chap 2 and 3 flashcards

Question 1

Current assets

Answer 1

reasonably expected to be converted to cash, sold or consumed by the business within 12 months

Question 2

Non-current assets

Answer 2

Not held for resale and expected to be used for more than 12 months

Question 3

Current liabilities

Answer 3

Are reasonably expected to be settled within 12 months after the end of the reporting period

Question 4

Non-current liabilities

Answer 4

Are not required to be settled within 12 months after end of the reporting period

Question 5

Balance sheet

Answer 5

An accounting report that details a firm’s financial position at a particular point in time by reporting its assets, liabilities and owner’s equity.

(titled as at to reflect its only accurate at the day it is prepared)

Question 6

Equities v Owner’s equity

Answer 6

Equities: claims on the assets of the business consisting of both liabilities and owner’s equity

Owner’s equity: The residual interest in the assets of the entity after the deduction of its liabilities. (owner’s share of the business)

Question 7

Key rules of double-entry accounting

Answer 7

• The Accounting equation must always balance (thus debits=credits)
• Every transaction will ffect at least two items in the Accounting equation.

Question 8

ledger account v General ledger

Answer 8

Ledger account - An Accounting record showing all the transactions that affect a particular item

General Ledger - The collective name for a group of ledger accounts

Question 9

Why is a cross-reference important?

Answer 9

• names the other ledger account/s affected as part of the double-entry of each transaction.
• this aids in tracing back transaction and ensuring accounting equation balances and that a double-entry has been recorded.
• provides as audit trail for transactions.

Question 10

What is a trial balance?

Answer 10

A list of all accounts in the general ledger, and their balances
(credit or debit).

Question 11

Purpose of trial balance

Answer 11

It is a fact checking mechanism to ensure debits equal credits prior to creating reports

Question 12

Errors trial balance reveals

Answer 12

• If incorrectly amount recorded on one side
• if both entries recorded on same side
• if one entry is not recorded

Question 13

Errors trial balance does not reveal

Answer 13

• if transaction omitted altogether
• if debits and credits swapped
• if same incorrect amount recorded both sides
• if entries recorded on wrong ledger accounts

Question 14

Footing v balancing

Answer 14

1. Balancing is done only at the end of the period.
2. Only assets, liabilities and owner’s equity accounts are balanced.(Revenue and expense accounts are closed. )
3. Balancing is a more formal process, involving a proper double entry(a debit and matching credit entry)