Purposes of Accounting

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trading account
calculates gross profit make on sales by comparing sales with the cost of sales.
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profit and loss account
calculates a business's net profit by deducting the expenses of running the business from gross profit. Net profit = gross profit - expenses
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balance sheet
a statement detailing all of the assets and liabilities of a business.
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4 reasons for keeping accounting records
1. Recording and reporting 2. Forecasting 3. Monitoring and control 4. A legal requirement
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recording and reporting
to assess whether the business has been profitable. assess if they are solvent. keep the stakeholders informed.
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forecasting
to create cash budgets, projected trading and profit and loss accounts and balance sheets
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monitoring and control
accurate accounting records allow owners and managers to monitor what has happened, compare it to forecasts and take corrective action if needed. MONITOR COMPARE FORECAST ACTION
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a legal requirement
principally to enable HM Revenue and Customs to collect all amounts due in respect of taxes
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income
the value of resources received AND receivable in the course of business
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expenditure
the value of resources used by the business in acquiring goods and services
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liquidity
the ability of a business to access sufficient cash resources to pay its short term liabilities
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Other cards in this set

Card 2

Front

calculates a business's net profit by deducting the expenses of running the business from gross profit. Net profit = gross profit - expenses

Back

profit and loss account

Card 3

Front

a statement detailing all of the assets and liabilities of a business.

Back

Preview of the back of card 3

Card 4

Front

1. Recording and reporting 2. Forecasting 3. Monitoring and control 4. A legal requirement

Back

Preview of the back of card 4

Card 5

Front

to assess whether the business has been profitable. assess if they are solvent. keep the stakeholders informed.

Back

Preview of the back of card 5
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