Why is it important to keep bookkeeping records?
Without keeping records, it is easy to not communicate with the correct groups which leads to discrepancies and issues such as cashflow difficulties and in extreme cases, a downfall of a company.
What must a business keep records to show?
How much money they have received from sales/other forms of income.
How much spent on goods for resale
How much spent on everyday expenses
How much has been re-invested into the business
How much spent on items such as computers
How much received in the form of a loan
What may be owed for tax liability.
What are the 5 accounting categories
Capital
Assets
Sales/Income
Expenses/Overheads
Liabilities
Why is it important to keep books up-to-date?
As it makes it easier to assess how well or how bad a business is doing which then allows the management to make informed decisions.
What is Capital/Equity?
The money owed by the business to the shareholders. It is the money put in + the income - the expenses - the drawings.
In larger companies its known as ‘Equity’ or in smaller businesses, such as a sole trader, it is known as ‘Capital’.
What is an asset?
An item that adds monetary value to a business.
What is a non-current asset?
An item that is used by the company to allow it to generate an income. This is due to these assets assist in the running of the company. They tend to stay in the company for longer than one year.
They fall under one of the following categories:
Premises
Plant and Equipment
Fixtures and Fittings
Vehicles
What is a current asset?
An item whose value tends to change from day to day. These items are expected to last less than a year.
They fall under one of the following categories:
Inventory
Receivables
Bank
Cash
What is a liability?
A debt owed by the business to an individual or organisation.
What is a current liability?
A short-term debt that is to be paid within a year.
Examples of this include:
Payables
Tax
Bank Overdrafts
What is a non-current liability?
A long-term debt that is payable over multiple years.
Examples include:
Long-term loans
Mortgages
What is revenue income?
It is the money generated from the primary source of income of the business such as the sales and the services from the business. It tends to be earned on a regular basis.
What is revenue expenditure?
It is the money spent on the day-to-day running of the company.
For example:
Wages
Rent
Insurance
What is petty cash control?
It is a current asset that is used to cover minor expenses.
What is the key concept of financial accounting?
Double entry bookkeeping
What are the 2 types of record that we must keep?
Statement of Profit and Loss
Statement of Financial Position
What are the 3 fundamental concepts?
Separate Entity
The Accounting Equation
The Dual Effect
What is Separate Entity
A business is always accounted for separately to its owner
For a limited company, the liability is limited to the investment from the owner
For a sole trader / partnership, the individuals are liable for all debts.
What is the Accounting Equation
Assets- Liabilities = Capital
What is the Dual Effect
Every transaction has an effect on 2 of the accounting categories.
If all are increasing, which of the accounting categories ( count drawings as another) are debits and which are credits
Debits: Expenses, Assets, Drawings
Credits: Liabilities, Income, Capital
Remember DEADCLIC
What is a ledger?
A ledger is a financial record which is now stored on specialised accounting software.
What are the 3 types of ledger and what do they record?
General - all double entry transactions
Receivables - all single entry transactions for individual credit customers
Payables - all single entry transactions for individual credit suppliers
Describe the format of a t-account
On the left hand side is the debits, where any increase in assets or expenses are stored. On the right hand side is the credits, where any increase in capital, liabilities or income is stored.
