Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Accounting > Semester 1 > Flashcards

Semester 1 Flashcards

1
Q

What is accounting?

A
  • Collect and record data
  • Process data to produce information
  • communicate or report information to interested parties
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why do entities undertake the accounting?

A
  • record money in and out
  • support decision making
  • report activities and performance
  • report financial state
  • Help assess benefit to society
  • control the company
  • help plan future activities
  • basis for taxation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What types of businesses aim to profit maximise?

A
  • sole trader
  • partnerships
  • limited companies
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What businesses aim to improve public service/value?

A
  • public sector bodies
  • clubs/societies
  • not for profit organisations
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is financial accounting?

A
  • regulated and in a standardised format
  • historical orientation
  • high degree of precision expected
  • not normally produced quickly
  • formal, legal communication to outsiders
  • externally verified by audit/review
  • infrequent
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is management accounting?

A
  • no prescribed format: management decides
  • I tented first internal users and often commercially confidential; more detailed
  • contains estimates and approximations because information is needed quickly
  • often covers segmental details as well as whole organisation
  • produced much more regularly - weekly m, daily, real time
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

limitations of accounting?

A
  • only financial
  • reflects past
  • Inexact science
  • non-quantifiable items
  • unstable currency
  • input quality affects output
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Income statement

A
  • records income and expenses of a business over time

- income - expenses = profit or loss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what is a SOFP?

A
  • records assets/liabilities and capital at a point
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is income?

A

What the business earns from sales of good/services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is expense?

A

What it costs the business to earn the income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is a asset?

A

Resources available to the businesss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is a liability?

A

Amounts owed by a business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is capital?

A

Amount invested in a business by a owner

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is a non current asset?

A

An asset that will bring a firm economic benefit for more than one accounting period e.g vehicle

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is a current asset?

A
  • an asset while benefit will be used up in the current accounting period e.g stock
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is a non current liability?

A

Amounts due to third parties that are not liable for repayment within the year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is current liability?

A

Debts owed by the organisation that will be paid back within a year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What does going concern mean?

A
  • business will continue operation for foreseeable future

- no need/intention to liquidate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What does prudence mean?

A
  • an attitude/mindset
  • exercise caution, don’t be over optimistic
  • profits should not be recorded until realised
  • record actual/anticipated losses in full, now
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is consistency?

A
  • consistent treatment in accounts for:
    • like items within each accounting period
    • treat items the same overtime
  • any change must be stated and effect quantified
  • inconsistency: reduces utility of info
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is business entity?

A

For accounting purposes business and owner are treated as separate and distinct

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What’s double entry book keeping?

A
  • double = two
  • for every transaction made there will be two equal accounting entries made - dual aspect convention
  • one debt entry and one credit entry
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is DEBK rule?

A

For every credit there just me a debit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is the process of double entry book keeping?

A

Once all transactions for a period have been entered into T accounts
—>
The balance on each account is entered into a trail balance
—>
Entries in trail balance are used to prepare financial statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is the accounting equation?

A

Assets - liabilities = capital + revenue - expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is the trail balance equation?

A

Assets + expenses = capital + revenue + liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What does debit or credit means?

A

Debit - to receive, value recieved

Credit - to give, value give

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What does bank mean?

A
  • Records the money kept at bank by the entity.

- shows receipts and payments includes cheques, standing orders and direct credit and debits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What does cash mean?

A

Similar to the bank accounts, except that it exclusively refers to notes and coins being transferred into and out of the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What does capital mean?

A
  • Also referred to as owners equity
  • record the contribution made by the proprietor(owner) to the entity. A special type of liability arising from the business entity principle
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What does trade receivables mean?

A

Arises when the entity sells good/renders services to customers and grants them credit. The customer later pays the entity, but until this occurs, the amount owed is treated as an asset ( i.e as the payment represents a future benefit)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What does discount mean?

A

An account used to show any reduction from the price charged/demanded as a result of prompt payment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What does drawings mean?

A

An account used to record cash, cheques and goods withdrawn from the business by the owner for personal use

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

What does purchases mean?

A

Refers to goods bought with the intention of later resale. It is an expense account. However, notes that the purchases of NCA do not represent purchases - they are recorded in a separate asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What does sales/turnover/revenue mean?

A

Record the value of goods and serves sold by the entity. Whether the goods have been paid for does not effect their entry in the sales T account - it is the other T account will record the method of settlement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What does trade payable mean?

A

A person whom the entity being accounted for has purchased goods from on credit. For example, suppliers. It is a liability account - I.e amounts the business still owes suppliers in respect of goods but not yet paid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

What does inventory mean?

A

A current asset (I.e purchases made that remain unsold, I.e future benefit, by the end of the accounting period)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

What does vehicles mean?

A

A non current asset account for most businesses. Other non current asset accounts land, such as, land and buildings,plant and machinery etc - items which have an enduring benefit to the entity beyond the end of the current financial year

40
Q

What does expenses mean?

A

Payments made for services rendered to the entity that help it to earn sales revenues. Separate accounts need to be opened for each expense e.g gas, insurance, wages, advertising etc

41
Q

What does the concept money measurement mean?

A
  • not all resources held by the business can be measured in money
  • Financial resources exclude resources that cannot be measured in monetary terms such as their reputation and brand
42
Q

What financial statement have to be published publicly?

A
  • income statement or profit and loss
  • statement of financial position (balance sheet)
  • cash flow statement
43
Q

What is a statement of financial position?

A

A statement of what a company owes and owns on a particular date and should all equal

44
Q

What is the top section - assets SOFP?

A

Asset (bold)

  • non-current asset
  • current assets
  • total asset (bold)
45
Q

What is the bottom section of the SOFP?

A

Equity and liabilities (bold)

  • share capital/owners equity
  • retained profit
  • total equity (bold)
  • non-current liabilities
  • current liabilities
  • total equity and liabilities (bold)
46
Q

What are the uses of the SOFP?

A
  • shows liquidity (are we able to meet our obligations e.g. how able are we to pay our debts)
  • Show mix of asset (have a balance of assets in current and non-current assets) held by business
  • shows financial structure (how much is funding is from is from the owner as it the least risky source of funding and how much is funded by third party such as a bank loan which is more risky as we have to pay interest in these loans) if business
47
Q

What are the characteristics of a asset?

A
  • shows probable future benefit
  • business has exclusive rights to control benefit
  • benefit must arise from past transaction (must of bought that asset it made an agreement in which your paying for it)
  • asset must be measurable (must be a way of putting a pound sign on the asset e.g. reputation can’t have a pound sign out on it therefore it is not an asset) in monetary
48
Q

What is owners equity?

A
  • what the business owes the owner
  • also known as capital
  • claim on the assets on the business
  • no fixed repayments date
  • the residual amount found by deducting all of the entity’s liabilities from all of the entity’s assets
  • if the business isn’t a large limited company it’s not called shareholders equity it would be instead called owners equity or capital
49
Q

Disadvantage of the SOFP?

A
  • only true on one day e.g. the next day they could take out a large loan
50
Q

What is a income statement?

A
  • a business primarily exists to make a profit
  • purpose of income statement: measure and record profit
  • PROFIT = revenue - expenses
51
Q

How to calculate cost of goods sold?

A

Opening inventory + purchases - closing inventory

52
Q

What is depreciation?

A
  • an expense in income statement
  • matching cost of asset to revenues asset helps to generate each year
  • amount of asset ‘used up’ in generating yearly sales and revenue
53
Q

What do you need to know to calculate depreciation?

A
  • cost if assets
  • the useful life of asset
  • residual value
  • choice of depreciation method
54
Q

What are the methods of depreciation?

A
  • straight line (SL)
  • reducing balance (RB)
  • sum of digits (SoD)
  • units of service (UoS)
55
Q

What is straight line?

A
  • equal annual charge to income statement
  • easy to calculate and understand
  • widely used
  • especially used where asset depletion relates to the passage of time
56
Q

What is the calculation of straight line depreciation?

A

Cost - residual value
……………………………..
Life of asset (years)

57
Q

What is reducing balance?

A
  • produces the highest depreciation charge in the first year
  • each subsequent years depreciation gets less and less
  • apply the RB rate (will be given this) to the net book value @ the start of the year
58
Q

What is the sum of digits?

A
  • less common
  • similar depreciation schedule to RB
  • key digit is the number of years of useful life
59
Q

What is the calculation of the sum of digits?

A

Cost - residual value
——————x life at start of year
Sum of digits

60
Q

What is the units of service?

A
  • depreciation charged is directly related to the assets use (I.e. hours used or units made by the asset)
  • the more you use the asset in a particular year, the higher the depreciation charged
  • problem? Estimating actual use in advance
61
Q

What is the calculation of units of service?

A

(Cost - scrap) x use in year
——————
Total use

62
Q

What are the matching rules?

A
  • include expenses for which you have had the benefit but have not yet paid - ACCURALS
  • exclude payments that were made this year but for which the benefit will come in a future period - REPAYMENT
  • if you incur an expense this year and you are unsure whether it will bring future benefit include expense in this years income statement - PRUDENCE PRINCIPLE
63
Q

When should sales be recognised? (Income statement)

A
  • sales should only be recognised (recorded in income statement) when they have been realised - when the activities to generate the revenue are substantially complete

Apply the realisation convention

  • customers requirements met as per order/contract
  • customer formally accepts goods/services
  • legal claim for payments established
64
Q

What is inventory?

A
  • held for resale
  • in the process of production
  • in the form of materials and supplies to be consumed in production process or rendering of services
65
Q

How does inventory valuation affect a business?

A
  • The way inventory is valued is important

- valuation affects profit and portrayal of organisation financial position

66
Q

How does inventory valuation affect profit and financial position?

A

Matching - revenue matched against costs incurred in its generation
- need to calculate cost of goods sold

67
Q

What is opening inventory?

A

Goods available for sale at start of year

68
Q

What is closing inventory?

A

Goods unsold at the end of the year

69
Q

What does net realisable value?

A

Basically the money we could get from our inventory when we sell it

Or

The estimated proceeds from the sale items less the costs of selling these items

70
Q

What is the inventory value rule?

A
  • inventory is valued at the lower of cost OR net realisable value
  • in accordance with the prudence concept
  • companies should provide for expected losses, but must not anticipate future profits
71
Q

What does cost mean in the inventory valuation rule?

A

All costs of purchase, costs of conversion and other costs incurred in bringing inventories to their present location or condition

72
Q

What does the inventory valuation method first in first out (FIFO) mean?

A
  • assumes that the first goods purchased will be first to sell
  • at end year, inventory comprises the most recently acquired goods
  • common and logical e.g. perishable goods
  • acceptable for UK tax
73
Q

What does the inventory valuation methods last in first out (LIFO) mean?

A
  • assumes that the last goods purchased will be first to sell
  • sell newest items first
  • at end-year m, inventory is valued at outdated prices (you are left with the oldest inventory)
  • less logical than FIFO
  • acceptable for US tax, but not UK tax
74
Q

What does the inventory valuation method weight average cost (WAVCO) mean?

A
  • compromise between FIFO and LIFO
  • uses an average of all purchase costs in year (but average may not relate to specific prices paid)
  • no assumptions made re:passage of units through the company
  • acceptable for UK tax
75
Q

What is a prepayment?

A
  • amounts paid in advance to suppliers of services
  • payments made in one accounting period but benefit not received until next year
  • to achieve matching - must make an adjustment to amount paid
76
Q

What would a prepayment be seen as in a SOFP?

A

Current asset

77
Q

What is a accrual shown as in a SOFP?

A

A current liability

78
Q

How to show doubtful debts on the SOFP?

A

Current asset section

  • remove bad debts from trade receivables
  • show trade receivables minus provision for doubtful debts (show to in brackets under the trade receivables)
79
Q

How to account for bad and doubtful debts on the income statement?

A

Additions to gross profit
- Andy decreases in provision for doubtful debts from last year

Expenses

  • any bad debts from last year
  • any increase in provision flor doubtful debts from last year
80
Q

What is the difference if share capital and owners equity?

SOFP

A

Share capital - shareholders invested into large limited companies

Owners equity - money the sole trader has invested into the business

81
Q

What is equity?

SOFP

A

Made up of share capital (money from owners) and retained profit?

82
Q

What does historic costs mean?

SOFP

A

When putting figures in you must put the asset was worth when bought

83
Q

Do we include expenses if they haven’t been paid yet in the income statement?

A

In a income statement you must include all bills, we might have not paid them yet but if they helped generate this periods sales revenue they must be included

84
Q

What does realisation convention mean?

Income statement

A
  • customer requirements met per order/contract
  • customer must have formally accept the goods
  • legal claim for payment established
85
Q

What is a partnership?

A
  • at least 2 people (max 20) in business together with intention to make profit
  • governed by partnership act 1890
  • small
  • easy to set up - no formal procedures required
  • partners can agree own arrangements for financial and management aspects of the business
  • can be restructured/dissolved by agreement between partners
86
Q

Benefits of a partnership

A
  • more capital can be raised with additional partners
  • additional partners = variety of skills/expertise
  • responsibility of management is shared
  • access a bigger network of contacts
87
Q

What are the drawbacks of partnership?

A
  • usually partners have unlimited liability - may be responsible for debts of other partners
  • difficult to raise sufficient capital for large scale operations as increased unlimited liability could be a deterrent to expansion
  • profits must be shared
  • control diluted
  • possibilities of disputes
88
Q

What does partnership agreements include?

A
  • capital contribution
  • profit sharing ratio
  • interest to be paid on capital before profits are shared
  • interest to be charged on partnerships drawings
  • salaries
  • dissolution/resolution of disputes
89
Q

What are partnerships appropriations?

A
  • partners salaries and interest on capital are appropriations of profit rather than expenses
  • any profit remaining after appropriations for salaries and interest is then divided up in the agreed profit sharing ratio (PSR)
90
Q

How to prepare partnership accounts on the income statement and SOFP?

A

SOFP shows capital contribution of school partner

Income account shows how profit is appropriated between partners

91
Q

Explain what separate account each partner in a partnership has and what is included

A

Capital account
- capital introduced by partner (what they are owed by partnership)

Current account

  • balance of profits attributable to each partner
  • drawings made by partners
  • interest in drawings
  • interest on capital
  • salary
92
Q

What are the appropriation steps when preparing a partnership account

A
  • establish net profit
  • if interest to be charged on drawings, debit partners current account, credit appropriation account
  • appropriation interest on and capital and salaries
  • share out residual profits in profit sharing ratio
  • credit each partner current accounts with share of profit
  • debut each partner current account for their drawings against profit
93
Q

What is unlimited liability pros and cons

A
  • high risk - no ring fence between personal and business assets
  • may have to use personal assets to settle business debts
  • attractive from suppliers point of view
  • high reward - keep all profits and maintain control
94
Q

How do you become and limited coming

A
  • a limited company is formed by registering with the register of companies
  • application should give details of company name, where company is registered, names of directors, whether company is public and private
  • cheap and easy to set up
  • application to be accompanied by articles of association, statement of capital, memorandum of association
95
Q

Advantages of limited companies

A
  • substantial amounts of capital can be raised because there is no limit to the number of shareholders
  • a limited company has its own legal identity and therefore is separate to the people who own and manage it
  • delegation of management function
  • limited liability
  • perpetual succession - individual shareholders may change by the company will continue to existence until liquidation
96
Q

Disadvantage of limited companies

A
  • companies are subject to strict legal control
  • publicity - there is a lack confidentiality and this may hinder competitive advantage
  • delegation of management to a few may be detrimental (abuse of power)

Accounting (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions