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Flashcards in Week 2 - The financial statements Deck (26)
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1

What are the five types of accounts?

Explain them briefly

 

  1. Assets: things the business owns.
  2. Liabilities: debts the business owes.
  3. Income: the revenue generated from the sale of goods or services.
  4. Expenses: the costs incurred in producing the goods and services
  5. Equity (or capital): the investment made by shareholders into the business.

Profit = income – expenses

Equity = assets - liabilities 

2

What are the steps in the transaction recording process?

 

Additionally, what is important to remember about the transactions? And what is the term for that?

Steps:

  1. Identify what type of account is affected (assets, liability, income, expense or equity); and
  2. Determine whether the transaction increases or decreases that account. 

 

Remember:

- Every transaction affects at least two accounts: double entry bookkeeping 

3

When goods are bought, they become an asset (inventory/stock). When the same goods are sold, there are two transactions.. Which?

1. The sale, either by cash (asset) or credit (liability); and

2. The transfer of the cost of those goods, now sold, from inventory to an expense, called cost of sales, or cost of goods sold. 

4

Fill in the last two columns

5

What are the three types of financial statements?

Statement of Comprehensive Income 

Statement of Financial Position 

Statement of Cash Flows 

6

What is the Statement of Comprehensive Income?

the profit (or loss) of a business for a financial year, using the accruals method 

7

What is the Statement of the Financial Position?

the assets, liabilities and equity on the last day of the financial year 

8

What is the Statement of Cash Flows?

the movements in and out of the company’s bank account (or cash equivalents) during a financial year. 

9

What statement is this?

Statement of Comprehensive Income 

10

What statement is this (simple version)?

Statement of Financial Position (simple version)

11

What statement is this?

Statement of Financial Position 

12

What statement is this?

Statement of Comprehensive Income 

13

What statement is this?

Statement of Changes in Equity 

14

What statement is this?

Statement of Financial Position -

15

What statement is this?

Statement of Cash Flows (Indirect method) 

16

What is the accruals (mathching) method? 

Everything that happens one year need to be accounted for in same year. E.g.: Schoolexpenses need to be accounted for in that schoolyear

17

What is another term for total assets?

Capital employed

18

What is the Fundamental Accounting Equation?

• Net Assets = Total assets – Total Liabilities = Equity
• Total Assets (or capital employed) = Total Liabilities + Equity 

19

Explain prepayments and accruals

20

What is Provisions?

• Estimates of possible liabilities that may arise, but where there is uncertainty as to timing or the amount of money.

• Some are shown as liabilities (e.g. warranty claims), others are shown as deductions from assets:

• Doubtful debts • Inventory
• Depreciation 

21

What information is needed to calculate the depreciation of an asset?

Asset cost

Periods (life)

Resale value

22

Regarding depreciation,

-What is the Accounting of Transaction?

- What happens to the statement of comprehensive income

- What happens to the statement of financial position?

23

When is "Goodwill" relevant?

And what is it?

What type of account?

 

1) Only at the time of aqutition

2) Means product is worth more. It is the difference between price of company and assets, when company bought. You need to make a test of impairment every year

3) Intangible Assets

24

When accounting for Goodwill, what happens to the statement of comprehensive income and statement of financial position in this example:

25

What are the three elements of cash flows? (meaning, where do cash flows come from)

  1. Cash flows from operations (profit adjusted by non-cash expenses and movements in working capital);
  2. Cash flows from investing (purchase and sale of non-current assets);
  3. Cash flows from financing (borrowings and repayment of debt; new share issues and purchase of a company’s own shares); 

26

Do cash flow from operations differ from the operating profit?

Why/why not?

Yes

depreciation, which as a non-cash expense is added back to profit (since operating profit is the result after depreciation is deducted); 

- increases (or decreases) in working capital (e.g. changes in Receivables, Inventory, Prepayments, Payables and Accruals), which reduce (or increase) available cash.