Topic 1 Flashcards
What is the monetary principle
You only record business transactions that can be expressed in terms of a currency.
Company cannot record such non-quantifiable items - employee skill levels, quality of customer service, ingenuity of the engineering staff
What is an income statement/profit and loss
An income statement or profit and loss account is one of the financial statements of a company and shows the
company’s revenues/expenses during a particular period
It indicates how the revenues are transformed into the net income or net profit.
What is cash flow
Net amount of cash and cash equivalents being transferred in and out of a company
Difference between net income and net profit
Net income includes all sources of income,
Net profit only includes income after all expenses have been paid
What is the unlimited liability concept
The owner is inextricable from the business (cannot detach and leave) and is personally accountable for the company’s liabilities - owner may sell his private possesions in order to pay debt
What is accounting entity defenition
Accounting principle that separates the transactions carried out by the business from its owner.
What is OE
The difference between assets and liabilities that represents the owner’s investment into the business.
What is an asset
Items of value/owned/controlled by the business that provide future economic benefits to the business
What is a liability
Amounts owed by the business to external parties
What are expenses
Outlflows of money to general operations (electiricty, water), costs involved with services or providign services - they decrease OE
What is a revenue
Inflows of resources - usually money to the business such as sales or inventory - providing services
Revenue increases OE
Going concern principle?
The assumption that an entity will remain in business for the foreseeable future
accounting term for a company that has the resources needed to continue operating indefinitely until it provides evidence to the contrary. This term also refers to a company’s ability to make enough money to stay afloat or to avoid bankruptcy. If a business is not a going concern, it means it’s gone bankrupt and its assets were liquidated.
KEY TAKEAWAYS
Going concern is an accounting term for a company that is financially stable enough to meet its obligations and continue its business for the foreseeable future.
Certain expenses and assets may be deferred in financial reports if a company is assumed to be a going concern.
If a company is no longer a going concern, it must start reporting certain information on its financial statements.
Negative trends that lead to no longer being a going concern include denial of credit, continued losses, and lawsuits.
Depreciated meaning
The actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year/diminish in value over a period of time.
What is a coruier company
Delivery company
Double entry accounting meaning?
Double entry is an accounting term stating that every financial transaction has equal and opposite effects in at least two different accounts.
2 book entries - 1 credit and 1 debit for every transaction
