Accounting

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Units 44, 47, 48, 49

accounting

the process of identifying, measuring and communicating information to permit informed judgments and decisions by users of the information

assets

resources used or owned by the business in production

balance sheet

a summary at a point in time of business assets, liabilities and capital

capital

a source of funds provided by the owners of the business used to buy assets

current assets

assets likely to be changed into cash within a year

current liabilities

debts that have to be repaid within a year

drawings

money withdrawn by a sole trader from the business for personal use

fixed assets

assets with a lifespan of more than one year

liabilities

the debts of the business which provide a source of funds

long-term liabilities

debts that are payable after 12 months

net assets

the value of total assets minus current liabilities minus long-term liabilities; equal to capital and reserves on the balance sheet

net current assets

current assets minus current liabilities; aka working capital

non-current assets

the long-term assets of a plc which are not expected to be sold within a year

non-current liabilities

the long-term liabilities of a plc - any amount of money owed for more than a year

working capital

the funds left over to meet day-to-day expenses after current debts have been paid; current assets minus current liabilities

working capital cycle

the flow of liquid resources into and out of a business

operating profit

the profit made by a business as a result of its ordinary trading activities

income statement

a financial document showing a company's revenue/income and costs/expenditure over a particular time period, usually one year; aka profit and loss account

profit and loss account

shows net profit after tax by subtracting business expenses and taxation from operating profit

profit and loss appropriation account

shows how the profit after tax is distributed between shareholders and the business

profit quality

occurs when profits are sustained over a period of time; there is low profit quality if profit in one time period is mainly due to some one-off factor which is not sustainable

profit utilization

the way in which profit made by a business is distributed

trading account

shows operating profit by subtracting the cost of sales from turnover

gross profit

total sales revenue or turnover minus cost of sales, the direct costs of production

gross profit margin

gross profit expressed as a percentrage of turnover

net profit

profit on ordinary activities before taxation; total sales revenue or turnover minus cost of sales and overheads

net profit margin

net profit expressed as a percentage of turnover

profit margin

profit expressed as a percentage of turnover

return on capital

the amount of profit expressed as a percentage of the capital invested in a business

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