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Frequently asked questions
Accounting is the process of the work involved in the recording of financial transactions.
The financial statements represent a snapshot of the financial activities of a business or individual over a period of time. Usually, the four main financial statements are:
- Profit and loss (income) statement
- Balance Sheet
- Cash flow statement/statement of cash flows
- Statement of changes in equity
This is a summary of your income minus expenses over a period of time – the net of the two is the profit or loss figure. This, in part, is used to determine how much tax the business/individual as a sole trader owes to HMRC.
This is a report showing a snapshot of the equity in the business at a point in time (Assets – liabilities = equity. The balance sheet shows the value of your assets (what you own) minus your liabilities (what you owe) and equity (the value of shareholders ownership in the business). This report provides useful information to the likes of banks and suppliers as it will be used to determine whether to offer the business a loan/overdraft or credit.
This is a report that shows how much cash entered and exited the business over a specified period of time and is useful to determine how the business used the cash in three main areas: cash flow from operating activities, cash flow from investing activities and cash flow from financing activities.
This report shows a summary of the owner’s interest in the business inasmuch of the company’s share capital (how much the owners invested in shares) and retained earnings (how much was left to re-invest in the business after the dividend payments were made).
A journal is an accounting or bookkeeping term meaning a recorded log of business transactions.
A journal entry contains the information pertaining to a business transaction, such as the date of the transaction, the amount to be credited and the amount to be debited to either the profit and loss account or balance sheet. A description of the transaction is also contained within the journal entry.
Gross profit is the money you made from selling your products or services. It is the net (difference) of a business’s sales minus the cost of goods sold (what it cost the business to be able to sell the product or service).
The net profit is then the figure that is left after all other allowable business expenses have been paid.
The net profit can be shared amongst the owners of the business or kept, to be reinvested into the business.
We have a wealth of useful business, tax and financial information in our Information Hub – contact us for help and advice specific to your circumstances.
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