Financial accounting for manages

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  • Created by: cara owen
  • Created on: 29-04-15 10:02
Going Concern
The assumption that the business is going concern to continue trading the foreseeble future.
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Accruals concept
Is the practice of placing costs incurred and revenue generated by a business in the financial periods in which goods and services were used and products were sold. Not necessarily when payments were actually made.
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Consistency
Is the application of a uniform approach to accounting policies when presenting accounts.
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Realisation
Is the concept that recognises that revenue and profits have only been earned when the actual ownership of goods has been exchanged, and cash or credit payment agreements are in place.
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Prudence
Is an approach that accounts for losses as soon as they are anticipated- that is, immediatly- but accounts for profits onle when they are realised.
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Materiality
Assesses the impact of individual items on the presentation of accounts. Items with a low monetary value are not recorded seperatly.
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Duality
Covers the principle that every business transaction has two effects, and gives rise to both a debit and a credit entry in the accounting system.
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Business entity concept
Considers the accounts of the business and its owners to be two totally seperate legal entities. In other words the assets and liabilities of the owner are kept seperate from those of the business itself.
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Money measurement
Refers to the underlying principle that financial accounting is only concerned with recording items that have a definite measurable monetary value.
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Purchase orders
Are documents used to initiate or confirm the placing of an order for goods or services from a supplier.
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Delivery notes
Are documents issued bu suppliers to customers for signitures confirming the delivery of goods made. They are then dispatched with the goods.
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Goods recieved notes
Are the internal documents used by the reciever of goods to confirm what has been recieved by the business. These can be matched against the original purchase order.
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Invoices
Are documents sent fromthe seller to the buyer that detail the payment required for goods or services exchanged.
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Remittance advice slip
Are sent by customers to suppliers asvising them of payments made.
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Debit notes
Are documents sent to customers to notify them that the original invoice is undercharged. These are sometimes used by customers when returning goods to suppliers.
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Credit notes
Are issued by suppliers when customers have returned goods, to act as a discount against any payments still outstanding or to be set off against the customers next purchase.
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Statement of accounts
Are documents that summerise all transactions between a buyer and a seller over a given time.
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Cheques
blank forms issued by a bank that when completed act as instructions to the bank that the holder of an account whats to transfer a states sum of money to a named person or business.
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Purchase journals
Contain a chronological list of all credit purchases. These are compiled from invoices recieved from creditors (suppliers).
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Purchase return journals
Containing a chronological list of purchases subsequently returned to supplies. These are compiled by credit notes recieved.
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Sales journal
Containing a chronological list of all credit sales. These are compiled from invoices issued by debtors.
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Sales returns journals
Chronolgical list of all subsequently returned to the company by customers. These are compiled from credit notes issued by the company.
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The journal
Is used to record entries such as the purchase of sales of fixed assets or the correction of errors.
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Purchase ledgers
Are part of the double-entry system. This contains the individual personal accounts of the businesses credit suppliers. The main entries in the purchases ledger are posted from the sales journals and the cashbooks.
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General ledgers
Are part of the double-entry syste,. This ledger contains all the impersonal accounts of the business such as fixed assets, expenses, sales and purchases accounts.
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The cashbook
Is a book or original entery and a part of the double-entry system. This contains details of every transaction that takes place using the companies bank accounts or cash funds.
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Profitability
Is a measure of a businesses ability to generate more revenue from its activities then it actually costs to undertake those activities. Profitability is usually measured in the profit and loss account.
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A profit and loss account
Is a statement that shows a firms revenue generated over a trading period and the relevant costs incurred earning that revenue.
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Revenue
Is the total value of income made from selling goods and services over a period of time.
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Expenses
Are the costs that are incurred by a business in its day to day running. These are items that are bought by the business to be used such as stationery and employees labour.
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Profit
Is the difference that arises when a firms revenue is greater then its total expenses.
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Gross Profit
Is the difference between the revenue generated by sales and the cost of the products which have been sold. It measures the profit made on buying and selling activities.
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Net profit
Is the actual amount left after all the other costs associated with the running the business are taken into account, including expenses such as marketing costs and electricity.
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A loss
Occurs when revenue is less then the total cost of providing goods and services and the associated expenses.
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Liquidity
Is an assessment of the businesses abiltiy to be able to pay its short-term debts. It is a measure of whether the business has enough cash available to pay bills and invoices as they come due for payments. It is assessed from the balance sheet.
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A balance sheet
Is a statement that shows a businesses assets and liabilities on a particular day. In effect it shows what a business owns and how it is financed.
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Assets
Are the resources owned by a business that have a monetary value.
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Liabilities
Are debts owed by a business to other parties. Liabilities are sources of fincance, and provide the means by which some of the companies assets have been bought .
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Capital
Is the money invested by owners into the business. This is used by the business to purchase assests help finance operations. It is called share capital as company owners have invested money by buying shares. Shareholders are paid dividends.
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Shareholders funds
Are made up of reserves that havebeen accumulated by the business over the years it has been operating. Prudent owners will keep some of the profits their business makes each year in the company. This retained profit belongs to the shareholders.
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Methods of financial analysis
Initial reading, vertical analysis, horizontal analysis, trend analysis.
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Current ratio (liquidity ratio)
Current ration= current assets/ current liabilities ( for every pound in debt how much does the company make) .
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The acid test (liquidity ratio)
acid test= (current assets- stock) / current liabilities ( stock is the most illiquid current asset).
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Gearing (liquidity ratio)
Gearing = (long term liabilities + preference shares) / total capital employed x 100 (shows whether a company is in a risky investment, if more then 50 risky).
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Gross profit margin ( profitability ratio)
Gross profit margi = gross (profit)/ turnover ( sales) x 100 ( percentage, examines profits made on trading activities only ).
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Net profit margin (Profitability ratio)
Net profit margin= net profit/ turnover (sales) x 100 ( percentage, used to see how well the business has controlled its day-to-day running costs).
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Return on capital employed (ROCE)(Profitability ratio)
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Stock turnover ratio ( Efficiency ratio)
Stock turnover= costs of goods / (oppening stock + closing stock / 2) measures the number of times in one year that a business turns over it stock of goods for sale.
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Debtor collection period ( Efficiency ratio)
Debtor collection perio= debtors/ credit sales x 365 ( how long on average it takes the company to collect debt owed by customers)
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Credit payment period (Efficiency ratio)
credit payment period= creditors / credit purchases x 365 ( how good a company is at actually paying its suppliers )
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Return on assets ( Efficiency ratio)
return on net assets net profit before tax and interest / net assets x 100
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Card 2

Front

Is the practice of placing costs incurred and revenue generated by a business in the financial periods in which goods and services were used and products were sold. Not necessarily when payments were actually made.

Back

Accruals concept

Card 3

Front

Is the application of a uniform approach to accounting policies when presenting accounts.

Back

Preview of the back of card 3

Card 4

Front

Is the concept that recognises that revenue and profits have only been earned when the actual ownership of goods has been exchanged, and cash or credit payment agreements are in place.

Back

Preview of the back of card 4

Card 5

Front

Is an approach that accounts for losses as soon as they are anticipated- that is, immediatly- but accounts for profits onle when they are realised.

Back

Preview of the back of card 5
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