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35 Cards in this Set
- Front
- Back
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what is the purpose of the balance sheet?
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shows how much the business is worth and how the business has been financed
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What does the Balance Sheet show?
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shows all the items that the business owns (ASSETS) and owes (LIABILITIES)
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What are Fixed Assets?
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Items that the business owns and will keep for more than one year e.g. equipment furniture buildings vehicles.
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What are Current Assets?
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items that the business owns and will be used up within one year e.g. stocks, prepayments, debtors, bank, cash
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What are Current Liabilities?
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items that the business owes that will be repaid within one year e.g. creditors, bank overdraft, VAT, accruals
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Provide 2 examples of how the business has been financed.
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Owners own funds/capital
profits from previous year Reserves of money set aside for future use Bank Loans |
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Which types of organisation would have a Not for Profit Account?
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Clubs, Societies and Associations
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What kind of Final Accounts do Clubs or Associations have?
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Receipts and Payment Accounts
or Income and Expenditure Accounts (may also be accompanied by a balance sheet which may be called a Statement of Affairs) |
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When is a receipt and payment account not suitable for a club or association?
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not a suitable way of illustrating the financial position of the club if it has assets and liabilities
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What is the equivalent of a profit and loss account in a not for profit organisation?
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Income and Expenditure Account
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What is a honorarium?
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payment received by a key post holder in a not for profit organisation
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What are the limitations of a receipts and payment account?
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only shows cash paid in, cash paid out and balance remaining
transactions are not apportioned to the accounting period in which they occur it does not show any liabilities due or prepayments that have been made It does not show the value of any assets that are owned by the club/society |
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What are subscriptions?
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subscriptions paid in ADVANCE to the club are LIABILITIES
Subscriptions OWING to the club are ASSETS of the club |
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What is the Accumulated Fund?
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The capital of the club is called the accumulated fund
TOTAL ASSETS - LIABILITIES (at the beginning of the year) |
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What is a Sole Trader?
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the only owner of the business but is not necessarily the only worker
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How can a sole trader finance his business?
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Capital - own money
Loan - from a bank Grant - local council funding |
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What other additional facilities may be available once the business has started up?
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Overdraft
Credit from suppliers |
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What advantages are there in being self-employed?
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will be own boss
Receives all profits Able to give customers more personal attention |
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What are the disadvantages of being self-employed?
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nobody to share responsibility and decision-making
owner carries all losses sole trader has limited liability - could lose everything if business goes under no relief for illness/holidays |
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What is a partnership?
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made up of between 2 and 20 persons providing goods and service with a view to making a profit.
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What are the main aspects of a partnership agreement?
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contains:
capital to be contributed by each of the partners ratio in which partners are to share profits and losses details of any partnership salaries to be paid Whether interest is to be paid on capital and if so, the rate |
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What are the advantages of a partnership account?
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additional capital is available for expansion
partners bring a variety of skills and experience decision-making is shared owners have direct control of the business all profits belong to the owners |
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What are the disadvantages of a partnership agreement?
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each partner must carry a share of all losses
liability is unlimited - personal property may be sole to clear debts of a business disagreements may lead to the break=up of the partnership |
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What is a PLC?
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Public Limited Company
Jointly owned by members of the public and it is limited because these owners or shareholders as they are called have limited liability |
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Name two types of Shares
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Preference Shares
and Ordinary Shares |
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What is a dividend?
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the share of profits paid to all shareholders
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What are the characteristics of a preference share?
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have a fixed rate of dividend
owners have first claim on profits owners have preference as to repayment of capital if business is winding up less risky than ordinary shares owners have no vote at AGM |
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what are the characteristics of an ordinary share?
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most common class of shares
dividend depends on profits owners are entitled to what is left after the preference share dividend is paid out carry greater risk ordinary shareholders allowed one vote per share at the AGM |
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What are the Articles of Association?
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key document which sets out the rules that govern the internal running of the company
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What is the minimum number of shareholders a PLC can have?
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7
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What are the advantages of a PLC?
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more finance can be raised by selling shares on the stock exchange
shareholders own the business and receive a share of the profits shareholders have limited liability shareholders have limited liability |
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What are the disadvantages of a PLC?
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setting up a company is expensive
original owners may lose control to new directors management may act in their own interests rather than those of shareholders Limited companies must publish accounts and disclose information about their activities |
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What is factoring?
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the collection of debts on behalf of a PLC
credit control is strictly maintained cash flow is reliable because the factor undertakes to make prompt payments |
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what are the advantages of factoring?
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cash flow is improved
sales accounting is provided thus reducing costs the risk of bad debts is reduced |
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What is a debenture?
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a way of a plc to raise capital by issuing debentures to the general public
a debenture holder does not take as many risks with his own capital as a shareholder does |
