Accounting

Just want to ask a quick question, about accounting.

It's for my coursework at University and I have looked everywhere I can for the answer I can't find it.

The question:

What is accumulated profit and why do accountants and bookkeepers use different names for the same thing?

Anything that can help me answer the question will be greatly appreciated.

Accumulated profit is another word for retained earnings: Clicky

For the second part of the question, I would assume it is to separate themselves from similar companies and create a brand. They will all want to stand out from the crowd, so if a business named itself after another, then they would be unlikely to be more successful than the other.

Legend, you are a legend thanks a lot for the answer.

No problemo.

Another quick question,

what are the similarities between dividends of a company and drawings of a sole trader?

Hi PJ,

Drawings of a sole trader and dividends of a company are similar in that they are both amounts that an owner takes from the company. However, dividends are payable to all shareholders of a company and represents a share of the company's post tax profits (and are usually expressed as a certain percentage of profits). Drawings of a sole trader are not a defined amount, and can be drawn down against profits at any time.

Drawings tend to be a sole trader taking living expenses from his/her company, particularly where he/she takes no wage from the company. Whereas dividends are a return on investment payable to a shareholder.
Another similarity would be that the maximum dividend payment and the maximum amount available for drawings in each case would be the total profit in the period. (To avoid a loss, and a reduction in equity).

Hope this helps - its a while since I studied accounting, but being an accountant I should know this.

As for the difference in terms used by accountants and bookkeepers, I would say one of the major differences is that bookkeeping is an internal control system, and an aid to management - so any term management would like to apply to a category of income/expenditure/balance sheet item is suitable. Accountants tend to be concerned with external reporting (to companies house and the inland revenue) so the terms required for those same items may be imposed upon by a external rules and regulations (such as IFRS', IAS' and GAAP)

Demon

Thanks buddy that helps a lot.