful debts

Answer 7

included as an expense in the profit and loss account and deducted from the debtor’s figure as a separate entry

Question 8

What additional bits does a Partnership Account have?

Answer 8

• Appropriation account at the bottom of profits/losses account
• Bottom half of the balance sheet will have capital account and current account

Question 9

Appropriation account

Answer 9

• extension of the profit and loss account which shows the division of profits between the partners
  • profit is divided into
    • salaries (paid first)
    • interest on capital
    • anything else left is residual
      profits and shared according to the agreed profit-sharing-ratio

Question 10

capital account

Answer 10

amount of capital invested in the business by the partner. This is usually kept separate from the current account so that the partner’s investment can always be seen

Question 11

current account

Answer 11

• partner’s share of the business. Calculate as opening balance (what remains undrawn) + net profit share (from appropriation account) - drawings(opening balance + net profit share - drawings = curr account)

Question 12

What is the main difference between company accounts and accounts in unincorporated businesses?

Answer 12

• share capital account
• share premium account
• second half of the balance sheet with capital reserves and revenue reserves

Question 13

share capital account

Answer 13

shows the funds contributed by shareholders in exchange for shares at their nominal/par value

Question 14

share premium account

Answer 14

shows the funds contributed by shareholder in exchange for shares over their nominal/par value (ie where a premium has been paid)

Question 15

capital reserves

Answer 15

capital and share premium are not usually distributable when a company is solvent, due to the principle of capital maintenance

Question 16

revenue reserves

Answer 16

distributable and the most important one is the profit and loss reserve which hows profit after tax and dividends

Question 17

what is the appropriation of profit in a company account

Answer 17

• corporation tax
• dividend
• retained profit