Chapter two Flashcards
(23 cards)
What financial statements do i need to be aware of?
- Statement of financial position
- Income statement
- Statement of cash flows
What is the income statement also known as ?
the profit and loss account
What is the statement of financial positon also known as ?
the balance sheet
What are trade payables ?
Trade payables are things that the business owes
What are trade receivables ?
Trade receivables are things which are owed to the business from customers etx.
What are tangible assets?
Assets with a physical substance
What are intangible assets ?
Assets which don’t have physical substance e.g. goodwill , brand
What is equity ?
Equity is the owners claim to the business
What is the equation:
Assets = …+…
Assets = equity + liabilities
Equity = …-…
Equity = Assets - liabilities
What conventions do i need to know ?
Business entity convention Historic cost convention Prudence going concern Dual aspect
What is the business entity convention?
This law states that for accounting purposes the business and it’s owners are treated as being quite separate and distinct.
What is the historic cost convention?
This law states that the values of assets shown on the statement of financial position should be based on their historic cost. (acquisition cost)
What is the prudence convention?
The prudence convention states that caution should be practised when preparing financial statements
What is the going concern convention?
The financial statements should be prepared on the assumption that the business is going to continue operations for the foreseeable future, unless there is evidence to the contrary
What is the dual aspect convention?
This states that each transaction has two aspects, both of which will affect the statement of financial position
What does goodwill mean ?
This covers the quality of the products, the skill of the employees and the relationship with customers
What happens to non-current assets with finite lives ?
The assets will be used up over time and therefore the business has to use depreciation
What do you call depreciation for intangible non-current assets ?
Amortisation
What is the carrying amount ? (net book value/ written down value)
This is the cost of the assets less the total depreciation to date
Are non-current intangible assets subject to depreciation?
no
What is impairment loss?
This is the amount at which an asset is reduced due to a significant fall in value.
What is the impairement loss listed as in the financial statement ?
The carrying amount on the financial statement is reduced to the recoverable amount
