Accounting Chapter 1 Flashcards
What are the 6 types of accounting errors? (P.O.C.C.O)
- Principle
- Omission
- Commission
- Complete reversal
- Compensating
- Original entry
Explain what is meant by the “Principle error”
When an entry is made to the wrong type of account.
Explain what is meant by the “Omission error”
A transaction has been completely omitted from the accounting records
Explain what is meant by the “Commission error”
An item that has been recorded in the correct type of account but to the wrong individual account.
Explain what is meant by a “Complete Reversal” error
The correct amount has been posted but to a debit and credits have been reversed. i.e. cash sales has been recorded as a debit to sales and a credit to cash.
Explain what is meant by the “Compensating” error
Where 2 or more errors cancel each other out. i.e. Rent is understated by £400 and sales are overstated by £400
Explain what is meant by “Original entry” error
Where an incorrect amount has been recorded. i.e. Sales of £2,140 has been recorded as £2,410
Define the term “asset”
Items owned (or leased) by the business that bring economic benefit
Define the term “Liabilities”
Amounts the business owes to third parties
Define the term “Equity”
Also called Capital. Represents the owner’s interest in the business (investment).
Define the term “Revenue/Income”
Receipts from sales and other gains
Define the term “Expenses”
Amounts incurred in running the business
Define the term “Profit/loss”
Profit = where income > expenses
Loss = where income < expenses
What does the term “Carriage out” mean?
The cost of transporting goods to customers
What does the term “Carriage in” mean?
The cost of transporting goods into the business
Define the term “Discounts allowed”
A reduction in price given to customers who pay their accounts within the time allowed.
Define the term “Discounts received”
A reduction in price given by a supplier for prompt payment
Formula for cost of sales?
Opening inventory (stock) + Purchases - Closing Inventory (Stock)
Formula for net profit?
Gross profit - Expenses
Formula for gross profit?
Sales - Cost of Sales
Define the term “Historic cost”
Price orginially paid
Define the term “Money measurement”
Monetary value
Define the term “Realisation”
Goods exchanged when legal title passes
Define the term “Accruals”
Consider amounts owning and owed at year end
