AQA ACCOUNTING UNIT TWO

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  • Created by: katiexmc
  • Created on: 02-05-14 13:58
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  • ACCN2
    • types of ownership
      • sole trader
        • advantages
          • easy to set up
          • profits
          • decision making
        • disadvantages
          • unlimited liability
          • cant share responsibility
          • long hours
      • partnership
        • advantages
          • shared knowledge
          • shared responsibility
          • shared debts
        • disadvantages
          • unlimited liability
          • decisions/ opinions may clash
          • effort may vary
      • limited companies
        • advantages
          • limited liability
          • status
          • shares
        • disadvantages
          • proportion of ownership is small
          • costs money to set up
          • more is expected of accounts
    • concepts
      • consistency
        • once one accounting method is chosen it should be stuck to.. i.e. straight line depreciation for the whole life of the non current asset
      • prudence
        • inventory should be valued at the lower of cost or net realisable value so that the business is cautious and doesnt overstate assets
          • net realisable value = selling price - cost of getting good into a saleable condition
      • cost
        • items should be recorded at their cost value and not what the industry states the value is at that given time
      • going concern
        • this concept states that the business is more than likely going to continue trading in the next financial year and the foreseeable future
      • materiality
        • some transactions may be deemed as too insignificant to have their own account and so are placed in one together (e.g. stationary)
      • accruals/ matching
        • this concept states that things should be recorded within the year they take place, hence why prepayments are subtracted as they are not valid to the year in question
      • realisation
        • this concept states that a transaction should be recorded when the legal title passes, not when the money is received (e.g. credit sales)
      • business entity
        • this concept states that the business and owner have two different identities
      • objectivity
        • when valuing objects a business should be objective not subjective (no personal opinions should help valuations)
    • final accounts of sole traders
      • bad debts recovered
        • this is when a trade receivable balance was cancelled due to liquidation etc however the business later received the balance owed
        • amount is taken from bad debt expense and put under gross profit as 'bad debt recovered'
        • amount recovered goes into bank
      • accruals of income
        • add to income
        • under gross profit (income received) current asset in balance sheet
      • prepayment of income
        • subtracted from income
        • subtracted from under gross profit and current liability in balance sheet
      • provision for doubtful debts
        • the amount that the business expects not to receive from trade receivables (usually as a %)
        • the income statement shows the difference between this year and the previous year's PFDD
          • if the figure increases then the difference goes into expenses
          • if the figure decreases then the difference goes under gross profit
    • reducing balance depreciation
      • original cost - depreciation so far / depreciation %
    • shares
      • rights issue
        • given to existing shareholders
        • equity section: original shares, share premium, revaluation reserve, retained profit
      • bonus issue
        • doesnt raise finance
        • the value of the shares issued is calculated then added to value or ordinary shares
        • as you move down the equity section as much as possible is subtracted from the sections until all of the bonus issue is accounted for so the end balance is the same as before
  • equity section: original shares, share premium, revaluation reserve, retained profit

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