Exam Flashcards
(101 cards)
1
Q
Capital
A
the amount the owner has invested in a business
2
Q
sales
A
the income earned from selling goods or services
3
Q
expenses
A
the costs incurred by the business or organisations to enable the business to trade
4
Q
drawings
A
the amount taken out of the business for personal use
5
Q
the entity concept
A
recognises that the transactions of a business should be recorded separately from transactions of its owner
6
Q
cash sales
A
are made when cash is received at the same time as the goods or services are delivered to the customer
7
Q
credit sales
A
are made when the goods or services have been received by the business but for which payment is made at a later date.
8
Q
overdraft facility
A
when a business anticipates that its bank balance will be overdrawn in the coming months, so it arranges an overdraft
9
Q
the matching concept
A
requires expenses to be matched to the revenue that they have generated, in order to arrive at the profit for the year.
10
Q
trade payables
A
the amounts owed to suppliers of the business who have supplied goods or services on credit, have not yet been paid by the business.
11
Q
trial balance
A
a record of all account balances at a point in time and is used to prepare the final accounts
12
Q
Double-entry bookkeping
A
an accounting system where every transaction affects at least 2 accounts, ensuring the equation (assets = liabilities + equity) remains balanced
13
Q
capital expenditure
A
expenditure from which the business will benefit for more than one accounting period
14
Q
example of a capital expenditure
A
buying a delivery van
15
Q
revenue expenditure
A
relates to expenditure on day to day expenses
16
Q
example of a revenue expenditure
A
phone bills
17
Q
revenue income
A
mainly income from sales or ret received or interest
18
Q
capital income
A
includes money invested by the owner of the business and loans from third parities
19
Q
statement of profit or loss
A
shows the revenue income less the revenue expenditure for a financial period.
20
Q
Gross profit
A
the difference between sales revenues and the cost of goods sold
21
Q
inventories
A
goods for resale held in stock by a business
22
Q
net profit
A
profit calculated after all business expenses have been deducted
23
Q
asset
A
a resource controlled by a business that provides future financial benefits
24
Q
liability
A
an obligation to pay a creditor or leader
25
non current asset
assets intended for long term use in the business
26
current asset
assets that will be held by the business of less than 12 months
27
current liabilities
amounts that are due to be paid within the next 12 months
28
non current liabilities
amounts that are due to be paid after a year including long term loans
29
estimated useful life
the expected length of time that a non current asset will be used in the business
30
residual value
the estimated amount that a non current asset will be worth at the end of its useful life
31
depreciation charge
the amount charged to the statement of profit or loss to spread the cost of non current assets over their lifetime.
32
accumulated depreciation
the total depreciation that as been charged on an asset since it was purchased
33
net book value (NBV)
found by taking the cost of an asset and deducting the accumulated depreciation that has been charged on that asset since its purchase.
34
the reducing balance method (depreciation)
applies the depreciation rate to the NBV of the asset, so that the depreciation expense is greatest in the first year of ownership and falls every year thereafter
35
consistency concept
guides preparers of accounts to treat all similar items in a consistent manner and to treat them inappropriately a similar way from one year to the next, in order for meaningful comparisons to be made.
36
bad debt
arises when a customer who owes money to the business for goods or services reviewed on credit becomes unable to pay
37
the prevision for doubtful debts
an amount deducted from trade receivables to recognise that a proportion of those amounts will eventually not be received by the business
38
the prudence concept
requires that, when accounts are being prepared, a cautious but realistic approach should be taken to ensure that profits are not overestimated
39
intangible asset
an asset without any physical substance
40
money measurement concept
only transactions that can be quantified in monetary terms are recorded
41
sale
a sale is made when the customer takes delivery of the goods
42
purchase
a purchase is made when the business receives goods from the supplier
43
what are the 6 types of account
assets
liabilities
capital
income
expenses
drawings
44
debit balance accounts include
expense accounts
assets accounts
drawings accounts
45
credit balance accounts include
income accounts
liability accounts
capital accounts
46
when is a trail balance drawn up
at the end of the financial period, usually at the end of the financial year
47
what does the trail balance list
the account balances, showing if there is a debit or a credit balance on each account
48
should the trail balance always balance?
yes
49
calculation for cost of sales
opening inventories + purchases - closing inventories
50
calculation for net profit
gross profit - all other expenses
51
the historic cost concept
requires transactions to be recorded at their original cost to the business
52
the going concern concept
when producing accounts, there is an assumption that the business will continue to operate for the foreseeable future unless there is any evidence to suggest that it will not.
53
Accrual
An accrual is an amount owing a the end of the accounting period for an expense incurred but not yet paid for
54
straight line method (depreciation)
spreads the cost evenly over the assets useful life
55
limitation 1 of the statement of profit or loss (HC)
historical cost: assets are generally recorded as historical cost, which is not always the most meaningful measure
56
limitation 2 of the statement of profit or loss (E&J)
estimates and judgements: the preparer of the statement of profit or loss and statement of financial position has to make a number of estimates and judgements
57
limitation 3 of the statement of profit or loss (MA)
missing assets: the statement of financial position will include all known tangible assets but will not include any intangible assets, except in very specific circumstances.
58
accounting equation
Assets = liabilities = Equity
59
Limited liability means
Should the company be wound up, shareholders stand to lose only the amount that they invested into the business
60
LTD
A private company that is restricted from selling its shares to the general public
61
PLC
A public company that can offer its shares for sale to the general public via the stock market
62
Directors
- those employees elected by shareholders to run the company
- every LTD must have at least one director.
63
Ordinary shares
- Entitle their owner to receive an ordinary dividend from the company if a dividend is provided
- Owners of the company and are entitled to vote at general meetings.
64
preference shares
- entitle their owners to receive their dividends at a fixed rate before the ordinary dividend can be paid.
- generally not entitled to vote at general meetings.
65
Nominal value
- the nominal value of shares represents their face value
- typically the amount that the shares are issued for when company is formed.
66
dividend
- Is a payment made to shareholders to reward them for investing
- there is no obligation to pay dividend.
67
Stock exchange
a market where new capital can be raised and existing shares can be bought and sold
68
debentures
are long term loans raised by a company where security is usually provided for the loan
69
Operating profit
Gross profit - operating expenses
70
Profit for the year
operating profit + profit from other activities - net finance costs - tax
71
retained profit
the profit that remains after taxation and dividends
72
shareholders equity
the share capital and reserves of the company
73
equity of a company
comprises of the ordinary share capital and all the reserves, including the share premium and retained profits.
74
the share premium
- a reserve that records the premium amounts raised when a company makes a share issue
- the premium is the difference between the issue price and the nominal value of the shares issued.
75
Cash flows from: Operating activities
Arise from the normal trading activities of the business
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Cash flows from: investing activities
include the amounts paid out to purchase non-current assets and the proceeds received from selling non-current assets.
77
Cash flows from: financing activities
- alter the long term financing of the company
- this will include the proceeds of share issues and lan issues as well as the amount paid out as dividends and loan repayments.
78
Cash flows from: working capital
- amount invested in the short term assets of a business. It is represented by inventories, short term receivables and cash balances less short term liabilities.
79
Cash flows from: Liquidity
the level of cash, bank and other liquid assets available to the business.
80
ratio analysis
can be used to highlight underlying trends not always immediately obvious from the figures themselves
81
working capital
- the amount invested in the short term assets of a business
82
earnings per share equation
profit available to ordinary shareholders ÷ earnings per share
83
earnings per share
shoes how much profit is being made for each share
84
price to earnings ratio equation
market price per share ÷ earnings per share
85
price to earnings ratio
compares market price of share to earnings per share.
86
dividend yield
- compares the dividend received from a share with the market price of a share
87
dividend yield equation
dividend paid per share ÷ market price per share x 100
88
Dividend cover
considers the extent to which available profits can meet dividend payments
89
management accounting
is the provision of info to internal managers for planning, decision making and control
90
variable costs
vary with changes in units produced
91
fixed costs
remain the same regardless of output
92
semi variable costs
- costs that contain both a fixed and variable element
93
contribution
the difference between the selling price and variable price of a product
94
contribution per unit
selling price per unit - variable cost per unit
95
break even point
where neither profit or loss are made
96
break even point equation
fixed costs ÷ contribution per unit
97
direct costs
those costs directly associated with a product, such as material or labour costs
98
indirect costs
those costs that cannot be directly associated with a product, such as rent and depreciation. AKA overheads
99
full costing
takes into account both the direct and indirect costs associated with the manufacture of a product.
100
absorption costing
a management accounting technique where indirect manufacturing or overhead costs are spread fairly across the range of products made by the business
101
marginal costing
a method which only takes into account variable costs and ignores fixed costs
