Accounting 1.1 Flashcards
To learn the definitions for 1.1
Accounting Entity Concept
The financial affairs of the business must be kept separate and distinct to the personal financial affairs of the owner and other entities.
Accounting Period
The time period reflected in a set of accounts, usually 1 year. These are of equal length to allow comparisons for decision making.
Accrual Basis
The effects of transactions are reported and recorded in the financial statements of the period to which they relate.
Accrued Expenses
These are expenses owing by the business on balance day. It therefore creates a liability on balance day.
Accrued Income
This is income owing to the business on balance day. This creates an asset on balance day as someone owes money to us.
Assets
An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
Balance Day Adjustments
Balance Day Adjustments ensure that all financial transactions are reported in the corrected financial year when the income and or expenditure were actually incurred, not when the cash was actually received or paid.
Balance Sheet
Gives a snapshot of the business’s asset, liabilities and equity at one point in time.
Budget
A budget is an outline of expected income and expenses. Budgets help the decision making process by identifying how much a particular project is expected to cost an how much money is available to spend on it.
Capital Expenditure
This is expenditure incurred when purchasing or installing an asset that will generate future income e.g machinery, shop fittings
Cash Budget
The cash budget allows the business to see in advance that they except the cash receipts and cash payments to be. This assists the decision making for users
Cost of Goods Sold
opening inventory + net purchases + customs duty + freight inwards – closing inventory
Current Assets
These are assets which will generate cash or are intended for sale within the next accounting period
e.g. inventory, bank, accounts receivable
Current Liabilities
These are liabilities which are expected to be settled/paid within the next accounting period, e.g. power, phone, wages owing etc.)
Deprecation
Depreciation is the systematic allocation of the cost of owning an asset over its useful life.
Distribution costs
Distribution costs are expenses incurred in transferring ownership of finished goods to the consumer.
Those expenses incurred through the promotion, storage, selling and delivery of the inventory for sale.
Expenses
Expenses are decreases in economic benefits during the accounting period in the form of outflows
OR depletion of assets OR increases in liabilities that result in decreases in equity, other than drawings.
Equity
Equity is the residual interest in the assets of the entity after deducting all its liabilities.
Finance Costs
Finance costs arise from an entity financing its operations from external sources. Finance Costs are
limited to different types of interest paid.
Going Concern
The financial reports of a business are prepared on the assumption that the business will continue into
the foreseeable future.
Gross Profit Percentage
This shows how many cents of each $1 of sales is gross profit
GST
GST is goods and services tax that is charged on most goods and services bought and sold in New Zealand. The goods and services tax (GST) rate in New Zealand is 15%.
Historical Cost
Assets are reported in the financial statements at their original purchase price.
Income
Income is increases in economic benefits during the accounting period in the form of inflows of assets OR decreases in liabilities that result in increases in equity, other than those relating to contributions from the owner.
Income Statement
Calculates the profit or loss made by a business for the period
Intangible
This is an asset that we cannot see or touch e.g. goodwill, patents.
Investment
This is an asset that will earn the business income from putting money into another business
e.g. term deposit, shares.
Liability
A liability is a present obligation of the entity arising from past events, the settlement of which is
expected to result in an outflow from the entity.
Mark Up Percentage
This shows the percentage that is added to the cost price to get the selling price.
Monetary Measurement
All items are stated in New Zealand dollar terms ($). Only items that can be given a dollar value will be
included in the financial statements.
Non-Current Assets
These are assets which will generate future economic benefits beyond the next accounting period.
Non-Current Liabilities
These are liabilities which are NOT expected to be settled/paid within the next accounting period.
Other Income
These are all other forms of income the business receives.
Percentage Income
This shows the percentage increase or decrease from the previous year
Prepayments
These are expenses which have been paid in advance of balance day and belong to the next accounting period. An asset is created on balance day as the business will receive the benefit of the payment in the next accounting period.
Profit for the year percentage
This shows the proportion of each sales dollar that ends up as profit for the year
Property, Plant and Equipment
These are the non-current assets that the business owns e.g. land, buildings, and vehicles.
Receipts
A receipt is given to a customer when they pay cash/cheques. It may be used to record a cash sale or a payment on an account. This may take the form of a till tape from a cash register or a hand written receipt.
Reporting Period
The life of the business is divided into equal time periods (usually one year) in order to provide timely
information for decision-making.
Revenue
The main form of income that a business will receive. It is called ‘fees’ for a service firm or ‘sales’
for a trading firm.
Revenue Expenditure
This is expenditure which is incurred in the day-to-day running of the business and will not benefit the business beyond the current accounting period, e.g. postage, stationary, petrol, insurance.
Sole Trader
A business that is owned and one by one person
Trading Statement
A club will prepare a trading statement to determine the profitability of a trading activity,
i.e. operating a canteen or a bar.
Unincorporated community organisation
A group of people agreeing to form an organisation for a specific purpose without the intention of making a profit.
Trial Balance
We list all of the ledger account and their balances.
