business - unit 3 Btec > LOC > Flashcards

LOC Flashcards

(52 cards)

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1
Q

What is the Purpose of Accounting?

A

to provide the information that is needed for sound decision making.to prepare financial reports that provide information about a firm’s performance.

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2
Q

What are the purpose of accounting

A

Record Transactions
Management of the Business
Compliance
Measuring Performance
Control

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3
Q

What is record of transactions?

A

Keeping business records that are accurate and up to date is important for the smooth running of the business.

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4
Q

What is Management of the Business

A

Management are responsible for the PLANNING, MONITORING and CONTROLLING of the resources that a business has.

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5
Q

What is Compliance

A

Financial reporting (Accounting) is governed by LAWS and REGUATIONS
These laws and regulations ensure that any financial records (accounts) give a fair and accurate impression of the business.

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6
Q

What is Measuring Performance

A

Without accounting it would be impossible to know whether the business is making a profit or a loss.
Sales revenue (number of sales x selling price)
Gross profit (Profit left after Cost of goods sold is taken from revenue)
Net profit (Gross profit minus expenses)
Value owed to the business (sales that are owed to the business that have not yet been paid (trade receivables)
Value owed by the business (purchases that owed by the business to suppliers that have not yet been paid) (trade payables)

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7
Q

What is Control

A

Assisting with the prevention of fraud, trade receivables and trade payables.
Accounting controls the flow of money into and out of the business by maintaining accurate records and monitoring performance.
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8
Q

What are the benefits of recording transactions

A

Monitor income and expenditure closely
Support budgeting and planning
Identify bad debtors
Prevent late payment or damage relationship with suppliers

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9
Q

What are the benefits of management of business

A

Management understand financial performance
Make better informed decisions
Accurate planning for the future
Ensures sufficient funds available for continuous business operation

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10
Q

What are the benefits of compliance

A

Gives true and honest impression of business performance for owners and investors
Ensures no laws are broken
Avoids criminal consequences
Minimises likelihood of Fraud occurring

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11
Q

What are the benefits of measuring performance

A

Identifying likely success of the business
Identifies potential issues so decisive action can be taken
Highlights Kpi’s (key performance indicators)

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12
Q

What are the benefits of control

A

Ensures procedures are followed and therefore reduces financial mismanagement
Supports the compliance with laws
Supports identification of trade receivables owing
Ensures Trade Payables are made on time which ensures smooth business operation

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13
Q

What are the types of income

A

Income is the money a business receives either through a lump sum investment or from the sale of its goods or service.
A businesses income can be split into two types:
Capital
Revenue

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14
Q

What is capital income

A

is income that comes from capital invested in the business by investors / owners of the business, typically to set up a business or by additional equipment. used to buy assets for the business that are within the business for the medium to long term such as premises or equipment.

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15
Q

What are the sources of capital income

A

Loans
Mortgages
Shares
Owners Capital
Debentures

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16
Q

What is a loan

A

money is given to a business usually from a bank and the business repays the loan amount plus interest. Monthly payments must be repaid regardless of whether the business is making a profit or not
The interest paid can be either fixed or it may vary

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17
Q

What is a mortgages

A

is a loan taken out to buy property or land. Most run for 25 years but the term can be shorter or longer.
The loan is ‘secured’ against the value of your property until it’s paid off. If you can’t keep up your repayments the lender can repossess (take back) your property and sell it so they get their money back.
A business may use a mortgage to buy a premises for their business such as a factory.
Private individuals would take a mortgage to buy a home

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18
Q

What is a shares

A

A business becomes a company when it is registered with Companies House and iisues shares to shareholders
Remember: PRIVATE and PUBLIC LTD companies?
A company can issue shares to raise capital. Shareholders are owners of the business and usually receive voting rights.
A shareholder receives income in the form of dividends if the business is profitable.

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19
Q

What is a owners capital

A

This is when the owner funds the business through their own personal savings.
Sole Traders (single owner) must find all the owners capital themselves – amount available may be limited
Partnership (2-20 owners) contribute individual amounts of capital

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20
Q

What is a debenture

A

Medium to long term sources of finance.
Think of them as a type of LOAN specifically for capital investment
Large companies use them to secure income.
Interest is payable – normally at a fixed rate
Debentures are advantageous for companies since they carry lower interest rates and longer repayment dates compared to other types of loans
Debentures can be secured against an asset

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21
Q

What is a revenue income ?

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A

the money that is flowing into the business via the day to day operation of the business.

22
Q

What are the sources of reveuie income

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A

Sales
Rent received
Commission
Interest received
Discount received

23
Q

What is sales

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A

Either cash or credit sales and it is money made from the sales of goods or services.

24
Q

What is rent received

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A

A property manager who owns residential or commercial property receives revenue income in the form of rent

25
What is commission
When a business or individual sells a product on behalf of another business. If the sale is successful then the seller receives commission
26
What is interest received
Money made from savings or investments. If a business is paid interest for an investment they have made or for positive balances they have in their account then this is classed as revenue income.
27
What is discount received
This is when a business pays a reduced price for goods or services. If a business pays a supplier quickly then that business may receive a discount, this in turn has reduced the cost to the business.
28
What is Expenditure
is the money that the business spends Capital Expenditure Revenue Expenditure
29
What is capital expenditures
funds used to acquire or upgrade physical assets such as property, buildings or equipment and also intangibles. It is used to by CAPITAL ITEMS (ASSETS)
30
What is non-current assets
items owned by the business (CAPITAL ITEMS) that will remain in the business for a reasonable amount of time.
31
What are intangibles?
assets are things owned by the business that cannot be touched – BUT they add value to the business
32
What are the sources of intangibles
Patents Trademarks Goodwill Brand recognition Intellectual property
33
What is patent
A patent is the legal protection for an invention. Granted by the government to the inventor, giving the inventor the right to stop others, for a limited period, from making, using or selling the invention without their permission. A patent is an asset as it prevents other businesses possibly copying their unique selling point. Often difficult to put a value on a patent to a business
34
What is trademarks
A trademark is a unique symbol, logo, brand name used to represent a business or its products. Once registered, that same symbol or series of words cannot be used by any other organisation, forever, if it remains in use and proper paperwork and fees are paid. Unlike patents, which are granted for a period of 20 years. Trademarks are valuable to a business as over time, trademarks become synonymous with a company name, so that you don’t even need to see the name to recognize a particular business
35
What is goodwill?
Is a sum of money added to a businesses value based on its customer base, reputation and overall good name. When a business acquires an existing business, goodwill is factored in, and an amount paid based on the above customer base etc.
36
What is brand recognition
Is a sum of money added to a businesses value based on its customer base, reputation and overall good name. When a business acquires an existing business, goodwill is factored in, and an amount paid based on the above customer base etc.
37
What is intellectual property
something that you create using your mind - for example, a story, an invention, an artistic work or a symbol. (teaching resources)
38
What is revenue expenditures ?
money spent by the business on the day to day running of the business. The amount of money spent will depend on the type of business being run. An online business may have significantly lower revenue expenditure than a manufacturing business with lots of employees and buildings. These expenses are shown on the PROFIT & LOSS ACCOUNT
39
What are the types of revenue expenditures
Inventory Rent Rates Heating & Lighting Water Insurance Administration Salaries Wages Marketing Bank Charges Interest Paid Depreciation
40
what is inventory ?
The array of finished goods or goods used in production held by a company
41
What is rent
A regular payment to a landlord for the use of property or land
42
What is rates
Payments made to the local council for the services provided by them. Based on the size and location of the premises
43
What is heating and electricity
Payments made for gas and electricity's usually monthly or quarterly
44
What is water
This payments can be fixed amount or based on usage
45
What is insurance
A business is legally required to take a number of these policies out to protect itself from serious losses
46
What is salaries
A fixed regular payments typically paid on a monthly basis but often expressed as an annual sum , made by an employer to an employee
47
What is administration
Costs incurred by the business for the paperwork side of the businesses
48
What is a wage
An hourly rate paid to an employee with a direct correlation between the hours worked and the wage paid
49
What is marketing
Costs associated with attracting potential customers to the business. Typically in the form of advertisements or promotional materials
50
What is bank charges
All charges and fees made by the bank to their customers. Often in the form of transactions fees
51
What is interest paid
The amount of the money charged on top of a loan or mortgage amount
52
What is depreciation
A reduction in the value of an asset over time, due in particular to wear and tear
business - unit 3 Btec
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