Introduction to Accounting

Question 1

What are assets?

Answer 1

What the business owns

Question 2

What are fixed assets?

Answer 2

Property or possessions which are used in the business, that are NOT for resale.

Question 3

Give examples of fixed assets

Answer 3

-Buildings/Premises
-Machinery
-Fixtures and fittings/Furniture
-Office equipment
-Land
-Vehicles

Question 4

What are current assets?

Answer 4

assets which are expected to be cashed within one year

Question 5

Give examples of current asssets

Answer 5

-Closing stock
-Petty cash
-Debtors
-Cash
-Bank

Question 6

What is closing stock?

Answer 6

The amount of the unsold stock which is lying idle in the business on a given date, waiting to be sold

Question 7

What is petty cash?

Answer 7

Used to pay for miscellaneous items, i.e. deliveries. A separate way of paying instead of taking money out of the till.

Question 8

What are debtors?

Answer 8

-People who owe money TO ME
-Occurs when goods are sold on credit to the customer

Question 9

What are creditors?

Answer 9

Someone I owe money to

Question 10

What is the pneumonic to remember creditors and debtors?

Answer 10

Politically Correct
Snoop Dogg

Purchases on credit ⇒ Creditors
Sales on credit ⇒ Debtors

Question 11

What side is debit and credit on a T account?

Answer 11

Debit (Dr)- left
Credit (Cr)- right

Question 12

What is recorded on the debit side of an Asset T account?

Answer 12

Records assets and increases in an asset

Question 13

What is recorded on the credit side of an Asset T account?

Answer 13

Records any decrease in an asset

Question 14

What is a liability?

Answer 14

What the business owes

Question 15

What are current liabilities?

Answer 15

They are short term debts, that are owed for less than a year

Question 16

Give examples of current liabilities

Answer 16

-Creditors
-Bank overdraft
-Short-term loans

Question 17

What is a bank overdraft?

Answer 17

When the bank allows your account to be overdrawn (below zero)

(you owe the bank money, therefore a liability)

Question 18

What are long-term liabilities?

Answer 18

Money borrowed from others for a considerable period of time (over a year)

OR

Capital invested by the owner/shareholders

Question 19

Give examples of long term liabilities

Answer 19

-Long term loans
-Capital (or Share Capital)
-Net profit

Question 20

What is capital and why is a liability?

Answer 20

Capital is when the owner invests their own money into their company. the company still owes the owner the capital/money

It is a liability because the owner is separate from the business, therefore the company still owes the owner the capital/money.

Question 21

What is recorded on the debit side of a Liability T account?

Answer 21

Records any decrease in the amount owed by the business

Question 22

What is recorded on the credit side of a Liability T account?

Answer 22

Records liabilities and increases in liabilities

Question 23

What are the headings for a balance sheet?

Answer 23

1. Fixed assets
2. Current assets
3. Less Creditors Falling due within 1 Year (Current Liabilities)
   -Working Capital (CA - CL)
   -Total Net Assets (FA + Working Capital)
4. Financed By (Long-term Liabilities)
   -Capital employed (equal to total net assets)

Question 24

What are expenses?

Answer 24

Any expenditure necessary to carry on the business (or to maintain and repair fixed assets)

Question 25

What are examples of expenses in the trading account?

Answer 25

-Purchases -Sales Returns -Carriage in -Customs duty

Question 26

What are 10 examples of expenses in the Profit & Loss account?

Answer 26

-Motor Expenses -Wages/ Salaries -Insurance -Carriage out -Discount allowed -Repairs -Packing materials -Bank charges -Travel expenses -Sundry Expenses (Misc. expenses) -Telephone -Rent -Light & Heat -E.S.B -Advertising -Bad debts -Commission -Interest -Rates -Postage -Stationery

Question 27

What is carriage in?

Answer 27

Cost of transporting goods/materials to the business

Question 28

What is carriage out?

Answer 28

Cost of delivering goods to customers

Question 29

What is discount allowed?

Answer 29

Discounts given to good customers (i.e. they pay on time)

Question 30

What are bad debts?

Answer 30

When debtors are unable to pay you their debts

Question 31

What are rates?

Answer 31

A charge paid to local council

Question 32

What are examples of expenses in the balance sheet?

Answer 32

Drawings

Question 33

What are drawings?

Answer 33

When stock is used for your own personal consumption, the business is no longer able to sell it. -We treat drawings as a type of expense but they ARE NOT an expense

Question 34

What side, on a T account, records any expense for the business?

Answer 34

Debit side

Question 35

What other names are used for gains?

Answer 35

Revenues or income

Question 36

What is a gain?

Answer 36

Any income earned by the business

Question 37

What are examples of gains in the trading account?

Answer 37

-Sales -Purchases return

Question 38

What are examples of gains in the profit and loss account?

Answer 38

-Discount received -Rent received (e.g. if you rent out an office) -Interest received -Insurance compensation received -Commission received -Bad debts recovered

Question 39

What side, on a T account, records any gains earned by the business?

Answer 39

Credit side

Question 40

What pneumonic is used to remember what increases on the debit side and credit side?

Answer 40

DEAD CURL Debit Expenses Assets Darling Credit Ur (your) Revenues Liabilities

Question 41

What are the headings on an income statement/Trading, Profit and Loss account?

Answer 41

-Sales -Less cost of sales -Cost of goods available for resale -Cost of goods sold -Gross profit (Sales - Closing stock total) -Add gains -Less expenditure -Net profit (Gross - Less Expenditure) -Reserves (Net profit - less dividends)