Edexcel International GCSE Accounting: every topic, by paper

What is the main purpose of accounting?

To record financial transactions and provide information that helps owners and others make decisions about a business.

What is the difference between bookkeeping and accounting?

Bookkeeping is the detailed recording of transactions; accounting uses those records to prepare, analyse and interpret financial statements.

State the accounting equation.

Assets = Capital + Liabilities.

What is the double-entry principle?

Every transaction is recorded twice: a debit entry in one account and an equal credit entry in another.

What is a ledger account?

A record of all transactions of one type, with a debit (left) side and a credit (right) side.

Which accounts increase with a debit entry?

Assets, expenses and drawings.

What is a source document?

The original document that provides evidence of a transaction, such as an invoice or a receipt.

What is an invoice?

A document sent by a seller to a buyer on credit, showing the goods supplied, the amount due and the terms.

What is a credit note?

A document sent by a seller to reduce the amount a customer owes, for example when goods are returned.

What is a trial balance?

A list of all ledger account balances at a date, with debit and credit balances in separate columns.

Why is a trial balance prepared?

To check the arithmetical accuracy of the double-entry records and to help prepare financial statements.

What does it mean if the trial balance totals agree?

The debits equal the credits, but it does not prove the records are free of errors.

What is a bank statement?

A copy of the business's account as kept by the bank, showing deposits, payments and the balance.

What is a bank reconciliation statement?

A statement explaining the difference between the cash book bank balance and the bank statement balance at a date.

Why do the cash book and bank statement balances often differ?

Timing differences (unpresented cheques, outstanding lodgements), items the business has not yet recorded (bank charges, direct debits, credit transfers), and errors.

What is a control account?

A summary account whose balance should equal the total of the individual accounts in a ledger.

What is a sales ledger control account?

A control account for trade receivables: its balance should equal the total owed by all credit customers.

What is a purchases ledger control account?

A control account for trade payables: its balance should equal the total owed to all credit suppliers.

What is depreciation?

The allocation of the cost of a non-current asset over its useful life, reflecting its fall in value through use, time or obsolescence.

Name four causes of depreciation.

Physical wear and tear, passage of time, obsolescence (becoming out of date), and depletion (such as a mine being used up).

Why is depreciation charged in the accounts?

To match the cost of using the asset against the income it helps to earn each year (the matching principle).

What is the accruals (matching) principle?

Income and expenses are recorded in the period they relate to, not when cash is received or paid.

What is an accrued expense?

An expense that relates to the current period but has not yet been paid at the year end.

What is a prepaid expense?

An expense paid in advance that relates to a future period.

What does an income statement show?

The revenue, expenses and profit or loss of a business over a period.

What does a statement of financial position show?

The assets, liabilities and capital of a business at a particular date.

How is cost of sales calculated?

Opening inventory + purchases − closing inventory (adjusted for returns and carriage inwards).

What is a partnership?

A business owned by two or more people who share the profits, losses and responsibilities.

What is a partnership agreement?

A document setting out how profits are shared, partners' salaries, interest on capital and drawings, and other terms.

In the UK, what applies if there is no partnership agreement?

The Partnership Act 1890: profits and losses shared equally, no interest on capital, no salaries, and 5% interest on partners' loans.

What is a limited company?

A business that is a separate legal entity from its owners (shareholders), whose liability is limited to the amount they invested.

What is limited liability?

Shareholders can lose only the money they invested; their personal assets are safe.

What is the difference between a private and a public limited company?

A private company (Ltd) cannot sell shares to the public; a public company (plc) can offer shares to the public on a stock exchange.

Why do businesses calculate accounting ratios?

To analyse profitability, liquidity and efficiency, and to compare performance over time and with other businesses.

What is the gross margin formula?

Gross profit ÷ revenue × 100.

Gross profit $32,000; revenue $80,000. What is the gross margin?

$32,000 ÷ $80,000 × 100 = 40%.

Why are accounting principles needed?

So that financial statements are prepared consistently and can be relied on and compared.

What is the business entity principle?

The business is treated as separate from its owner, so only business transactions are recorded.

What is the duality principle?

Every transaction has two effects, which is the basis of double entry.