Week 7

Question 1

What is prepaid income?

Answer 1

Similar to accruals, but deals with income instead of expenses. Income received in advance i.e. goods or services paid for by the customer but not yet provided. Therefore this is a liability (entity owes goods or services rather than money).
Dr Sales, Cr Prepaid income

Question 2

What is the 2 stage process for accruals and prepaid income?

Answer 2

• Record this year

- reverse next year

Question 3

What are examples of share capital?

Answer 3

Capital introduced=share capital

Common types of share capital are Ordinary shares and Preference shares.

Question 4

What are ordinary shares

Answer 4

• can carry voting rights

- rank last on liquidation

Question 5

What are preference shares?

Answer 5

●Redeemable
●Have fixed dividend rate
●Rank above ordinary shares for dividends & on liquidation

Question 6

What is a final dividend?

Answer 6

●At the end of an accounting year, after profits have been calculated, directors decide whether to pay a final dividend and, if so, how much.

●This is not a liability because it has not been approved by shareholders. It is a proposal from directors.

●The proposal to pay the dividend is reported as an item in the directors’ report.

Question 7

What are company financial statements?

Answer 7

●Income Statement
●Statement of comprehensive income 
●Statement of Financial Position
●Statement of Changes in Equity
●Statement of Cash Flow