Formula
What is the formula for calculating the cost of sales?
Hint: O+P-C
State 1 purpose of accounts to employees
What is an income statement?
A statement that details the records of income and expenditure flows of a business in a given period.
Resources of value that a business owns or that are owed to
List 2 types of intangible assets
- Patents
- Goodwills
- Copyrights laws
- Trademarks
What is the formula for calculating profit for the period?
Hint = PBT - CT
Profit Before Tax - Corporation Tax
State 2 purposes of accounts to managers
Help managers set targets
Compare and judge performance
Help set budgets
Help them monitor and control expenditure patterns in various departments
Plan effective decision-making
Well informed timely decisions
What are the three parts of the income statement?
The trading account, the profit and loss account, and the appropriation account
Define liability
Firm’s legal debts or what it owes to other firms, institutions, or individuals (source of funding)
Coca-cola slogan taste the feeling
Nike Swoosh logo
De beers A diamond is forever
What is the formula of equity for non-profit-making businesses?
Equity = Retained Earnings
State 3 purposes of accounts to shareholders
How valuable a business is
Helps them assess the safety of their investment
Efficient use of capital
Company’s performance
What is sales revenue?
the income earned from selling goods or services over a period of time.
- Cash
- Debtors
- Stock
List 2 disadvantages of the straight-line method
Not suitable for expensive assets as it does not cater for the loss in efficiency or increase in repair expenses over the useful life of the asset
Can inflate the value of some assets which may have lost the greatest amount of value in their first or second years
It does not take into account the fast-changing technological environment that may render certain fixed assets obsolete very quickly
What is the formula for calculating annual depreciation in the straight-line method?
(original cost - residual value)/ expected useful life of asset
Check if the business is abiding by the law regarding accounting regulations
profitability-> see tax
Decrease in profitability->concerns (unemployment+economy)
the value of materials or products at the end of the accounting period.
What are the 3 types of current liabilities?
- Creditors
- Bank overdraft
- Tax
List 2 disadvantages of the units of production method
Only useful to manufacturers or producers. Does not make sense to tie depreciation to asset usage if a business does not manufacture or produce a product
Not allowed for tax purposes -> the mismatch between UOP methods and tax requirements
Measuring outputs can be difficult depending on different assets. Ex) energy equipments(solar, wind, etc.)
What is the formula for calculating depreciation expense in units of production method?
units of production rate x actual units produced
Explain the purpose of accounts to the local community
Job opportunities (growth of community and local economy)
Environmental concerns
Calculate the profit for period of company A using the following information:
- Gross profit: $10,000
- Expenses: $1,450
- Interest: $1,000
- Corporation tax: $2,000
10,000- 1,450 - 1,000 - 2,000 = $5,550
Define liquidation
Situation where all of a firm’s assets are sold off to pay any funds owing
List 2 advantages of the units of production method
Since the depreciation expense are tied with degradation of the asset -> this method emphasize usage -> accurate reflection of the decreasing physical value
Accurately matches revenues and expenses since expense is based on asset’s production or usage.