Accounting and Finance - Financial Position Flashcards
What are the 4 asset characteristics?
- a probable FUTURE benefit must exist
- the the business must have an exclusive right of control
- the benefit arises from a past transaction or event
- it must be capable of being measured in monetary terms
What are examples of non-current intangible assets?
Patents, trademarks, brands, goodwill.
What are examples of non-current tangible assets?
Land and buildings, plant and machinery, vehicles, equipment.
What are example of current assets?
Inventory, trade recievables (Debtors), prepayments, cash.
What are examples of inventory?
Raw materials, work in progress, finished products.
What are examples of current liabilities?
Trade payables (creditors), accrued expenses (accruals), corportation tax, VAT, payroll tax, short term loans (less than 12 months), overdrafts.
What are example of non-current liabilities?
Borrowing (loan stock, debentures, mortgages), other (long term bank loans).
What are examples of equity?
Shared capital invested, retained profits (previous and current), less dividends/drawings.
What is equity in the statement of financial position?
“any funds contributed to the business, by the owner of the business, for use by the business in its normal operations.”
What does the accounting concept ‘going concern’ mean?
The business will continue for the foreseeable future.
What does the accounting concept ‘accruals’ mean?
Revenue is recognised when realised, and costs are matched against revenue.
What does the accounting concept ‘consistency’ mean?
Once a particular method of accounting is selected, it should be applied consistently over time, e.g. depreciation rates, stock valuation methods.
What does the accounting concept ‘prudence’ mean?
Profits are not recognised until they are realised, losses are provided for as soon as anticipated.
In a vertical balance sheet, how is NET CURRENT ASSETS calculated?
Total current assets - Total current liabilities = X
Then Total non-current assets + X = NET CURRENT ASSETS
In a vertical balance sheet, how is NET ASSETS calculated?
NET CURRENT ASSETS - non-current liabilities = NET ASSETS
What is an expense?
Decreases in economic benefit due to decrease in assets or increase in liabilities.
What is depreciation in the balance sheet?
An expense.
What is depreciation on non-current tangible assets?
Process of apportioning the cost of a non-current asset to the periods of benefitting from its use.
In double entry bookkeeping, what does DEBIT (left) represent?
INCREASE in assets and expenses and DECREASE in equity, revenues and liabilities.
In double entry bookkeeping, what does CREDIT (right) represent?
INCREASE in equity, liabilities and revenues and DECREASE in assets and expenses.
What is a creditor?
Someone who is owed money.
Why is debit on the LHS?
Because left connotes to ‘bad’ and ‘bad’ people who have not paid the business yet go on the left.
Why is CREDIT on the RHS?
‘Good’ people who extend credit to the business are shown on the right.
What is a current liability?
Are expected to be settled within the business’s normal operating cycle. They exist principally as a result of trading. They are due to be settled within a year after the date of the relevant statement of financial position. There is no right to defer settlement beyond a year after the date of the relevant statement of financial position.
