unit C Flashcards
(28 cards)
what are the 5 purposes for accounting?
-recording transactions
-management of business
-compliance
-measuring performance
-control
what does recording transactions do?
accountants record all money going in and out of a company. this is important to track when they need to pay suppliers and when there due to be paid by customers.
what does the management of business do?
important for the manager to understand the firms accounts so that they can properly manage the business by planning for the future and predicted expenses (cash flow forecasts)
what is the reasoning behind compliance?
Internal compliance: prevents fraud and compliance with all legislations.
External compliance: sending all documents to companies house and sending documents to shareholders
what’s the reasoning behind measuring performance?
it shows profit, loss, costs and efficiency of business and is crucial so that the business can improve.
what’s the reasoning for control?
accounting will control the money flowing in and out of the business by maintaining accurate records. shows trade receivables and trade payments.
what are the types of capital income
-loan
-mortgages
-shares
-owners capital
-debentures
what is a loan?
lump sum of money into the business for a specific purpose and has to be repaid within a certain amount of time with interest. secured against the asset the loan is being used to finance.
what is a mortgage?
lump some of money into a business for a specific purpose to bye a property/building. has to be paid back within a set period of time but this is usually near 25 years
what is a share?
an investment from individuals or other organisations for a return or partial ownership in the business. investors may receive dividends out of profits.
what is an owners capital?
money that is put into the business by the owner. Does not need to be paid back and the amount is limited.
What is shares?
an investment from individual or other organisations for a return or partial ownership in the business. investors may receive dividends out of profits
what is a debentures?
a type of bond issued by large companies to raise money. Investors receive interest on their loan and the company will agree on a date that they have to pay it back in full by.
what are the types of revenue income? (income that comes into the business from trading)
-cash sales
-credit sales
-commission received
-rent received
-interest received
-discount received
what is a cash sale?
money coming into the business from the sale of goods and services. cash paid at the time of the transaction.
what is a credit sale?
money coming into the business from the sale of goods and services, however the cash is not paid at the time of the transaction but at a later date. ( e.g.30 days later)
what is rent received?
money coming into the business from the use of assets such as land or vehicles
what is commission received?
payments received for return of sale made. this is when a business makes sales on the behalf of another business as takes a percentage of the money made. an example is a car dealership.
what is interest received?
payments received from banks on positive balances. can also be interest received on loans to other businesses.
what is discount received?
payments that are reduced by a percentage, as a result of paying sooner or buying in bulk.
what is capital expenditure?
money spent on long term assets (non-current/fixed assets)
what is a current asset?
these are assets that can be sold to quickly raise money
what are non current assets?
these are fixed assets that the business can not sell quickly or can not sell at all as they need it to trade such as machinery and buildings.
what are some examples of tangible capital expenditures?
-land, buildings and premises
-machinery/equipment
-vehicles
-fixtures and fittings
