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Year 1 Semester 1 > Accounting > Flashcards

Accounting Flashcards

1
Q

financial accounting

A

PAST performance & financial position
historical
EXTERNAL
regulated & standardised

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2
Q

management accounting

A

PRESENT & FUTURE
future orientated
INTERNAL
no prescribed format/standard

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3
Q

limited company

A

separate legal entity from owners
accounts used by many user groups = more regulation
separate entities depends whether business is incorporated as limited company

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4
Q

accounting perspective

A

business & owner separate financial statement = business
owner = claimants against own business

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5
Q

2 financial statements

A
  1. income statement (statement of financial performance)
  2. balance sheet (statement of financial position)
  3. statement of cash flows
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6
Q

income statement
components

A

profit or loss
-revenue (normal trading activities)
-other income (not part of core business disclosed separate interest)
-expenses (used up in period being reported on)
-profit/loss

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7
Q

balance sheet
components

A
  1. assets = resources (of value generate future income)
    -non current (+12months)
    -current (cash in a year)
    -tangible vs intangible
    -available for sale
    -investments in associates
  2. equity & 3. liabilities = claims/funding
    -current (pay within year)
    -non-current)
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8
Q

available for sale

A

investment denominated in money or paper
shares/bonds entity sold in future

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9
Q

investments in associates

A

inve in paper share
intention to retain inv as part of entity normal activities

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10
Q

debtors

A

trade receivable
owe you money

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11
Q

creditors

A

trade payable
owed a supplier money

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12
Q

accounting equation

A

assets = liabilities + equity

equity = capital +profit/loss
equity = owners capital + retained profit

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13
Q

cash/bank account

A

asset -> debit -> debit to increase

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14
Q

capital account

A

owners contribution to business
equity -> credit account -> credit to increase

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15
Q

debit

A

increase asset/expense
decrease liability, revenue or equity

cash/bank
drawings

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16
Q

credit

A

increase liability, equity
decrease asset or expense

capital

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17
Q

drawings

A

owner withdraws cash or other business assets for personal use
decreases equity

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18
Q

cash transactions
2 types

A

receipt/payment of cash = immediate

  1. cash receipt
    debit = cash/bank
    credit = account where cash receipt is from
  2. cash payments
    debit = account what cash payment is for
    credit = cash/bank
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19
Q

credit transactions
sales

A

cash receipt/payment occurs later after point of transaction
accruals principles - income/expense recognised as earned/incurred not when payment happens

debit = trade receivables
credit = sales
THEN
debit = cash/bank
credit = trade receivables

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20
Q

purchase on credit

A

debit = purchases
credit = trade payables
THEN
debit = trade payable
credit = cash/bank

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21
Q

trade receivables

A

sales
current asset

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22
Q

trade payables

A

purchases
current liability

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23
Q

balancing figure

A

difference in the 2 sides of the t-account

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24
Q

c/d

A

carried down

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25
Q

balance sheet accounts for trial balance

A

asset liability capital
balance carried down into next period

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26
Q

income statement accounts for trial balance

A

income expense
transferred to income statement
closes the account no balance carried into next period

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27
Q

capital related accounts

A

drawings & profit/loss (income statement)

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28
Q

debit and credit balances

A

total amount on debit side greater than credit = debit balance
reverse = credit balance

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29
Q

trial balance

A

balances in ledger at end of period

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30
Q

trade discount

A

discount from 1 trader to another
deducted on invoice
no need to recored already reflected in lower invoice price

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31
Q

cash discount

A

reduction in amount customer has to pay
provided payment is made within given period stipulated by seller at time
no need to record discount allowed to customer discount received from suppliers

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32
Q

receipts vs payments

A

debit = receipts
credit = payments

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33
Q

cost of sales (cost of goods sold)

A

costs directly connected to purchasing and or producing goods sold

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34
Q

matching concept

A

income must be recognised in period in which it is earned
-expense incurred in achieving income also recognised in same period
-expense should be matched against income generated

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35
Q

purchases during accounting year

A

SOLD - matched with sales generate COS this years I.S

NOT SOLD - cost of items deducted from this years purchase treated as an asset (inventory) this year when items get sold next year = converted into COS in next years I.S closing inventory this year, opening inventory next year

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36
Q

inventory in trial balance

A

always opening inventory (last periods closing inventory)
inventory account not accumulative record
- only entries made are for recording closing inventory and transferring opening inventory

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37
Q

classification of costs and expenses

A

operating expenses: COS, selling and distribution, administrative

finance cots: interest on borrowings

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38
Q

income statement for limited companies

A

operating expenses
finance costs
corporation tax/income tax

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39
Q

selling and distribution

A

costs of selling & warehouse operation

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40
Q

administration

A

cost of administrative functions

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41
Q

net profits

A

profits/loss at end of current year goes from IS -> BS usually added to retained earnings

42
Q

expenditure of acquiring an asset

A

treated as an asset (capital expenditure)
increases financial position of the business NOT an expense

43
Q

measurement of NC asset

A

recorded at historical cost
objective and verifiable measure = always relevant
companies can chose between historical costs and fair value (mkt value) after initially recording asset at HC

44
Q

historical cost

A

cost originally paid to acquire asset and get it in working order includes:
1. delivery charges & installation costs
2. legal costs
3. extensions and improvements (buildings)

not repairs and maintenance

45
Q

depreciation

A

systematic allocation of depreciable amount of asset over useful life

-carried out to reflect amount of economic benefits of tangible non-current asset consumed during accounting period

46
Q

depreciable amount

A

cost of asset or other amount substituted for cost - residual value

47
Q

dual effects of depreciation

A

charged on all tangible non current assets except land (infinite useful economic life)

48
Q

straight line method of depreciation

A

fixed instalment method
same amount of depreciation charged to I.S every year of assets useful economic life

49
Q

diminishing/reducing balance method

A

depreciation expense that decreases over the assets useful life

50
Q

ledger entries for depreciation

A

expense -> IS, periodic, balance -> IS at end of year

contra asset -> BS, accumulative, balance carried down to next year

51
Q

Disposal of non-current asset

A

record sales proceeds
clear non current asset
clear off accumulated depreciation of disposed asset
close asset disposal account
complete cr entry for profit and dr entry for loss

52
Q

partial year depreciation

A
  1. strict time basis
    -in year of acquisition, date of purchase to end of accounting year, year of disposal from start of accounting year to date of sale
  2. if date of acquisition or disposal is not given
    -full years charge in year of purchase
    -none in year of sale
53
Q

bad debts

A

irrecoverable debts officially written off as uncollectible
TR unable/unwilling to pay amount owed in respect of goods/services supplied on credit
-matter of judgment
-expense on I.S

54
Q

doubtful debt

A

money predict will be uncollectible and turn into bad debt

55
Q

provision

A

setting aside income to meet a know/highly probable future liability or loss (estimate)
-prudence concept (providing for losses)
-matching concept (recognising loss/cost against revenue that generates it)

56
Q

types of provision for doubtful debts

A
  1. specific - particular TR identified as unlikely to pay
  2. general - estimated % of TR end of accounting year unlikely to pay
57
Q

accruals/accrued expenses

A

charged against profit for a particular period even though not been paid
-consume now pay later
-instead of payable = recognise accrual = liability

58
Q

arrears

A

money owed and should have been paid earlier

59
Q

accruals concept & matching concept

A

expenses recognised when incurred not when they are paid for

expenses are matched to revenue that generate them

60
Q

prepayments/prepaid expenses

A

services are paid for in advance
rise to a receivable in respect of services paid for but not yet consumed

61
Q

company

A

company when registered with companies house, own legal entity, options to raise funds

62
Q

limited company

A

legal entity in own rights
separate from owners = ordinary SHs
limited liability
private or public

63
Q

ordinary share capital

A

nominal value of funds raised from share issue
funds raised by company through issues of ordinary shares
proceeds recorded in share capital account

64
Q

nominal value

A

basic value of the share
fixed known as face value

65
Q

issue price

A

shares issued at price at least equal to nominal often exceeds to try and raise money

66
Q

share premium
reasons for issuing at premium

A

excess of shares issue price over nominal value

-maintain control = issue less but at higher price = limit number of shares

67
Q

market value of a share

A

fluctuates
according to market expectations and company performance
doesn’t feature of financial statements

68
Q

equity

A

credit balance
share capital = credit

69
Q

reserves

A
  1. capital
    -cant be distributed as dividends
    -share premium = type of capital reserve
  2. revenue
    -can be distributed as dividends
    -retained earnings
70
Q

dividends

A

appropriation of profit - distribution of profit, reduced retained earnings

71
Q

debenture/loan stock

A

raise funds issuing to public
liability
holders = entitled to = repayment of nominal/face value of debenture when reach maturity after fixed time period
fixed interest payments until reach maturity

72
Q

interest on debenture

A

EXPENSE
charge against profit finance cost
usually in 2 instalments
liability from the accrual = sometimes referred to as interest payable

73
Q

taxation

A

company liable for tax on annual profit
lower net profit
accrued tax = increase liabilities
EXPENSE

74
Q

accrual in terms of taxation

A

should be created at year end reflect estimated tax due
liability arising sometimes referred to as tax provision/tax payable

75
Q

horizontal analysis

A

comparison of historical financial info over 2 or more reporting periods
start with base year and a comparison year = determine year on year change
performed on income statement and balance sheet

76
Q

vertical analysis

A

income statement:
-take revenue as base figure
-express every line on IS as % of sales
-proportion of line items to sales
-complements profit margin rations - illuminate why profit margins are what they are, focus in costs

balance sheet:
-asset- total assets as base figure and express every asset as % of total assets
-claims (liabilities + equity) total claims as base figure and express liability and equity items as % of total claims

77
Q

ratio analysis

A

expression of relationship between figures
evaluate financial performance and position = decision making

78
Q

point of reference for ratios

A
  1. comparisons with other firms
  2. historical comparisons
79
Q

profitability ratios

A

profit margins (GPM, OPM)
ROCE
ROE

80
Q

boost profit margins

A
  1. increase revenue (SP x vol)
  2. cost control (boost GPM, lower expenses through efficiency reforms/outsourcing)
81
Q

efficiency ratios

A

-evaluation of working capital management
1. collection days
2. trade payable days
3. inventory turnover days

82
Q

working capital management

A

working capital: level of CA & CL in business
‘right’ level of inventory, TR, TP to have in business relative to level of trading (buying and selling) activity

83
Q

liquidity ratios

A

ability to generate cash to pay for current liabilities
1. current ratio

84
Q

financing ratio

A

ability to meet long term liabilities and pay interest
1. gearing ratio

85
Q

investor ratios

A

computed from investors perspective
1. dividend cover

86
Q

shares

A
  1. book value (value of shares issued as reported in accounts)
  2. nominal value (face or per value)
  3. share premium
87
Q

dividend

A

distributions of profit to SHs, determined by company’s dividend policy

88
Q

market value (share price)

A

reflects investors perceptions and reactions to company performance and decisions also affected by wider economy

89
Q

costs

A

expenditure attributable to an item or activity

90
Q

cost concepts in financial accounting

A

expenses (revenue expenditure) - costs consumed in generation of revenue during given period, decrease profit on I.S

assets (capital expenditure) costs of items to be retained for use within business capitalised as assets, increase financial position on B.S

91
Q

cost classifications in management accounting

A
  1. by type (product cost vs period cost) (direct vs indirect)
  2. by behaviour (fixed cost, variable cost, semi-variable cost)
  3. by relevance to decision making (sunk cost, opportunity cost, future outlay)
92
Q

product costs in manufacturing

A
  1. direct costs (direct materials, direct labour) - traceable to product, prime cost
  2. indirect costs (production/manufacturing overheads) - cant be traced to specific products
93
Q

cost object

A

anything that needs own cost measurement can be a unit of product or a job

94
Q

absorption costing

A

traditional full costing technique

95
Q

full costing

A

term
trying to cost a product so that it includes both direct costs and indirect costs are the production overheads
-cost of unit of product (all direct costs and allocation of production overheads)

96
Q

method of allocation of production overheads

A

different forms
single blanket overhead absorption rate
separate absorption rates for each department
take total production overheads and divide by some kind of allocation basis (can be random basis)

97
Q

allocation basis for OAR (overhead absorption rate)

A

direct labour hours used as allocation basis (most common)
machine hours is common
no single correct

98
Q

activity based costing (ABC)

A

cause and effect allocation of overheads, modern full costing technique
individual products and jobs are then assigned overheads according to consumption/use of said activities
instead of 1 overhead absorption split overheads into activities and track how much of activities

99
Q

ABC process

A
  1. split overhead costs into activities (cost pools)
  2. each cost pool identify cost driver (what causes it)
  3. each cost pool calculate cost per driver
  4. allocate overhead to individual products using cost per driver x usage of cost driver by product
100
Q

contribution margin

A

proportion of sales revenue not consumed by variable costs and contributes to covering fixed costs

101
Q

cost volume profit analysis assumptions

A

-Selling price and unit variable costs are constant within the relevant range
-Costs can be readily and accurately split into fixed and variable elements
-VC = linear relationship with volume – in practice costs behave in a non-linear way due to EOS and capacity limits
-FC doesn’t vary with volume of activity – practice FC may increase with activity in a step-like way when volume of output exceeds certain level
-one product line or one sales mix for multi-product businesses (rare in practice)

Year 1 Semester 1 (4 decks)

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