Glossary

Question 1

What is a partnership capital account?

Answer 1

-the balance on the partners capital accounts represents the official amounts, that each partner has contributed as capital to the business

Question 2

What is a partnership current account?

Answer 2

-the balances on the partners current accounts, represents amounts that have been allocated to each partner from the business’s income, less amounts each partner has withdrawn from the business in drawings

Question 3

What are accruals?

Answer 3

-an accrued expense is an expense that has or will be posted to the accounts in a later accounting period
-but the expense was incurred in an earlier period so an adjustment must be made to bring in into the earlier period

Question 4

What is the accruals concept?

Answer 4

-income earned and expenditure incurred, should be recorded in the financial statements in the period to which they relate to
-may not be when cash is received

Question 5

What is capital employed?

Answer 5

-capital employed is the sum of capital and non-current liabilities

Question 6

What is capital expenditure?

Answer 6

-the purchases of non-current assets

Question 7

What is the carrying amount (NBV)?

Answer 7

-the cost of the asset - total accumulated depreciation

Question 8

What are cash purchases?

Answer 8

-purchases made where the supplier is paid upfront regardless of the payment method used

Question 9

What are cost of sales?

Answer 9

-opening inventory + purchases in the period - closing inventory at the end of the period

Question 10

What are credit purchases?

Answer 10

-purchases made with an agreement to pay the supplier at a later date regardless of the payment method used

Question 11

What is depreciation?

Answer 11

-the cost of non-current assets, which is spread over a number of years

Question 12

What are doubtful receivables?

Answer 12

-where there is significant doubt about whether a debt will be paid
-set up a provision for an amount which can be based on a general/specific allowance

Question 13

What are some asset accounts?

Answer 13

-bank, trade receivables and non-current assets

Question 14

What are some liability accounts?

Answer 14

-trade payables, loan, overdraft and mortgage

Question 15

What are some income accounts?

Answer 15

-sales, sundry income and interest receivable

Question 16

What is going concern?

Answer 16

-expected to continue in operation for the foreseeable future

Question 17

What is goodwill?

Answer 17

-the value of a business above the net value of all other assets and liabilities

Question 18

What is gross profit?

Answer 18

sales revenue - cost of sales

Question 19

What is gross profit margin?

Answer 19

(gross profit / sales revenue) x 100%

Question 20

What are examples of intangible non-current assets?

Answer 20

-trademarks, patents and goodwill

Question 21

What is a mark up?

Answer 21

-the profit as a percentage of cost of sales

Question 22

What is net-assets?

Answer 22

NCA + CA - non-current liabilities

Question 23

What is net current assets?

Answer 23

current assets - current liabilities

Question 24

What are net purchases?

Answer 24

purchases - purchases returns + carriage inwards

Question 25

What is net realisable value?

Answer 25

selling price - costs to get the product into a condition ready for sale

Question 26

What is the NCA register?

Answer 26

-detailed list of all NCA a business has -including date of purchase, original value and carrying value following depreciation

Question 27

What is a partnership agreement?

Answer 27

-formal written agreement that covers matters like management and distribution of profits

Question 28

What is a partnership appropriation account?

Answer 28

-how the profit is allocated to the partners -forms part of P&L

Question 29

What are prepayments?

Answer 29

-included in the accounts in an earlier accounting period because it was paid early -expense actually belongs in a later accounting period when it was incurred

Question 30

What is prudence?

Answer 30

-where judgement is required, care must be taken not to overstate income or assets nor understate expenses or liabilities

Question 31

What is reducing balance depreciation?

Answer 31

-the carrying value of the asset is depreciated by the same percentage each year -gets lower as assets get older

Question 32

What is the return on capital employed?

Answer 32

profit for the year / (capital + NC liabilities) x 100%

Question 33

What is revenue expenditure?

Answer 33

-direct material and labour costs together with the day to day running costs

Question 34

What is straight-line depreciation?

Answer 34

-charging the same amount of depreciation each year of an asset's life

Question 35

What is the formula for SL depreciation?

Answer 35

cost - residual value / useful economic life

Question 36

What is verifibility?

Answer 36

-different knowledgeable and independent observers could reach consensus, despite not reaching a complete agreement