Flashcards in Lesson 1 - Introduction To Financial Accounting Deck (38)
How many sectors is the UK economy made up of, and what are they?
Two - the public sector and the private sector.
What is the public sector?
The part of the economy owned, financed and controlled by the State.
What is the private sector?
The part of the economy where business activity is organised by private individuals operating on their own or in groups.
What types of business entities operate in the private sector?
1. Sole traders
3. Limited companies
What is a sole trader?
A business entity owned by one person.
What is an unincorporated business?
One which in the eyes of the law there is no distinction between the business and the owner, who has unlimited liability.
What is unlimited liability?
Being personally responsible for all debts of the business, where private funds as well as those invested in the business are at stake.
What is a partnership?
A business entity owned by 2 or more people who carry on business together with the aim of making a profit.
Is a partnership incorporated or unincorporated?
Unincorporated, therefore the partners have unlimited liability.
In what circumstances can a partner limit their liability?
When the partner only invests funds in the business and is not allowed to be directly involved in the management of the business.
What can be used to set out the rights and responsibilities of partners?
A deed of partnership.
What is a deed of partnership sometimes referred to as?
A partnership agreement.
If no deed of partnership is drawn up, what governs the arrangement?
The Partnership Act 1890.
What does the Partnership Act 1890 state?
The profits or losses of a partnership are shared equally between partners irrespective of capital invested, hours worked or responsibilities.
Who owns limited companies?
What does incorporated mean?
A company has its own legal identity separate from that of its owners. It can enter into contracts, sue and be sued in its own name.
How many types of limited company are there, and what are they called?
Two - private limited company and public limited company.
Which type of limited company can offer shares for sale to the public?
Public limited company.
How much authorised share capital must a public limited company have as a minimum?
What does limited liability mean?
Liability for the business's debts is limited to the extent of an individual's personal investment in the company.
What legislation regulates limited companies?
The Companies Act 2006.
What does the Companies Act 2006 govern?
1. The formation and registration of a limited company
2. Responsibilities of the company, it's directors and company secretaries
3. Requirements for financial record keeping and preparation and presentation of financial statements.
What is financial accounting?
Keeping financial records, and using information from financial records to prepare financial statements.
What types of business are required to keep financial records and prepare financial statements?
All types, no matter how large or small.
What is management accounting?
The process of internal accounting for the purpose of providing financial information at a time and in a format suitable for planning and controlling the business.
Management accounting is a legal requirement - true or false?
What is the system of bookkeeping called where a spreadsheet is used to record receipts and payments?
Single entry system.
What type of bookkeeping system do medium and larger businesses use?
Double entry system.
What information is held by a bookkeeping system?
Claims (on assets by the owners, or equity by shareholders)