Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

My decks > Accounting terms > Flashcards

Accounting terms Flashcards

1
Q

Ethical considerations

A

When a business considers the consequences of a decision on the environment and its various stakeholders. Decision makers have a moral obligation to act with honesty and integrity in all human and financial dealings.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Assets

A

A present economic resource controlled by the entity that has the potential to produce a future economic benefit within 12 months or for longer than 12 months

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Liabilities

A

A present obligation of the entity that will result in the transfer of an economic resource within 12 months or after 12 months

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Owner’s Equity

A

The residual interest in the assets of the entity after deducting all its liabilities. The amount left over for the owner.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Balance Sheet use

A

Being able to identify the assets, liabilities and owner’s equity of the business as at a point in time in order to assist in planning and decision making, such as assess liquidity, assess stability and assess value of non-current assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Going Concern Assumption

A

Financial reports are prepared on the assumption that the existing entity will continue to operate into the future and records are kept on this basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Accounting Entity Assumption

A

The records of the entity are to be kept completely separate from those of the owner of the entity as well as from those of other entities. A separate set of accounting records is maintained for each entity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Accrual Basis Assumption

A

Revenue is recognised when earned and expenses are recognised when incurred regardless of whether cash has been received or paid so that an accurate profit or loss can be calculated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Period Assumption

A

Reports are prepared for a particular period of time such as a months or a year, in order to obtain comparability of results

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Relevance

A

Relevance states that reports must include all information that is capable of making a difference to the decisions made by the users of the report and exclude information that is not.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Faithful Representation

A

The information reported must be a faithful representation of the real-world economic event it represents, be complete, free from material error and without bias

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Verifiability

A

Verifiability means that knowledgeable and independent observers can reach a conclusion that reports faithfully represent what they are intended to represent as they are based on verifiable source documents that can be checked through the auditing process.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Comparability

A

Comparability states that reports should be able to be compared period to period and business to business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Timeliness

A

Timeliness means having information available to decision-makers in time to be capable of influencing their decisions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Understandability

A

Understandability requires that information be comprehensible to users with reasonable knowledge of business activities and therefore should be presented clearly and concisely in reports

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Liquidity

A

the ability of the business to meet its short-term debts as they fall due

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Working Capital Ratio

A

A liquidity indicator that measures the ratio of current assets to current liabilities to assess the firm’s ability to meet its short-term debts as they fall due

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Working Capital Ratio equation

A

CURRENT ASSETS/CURRENT LIABILITIES = RATIO

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Stability

A

Ability of the business to meet its debts and continue its operations into the future

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Debt Ratio

A

Measures the proportion of a firm’s assets that are funded by external sources

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Debt Ratio Equation

A

(TOTAL LIABILITIES/TOTAL ASSETS) 100 = %

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Sole Proprietorship

A

Owned and operated by a single individual in their name or a business name. Owner pays tax on their profit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Sole Proprietorship advantages

A

The owner receives all profits and has complete control over decision making. Easy and cheap to set up and easy to sell or close down

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Sole Proprietorship disadvantages

A

Owner has unlimited liability and limited access to capital, skills/knowledge/ideas → can only call on owner’s expertise
Heavy workload, stress, hours, etc

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Unlimited liability

A

Owner is personally responsible for all debts and losses therefore can lose personal assets (home, car, etc. if placed under OWN name)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Limited Liability

A

Shareholders have no responsibility for liabilities or losses of the company and personal assets are safe

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Partnership

A

Owned by 2-20 people and is governed by a partnership agreement. Each partner earns a share of profits or losses and pays tax individually

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Partnership Advantages

A

Easy and cheep to set up with greater access to capital, skills, knowledge, ideas and ability to take advantage of the Tax Free Threshold by splitting income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Partnership Disadvantages

A

Unlimited liability, shared decision making may lead to conflict and a partnership also has a limited life

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Proprietary Company

A

A separate legal entity with between 1 and 50 stakeholders that pays tax in its own name at a 30% fixed rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Proprietary Company Advantages

A

Has limited liability, greater access to capital and knowledge and exists in perpetuity (continues even when shares are bought and sold)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Proprietary Company Disadvantages

A

High establishment costs and high ongoing/annual accounting and compliance costs alongside a higher level of government regulation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Public Company

A

A separate legal entity with unlimited shareholders that is listed on the Australian stock exchange.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Public Company Advantages

A

Limited liability with greater access to capital (millions of dollars) and knowledge, exists in perpetuity and pays tax in its own name at 30% tax rate

35
Q

Public Company Disadvantages

A

Establishment costs are high and need to issue a public prospectus.
Ongoing/annual accounting and compliance costs are high and under a higher level of government regulation. Business is also required to have an audit undertaken which is costly.

36
Q

Internal sources of Finance

A

Capital contribution, retained earnings

37
Q

External Sources of finance

A

Trade credit, Bank overdraft, Term loan, Leasing

38
Q

Capital contribution

A

Funds contributed by the owners

39
Q

Retained earnings

A

Past funds generated by the business

40
Q

Trade credit

A

Buying goods on credit so a business can generate sales before paying for goods but can only be used to purchase inventory from suppliers

41
Q

Bank overdraft

A

Facility provided by the bank whereby they allow a business to withdraw more than the funds they have available in the account

42
Q

Term loan

A

Bank lends for a major purchase in which principal and interest is then repaid over a term

43
Q

Leasing

A

A form of rental agreement in which a business have use of an asset but do not own it and makes monthly payments

44
Q

Goods and Services Tax

A

GST is a 10% tax levied by the federal government on sales of most goods and services

45
Q

RIPD

A

Receiving GST increases the amount owing, and Paying GST decreases balance

46
Q

Return on Owner’s Investment

A

profitability indicator that measures how effectively a business has used owner’s capital to earn profit

47
Q

Return on Owner’s Investment Equation

A

Net Profit/Average owner’s equity X100 = %

48
Q

Strategies to Improve Return on Owner’s Investment

A

Increase Net profit by increasing sales or decreasing expenses. Decrease average owner’s equity by increase drawings to lower owner’s equity

49
Q

Source Documents

A

Source documents are printed or electronic documents that provide evidence that a transaction has occurred

50
Q

Cash receipt journal

A

records all money received

51
Q

Cash payments journal

A

records all money paid

52
Q

Advantages of preparing a cash journal

A

Summarises all similar transactions for a period of time into meaningful columns in one journal and cross checking mechanism

53
Q

Disadvantages of preparing a cash journal

A

Time and cost as preparation may need a professional which costs money

54
Q

Cash Flow Statement

A

Reports all cash flows during a period from operating, investing and financing activities and calculates the change in the bank balance during the period

55
Q

Operating activities

A

Cash sales, interest received, GST received, GST refunded, receipts from accounts receivable, cash expenses, expenses, GST paid, GST settlement, payments to Accounts payable

56
Q

Investing Activities

A

Purchases and sales of non-current assets

57
Q

Financing Activities

A

loans received, cash contribution, loans repaid, cash drawings

58
Q

Benefits of Preparing a cash flow statement

A

Aid decision-making about the firm’s cash activities, assist in planning for future activities and assess whether or not the business is meeting its cash targets.

59
Q

Cash Flow Cover

A

A liquidity indicator which measures the ability of a firm to pay short term debts out of operating cash flows

60
Q

Cash Flow Cover Equation

A

Net Cash Flow from Operations/average current liabilities

61
Q

Strategies to improve CFC

A

Improve cash flow from operating activities by reducing cash expenses or increasing cash sales and reducing average Liabilities

62
Q

Internal Control Procedures

A

Policies and procedures designed to protect the firm from fraud, loss and theft

63
Q

Separation of Duties

A

split the responsibility for receiving cash and recording the cash in the cash journals

64
Q

Rotation of Duties

A

rotate staff between jobs to help identify irregularities by the previous person

65
Q

Careful Hiring Practices

A

check references & carefully assess new staff for honesty and integrity

66
Q

Physical/Preventative Safeguards

A

security cameras, alarm systems, safes

67
Q

Cash Controls

A

use pre-numbered source documents, verify balance of cash register against the cash register roll, bank cash daily and change banking procedures regularly to avoid predictable behaviour

68
Q

Credit Transactions

A

When a service is performed or goods are exchanged but the cash relating to the transaction is not exchanged until a later date.

69
Q

Accounts Payable

A

A supplier who is owed a debt by the business for goods or services purchased from them on credit

70
Q

Accounts receivable

A

A customer who owes a debt to the business for goods or services sold to them on credit

71
Q

The Income Statement

A

an accounting report which summarises revenues earned and expenses incurred during the reporting period

72
Q

Revenue

A

Increases in assets (or decreases in liabilities) that result in increases in owner’s equity, other than capital contributions from the owner

73
Q

Expenses

A

Decreases in assets (or increases in liabilities) that result in a decrease in owner’s equity, other than those relating to drawings by the owner

74
Q

Use of the Income Statement

A

Aids decision making and planning by evaluating revenues, expenses and profit and allows the owner to identify where changes may be necessary to take corrective action and improve

75
Q

Items which affect Cash Flow but not Profit

A

GST, Receipts from Accounts Receivable, Payments to Accounts Payable, Cash purchase or sale of a Non-current asset, Loans received, Loan repayments, Capital contributions, Drawings

76
Q

Calculate bank for the balance sheet

A

OB + cash recipts - cash payments = CB

77
Q

Calculate inventory for the balance sheet

A

OB + cred purch of inventory (No GST) + cash purch of inventory (No GST) + contribution of inventory - inventory consumed - drawings = CB

78
Q

Calculate Accounts receivable for the balance sheet

A

OB + credit sales - receipts from accounts receivable = CB

79
Q

Calculate Equiptment for the balance sheet

A

OB + purchase (no GST) + contribution - drawings = CB

80
Q

Calculate GST for the balance sheet

A

OB + GST received on cash sales + GST charged on credit sales + GST refund - GST paid on cash - GST charged by suppliers - GST settlement = OB

81
Q

Calculate Accounts Payable for the balance sheet

A

OB + Credit purch - payments to accounts payable = CB

82
Q

Calculate Bank loan for the balance sheet

A

OB + new loan - loan repayments = CB (split C and NC)

83
Q

Calculate Owner’s equity for the balance sheet

A

OB + Net profit + capital contribution - drawings = CB

My decks (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions