Accounting

• Who are the primary users of financial accounting?

  External users and managers
• What does financial accounting produce?

  Financial Statements in a specific format
• What does the Statement of Profit or Loss demonstrate?

  Financial performance of the business
• Which professional body regulates financial accounting in the UK?

  ICAEW
• What is the purpose of management accounting?

  For internal operational decisions
• What is the main objective of financial accounting?

  To produce useful financial statements
• What are the three main financial statements produced in financial accounting?

  • Statement of Profit or Loss
  • Statement of Financial Position
  • Statement of Cash Flows
• What does the Statement of Financial Position reflect?

  Assets, liabilities, and equity of the business
• What is the cash budget?

  A forecast of cash receipts and payments
• Who is Sam Smart?

  A 25-year-old aspiring clothing supplier
• What does a cash budget reflect for Sam's business?

  Expected receipts and payments for transactions
• What is capital in a business context?

  Owner's investment in the business
• What does the entity concept recognize?

  Business transactions are separate from owner's
• What is the money measurement concept?

  Transactions must have a monetary value
• What are sales in a business context?

  Income from selling goods or services
• What are expenses in a business?

  Costs incurred to generate sales
• What are cash sales?

  Sales where cash is received immediately
• What are credit sales?

  Sales delivered before payment is received
• What are cash purchases?

  Purchases paid for at the time of receipt
• What are credit purchases?

  Purchases received before payment is made
• What is the cost of sales?

  Cost to buy items sold
• How is gross profit calculated?

  Sales minus cost of sales
• What is net profit?

  Profit after all expenses are deducted
• What is a bank overdraft?

  Allowing an account to be overdrawn
• How is gross profit margin calculated?

  Gross profit as a percentage of sales
• If Sam's sales are £3,000 and his gross profit margin is 40%, what is his gross profit?

  $£1,200$
• If Sam's sales are £3,000, what is the cost of sales if his gross profit margin is 40%?

  $£1,800$
• What are the key points regarding accounting information needs?

  • Needed for planning, control, and decision-making
  • Different users require information for various purposes
  • Financial accounting is strictly regulated
  • Management accounting is tailored to business needs
• What is the role of a cash budget?

  • Forecasts cash receipts and payments
  • Identifies cash shortfalls or surpluses
  • Aids in financing decisions
• What does the gross profit margin indicate?

  • Assesses profitability of products sold
  • Calculated as gross profit divided by sales