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Flashcards in Double Entry Bookkeeping Deck (28)
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1
Q

What is the dual effect principal

A

It states that every transaction has two financial effects

2
Q

What is the separate entity principal?

A

The owner of the business is, for accounting purposes, a completely separate entity from the business itself.

Any money that the owner pays into the business as capital must be accounted for as money that the business owes back to the owner.

3
Q

What is the accounting equation

A

Assets = Liabilities

Assets = Liabilities + Capital

Assets - Liabilities = Capital + Profit - Drawings

4
Q

Define business

A

An organisation that regularly enters into different transactions

5
Q

List and define the 3 types of business

A

Sole trader: organisations that are owned and operated by one person

Partnership: organisations owned by two or more people working in common with a view to making a profit

Company: organised recognised in law as “persons” in their own right. A company may own assets and liabilities in its own name and its accounts must meet certain obligations imposed by legislation.

6
Q

What is the difference between management and financial accounts?

A

Management accounts: usually prepared on a monthly basis to present timely financial and statistical information to business managers. Helps managers make day-to-day and short term decisions.

Financial accounts: prepared annually, mainly for the benefit of people outside the management, such as owners, HRMC, banks, customers, suppliers and the government.

7
Q

List the two principal financial statements

A

Statement of profit and loss

Statement of financial position

8
Q

What is the statement of profit or loss

A

A summary of the businesses transactions (income and expense) for a given period.

9
Q

What is the statement of financial position

A

A statement of the assets and liabilities of the business at a given date.

This date is the end of the period covered by the statement of profit or loss

10
Q

Define sales revenue

A

Income generated from the trading activities of the business

11
Q

Define cost of sales

A

The cost of buying or producing goods for resale

12
Q

Define gross profit

A

Profit remaining after the costs of sales have been removed from the sales revenue

13
Q

Define sundry income

A

Other types of income that aren’t generated by the primary trading activities of the business

14
Q

Define expenses

A

The day to day running costs of the business

15
Q

Define net profit or loss

A

The profit or loss remaining after expenses have been deducted

16
Q

Define asset

A

Something owned or controlled by a business, available for use in the business

17
Q

Define non-current asset

A

An asset which is to be used for the long term in the business and not resold as part of trading activities.

Eg: company car

18
Q

Define current asset

A

A short term asset of the business which can be used in the near future.

Eg: cash

19
Q

Define revievable

A

Somebody who owes the business money (eg: a credit customer)

An example of a current asset

20
Q

Define non-current liability

A

An amount owed by the business and due to be paid in the longer term (after 12 months)

21
Q

Define liability

A

An amount owed by the business - an obligation to pay money at a later date

22
Q

Define payable

A

Somebody that the business owes money to (eg: a credit supplier)

An example of a liability

23
Q

Define capital

A

The amount that the owner has invested in the business.

This is owed back to the owner and is therefore a special liability of the business

24
Q

Define drawings

A

Amounts withdrawn from the business by the owner for personal use.

Drawings may be cash or inventory

25
Q

Define capital expenditure

A

The purchase of, or improvement of non-current assets

26
Q

Define revenue expenditure

A

The day to day running costs of the business

27
Q

Define capital income

A

Income from the sale of capital assets of the business

28
Q

Revenue income

A

Income generated from the sale of goods and services