Introduction to Book-keeping and Accounting Principles

Vocabulary flashcards covering business classification types, the accounting sequence, key financial statements, book-keeping vs. accounting, and various external and internal users of financial reports.

Sole trader

An individual trading alone in his or her own name, or under a recognised trading name, who is solely liable for all business debts but takes all profits when successful.

Partnership

A group of more than $2$ people and a maximum of $20$, carrying on a particular business with a view to making a profit.

Private limited company

A legal entity with at least $2$ shareholders whose liability is limited to the amount they have agreed to invest.

Public limited company

A legal entity with limited shareholder liability that can ask the public to subscribe for its shares.

Non-trading organisations

Clubs, associations, and non-profit-making organisations run for the benefit of their members to engage in a particular activity rather than to make a profit, producing income and expenditure accounts.

Cooperative society

A legally constituted business entity formed for the explicit purpose of furthering the economic welfare of its members and that of the wider society by providing them with goods or services.

Financial control

The practice of ensuring that the sales of a business are greater than the costs incurred by the business, thereby providing a profit.

Book-keeping

The process of recording business transactions in the books of accounts or using a computerised accounting package and managing such records, representing the first stage in the accounting process.

Accounting

The process where an accountant presents information in the form of financial statements to owners and managers to aid financial control, management, analysis, interpretation, forecasting, and budgeting.

Trading and profit and loss account

One of the two primary financial statements produced by a business to show clearly the profit or loss that has been made.

Balance sheet

One of the two primary financial statements produced by a business to show clearly its financial position.

Accounting sequence

The formal procedure followed by a business involving four main stages: recording data, classifying data, summarising data, and communicating information.

Classifying data

The stage in the accounting sequence where recorded financial transactions are grouped (such as separating sports equipment sales from camping gear sales) to be useful to the business.

Summarising data

The stage in the accounting sequence that provides business managers with financial transaction data in a concise form.

Communicating information

The final stage in the accounting sequence where prepared data is presented in a formal way as business accounts and business reports.

Auditors

An external firm that checks and verifies a business's financial statements as part of the legal requirement for correct financial reporting.

Inland Revenue Department

A group interested in accounting information that collects employees' and business taxes.

Investors

Private individuals, companies, or banks who monitor the performance of a business to ensure a return on their investment.

Suppliers

A group that needs to be sure of the financial stability of a business before accepting orders.

Customers

A group that needs to be sure of the financial stability of a business before placing orders.

Employees

Internal stakeholders whose morale is kept high by a sound business with a good working environment, aiding in attracting high-calibre new staff.

Profit calculation

The net monetary outcome determined by subtracting costs and expenses from sales revenue; e.g., selling price ($15,000$) less cost price ($10,000$) equals gross profit ($5,000$), less expenses ($3,000$) leaves final profit ($2,000$).