Definitions Chapter 2 Flashcards
(23 cards)
Statement of cash flows
A statement that shows a business’s sources and uses of cash for a period
Income statement
A financial statement (also known as profit and loss account) that measures and reports the profit (or loss) the business has generated during a period.
It is derived by deducting from total revenue for a period, the total expenses associated with that revenue
Statement of financial position
A statement that shows the assets of a business and the claims on those assets.
It is known as a balance sheet.
Final accounts
The income statement, statement of cash flows and statement of financial position taken together
Assets
Resources held by a business, which have certain characteristics, such as the ability to provide future benefits
Claims
Obligations on the part of a business to provide cash or some other benefit to an outside party
Tangible assets
Assets that have a physical substance (for example, plant and machinery, motor vehicles)
Intangible assets
Assets that do not have a physical substance (for example, patents, goodwill and trade receivables)
Equity
The owners’ claim on the business.
In the case of a limited company, it comprises the sum of shares and reserves
Liabilities
Claims of individuals and organisations, apart from the owner(s), that have arisen from past transactions or events, such as supplying goods or lending money to a business
Current assets
Assets that are held for the short term.
They include cash itself and other assets that are held for sale or consumption in the normal course of a business’s operating cycle
Non-current assets
Assets held that do not meet the criteria of current assets.
They are held for the long-term operations of the business rather than continuously circulating within the business.
They are also known as fixed assets
Property, plant and equipment
Those non-current assets that have a physical substance (for example, plant and machinery, motor vehicles)
Current liabilities
Liabilities that are expected to be settled within the normal course of the business’s operating cycle or within 12 months of the statement of financial position date, or which are held primarily for trading purposes, or for which the business does not have the right to defer settlement beyond 12 months of the statement of financial position date
Non-current liabilities
Liabilities of the business hat are not current liabilities
Accounting conventions
Generally accepted rules that are followed when preparing financial statements.
They have evolved over time to deal with practical problems rather than to reflect some theoretical idea
Business entity convention
The convention that holds that, for accounting purposes, the business and its owner(s) are treated as quite separate and distinct
Historic cost convention
The accounting convention that holds that assets should be recorded at their historic (acquisition) cost
Prudence convention
The accounting convention that holds that caution should be exercised when making accounting judgments.
It involves reporting actual and expected losses immediately but reporting profits only when they arise
Going concern convention
The accounting that holds a business is assumed to continue operations for the foreseeable future, unless there is reason to believe otherwise.
In other words, it is assumed that there is no intention, or need, to liquidate the business
Dual aspect convention
The accounting convention that holds that each transaction has two aspects and that each aspect must be reflected in the financial statements
Fair values
The values ascribed to assets as an alternative to historic cost.
They are usually the current market values (that is, the exchange values in an arm’s-length transaction)
Impairment loss
The amount by which the asset value reduced as a result of having its value assessed as impaired
