Accounting 3 Flashcards
How do you calculate profit/loss?
Revenue - Expense = Profit/Loss for period
How do you calculate closing assets?
Closing assets = opening equity +/- Period profit/loss + closing liabilities
What does the income statement link?
Income statements link with statement of financial position as profit/loss for all periods is added into equity. Equity shows accumulated retained wealth of a business.
What are statements of cash flows?
Statement of change in financial position emphasising and disclosing the cash flows for a period of time. Cash receipts - cash payments = Cash balance.
Cash is an asset but users need separate statement as cash is not profit.
What is the cash equation?
Cash inflows - cash outflows = Change in cash
What are the features of a statement of cash flows?
Operating activities cash inflows - Cash outflows + Investing activities cash inflows - cash outflows + financing activities cash inflows - cash outflows = change in cash assets
How do transactions affect the statement of financial position?
They affect different elements of the statement increasing or decreasing them. These changes must then be recorded.
How could transactions and events be recorded?
Using a spreadsheet to keep track of them.
What is capital expenditure?
Non-current assets, expenditure to create, acquire or improve long-term assets i.e. future benefits
What is revenue expenditure?
An expense - Expenditure for trading purposes or long-term asset maintenance i.e. no new future benefits
What are the distinctions between capital and revenue expenditure?
Capital expenditure recognised in statement of financial position and does not affect profit at the same time as transaction.
Revenue expenditure recognised in income statement and reduces current profit.
What are some equations for assets, equity and liabilities?
Assets = Equity + Liabilities
Revenue - expenses = profit
Assets = (Equity + Profit) + liabilities
What are some accounting principles/conventions?
Going concern, Accruals (matching), Consistency, Prudence, Business entity, historic cost, dual aspect.
What is going concern?
The assumption that the business will continue operating into the foreseeable future.
What is consistency?
The measurement and presentation of similar transactions and other events is carried out in a consistent way throughout an entity within each accounting period and from one period to the next.
