outcome 3 Flashcards
(26 cards)
what is a current asset?
a current asset is a present economic resource controlled by entity as a result of past events that has the potential to be converted to cash, sold or consumed within the next 12 months
what is a current liability?
a current liability is a present obligation of the entity to transfer an economic resource as a result of past events that are required to be settled within 12 months after the end of the reporting period
what is a non-current asset?
a non-current asset is an economic resource controlled by the entity as a result of past events that has the potential to produce future economic benefits beyond 12 months after the end of the reporting period.
what is a non-current liability?
a non-current liability is an obligation of the entity to transfer an economic resource as a result of past events that are not required to be settled within 12 months at the end of the reporting period.
what is owner’s equity?
owner’s equity is the residual interest in the assets of the entity after deducting all its liabilities.
what is total assets?
all of the economic resources controlled by the entity as a result of past events.
what is total equities?
all of the claims on the assets of the business consisting of both liabilities and owner’s equity.
what is relevance
relevant information is capable of making a difference to an economic decision made by users.
what is revenue
revenue are any items that create an inflow of economic benefits, that either increases assets or decrease liabilities, increasing owners equity, excluding capital contributions.
what are expenses
expenses are any items that create an outflow of economic benefits, that either decreases assets or increase liabilities, that result in a decrease in owner’s equity, excluding drawings.
what is net profit
net profit represents the money a business retains after all expenses, including operating costs, interest, and taxes, are deducted from its total revenue.
what is accounts receivable
the money a business is owed by its customers for goods or services provided, but that have not yet been paid for
what is accounts payable
refers to the money a business owes to its suppliers and other creditors for goods or services
what is the formula to calculate accounts receivable
opening balance add credit sales (sales journal including GST) less receipts from accounts receivable (cash receipts journal)
what is the formula to calculate accounts payable
opening balance add credit purchases (purchase journal including GST) less payments to accounts payable (cash payments journal)
what is the formula to calculate materials
opening balance plus cash purchase of materials plus credit purchase of materials less cost of materials used
what is the formula to calculate GST
opening balance add GST received (cash receipts journal) add GST credit (sales journal) less GST paid (cash payments journal) less GST credit (purchases journal)
strategies to improve net profit
reduce costs, increase revenue
why are credit fees classified as revenue
because they represent income earned by a business
why is GST on credit fees not revenue
because the business then owes that GST to the ATO meaning it is not income for the business
why is a receipt from accounts receivable not recognised as a revenue
A receipt from accounts receivable is not recognized as revenue because it’s a transaction swapping one asset (accounts receivable) for another (cash). The revenue was already recognized when the sale was made and the account receivable was established.
what is the difference between cash and profit
cash and profit are different resources. Cash refers to the actual physical money flowing into and out of a business, while profit is the financial gain or loss resulting from a business’s activities over a specific period
cash is calculated by cash receipts minus cash payments whereas profit is calculated by revenue minus expenses
how can an income statement be used by a business to assess its performance and plan for future activities
By examining the various components of the income statement, such as revenue, cost of goods sold, and net income, businesses can identify trends, measure efficiency, and pinpoint areas for improvement
what is verifiability
verifiability means that different knowledgeable and independent observers can arrive at the same conclusion that particular depiction of an event is faithfully represented by retaining source documents that can be checked through auditing. Estimates cannot be verified
