ACCOUNTING UNIT 1 Flashcards
What is the nature and purpose of accounting?
It is about managing and making decisions and how to best manage them
From
Managing staff
Managing customers or clients
Managing inventory and suppliers
Managing finances
T/F need infomation
What is the accounting management information system?
It involves the collecting, sorting, classifying and recording of financial data to produce and report financial information to assist business owners in decision making
What does EFT stan for
Electronic Funders Transfer
What does EFTPOS stand for
Electronic Funds Transfer Point of Sale
Is EFT a cash or credit transaction?
cash
Is a cheque Butt a source document?
Is it a cash or credit transaction?
Yes it is a source document
Cash transaction
Is a cheque a source document?
NO!!
Is an invoice a source document?
If yes, how do u know
Is it a cash or credit transaction?
Yes it is, it contains the invoice number or the terms ( 6/7 indicates 6% discount if paid in 7 days)
CREDIT
Is a receipt a source document
If yes how can u tell? (evidence)
Is it a cash or credit transaction?
YES IT IS
Because of the receipt number and the received on
CASH TRANSATCTION
Can u use the evidence of “ Tax invoice” in your answer?
NO!
This is a legal requirement that records the including of GST
Is credit card a cash or credit transaction?
Cash due to paying the business but the obligation is between the bank and the owner so that’s why its a cash
Definition of source documents
Documents that provide both the EVIDENCE tat a transaction has occurred and the DETAILS of the transaction itself
What order is the accounting process
SOURCE DOCUMENTS –> RECORDS –> REPORTS –> ADVICE
Def for recording (accounting process)
sorting, classifying and summarisng the data contained in the source documents so that it is more useable
DEF for reporting (accounting process)
the preparation of financial statements that communicate financial information to the owner
DEF for advice (accounting process)
the provision to the owners of a range of options available to their aims/objectives together with recommendations as to suitability of those aims/ objectives
ACCOUNTING PROCESS IS
the process of taking FINANCIAL DATA and converting it into FINANCIAL INFO in order to be able to make decisions
Is a MEMO a source document
If yes how can u tell? (evidence)
Is it a cash or credit transaction?
YES H/W it is not a cash or credit transaction instead it is an internal transaction
Is a BANK STATEMENT a source document
If yes how can u tell? (evidence)
Is it a cash or credit transaction?
NO it is a back up document
Accounting equation
Assets = liabilities + Owners Equity
Current assets definition
A present econmic resource controlled by the entity (as a result of past events) that is reasnably expected to be converted to cash, sold or consumed within the next 12 months after the end of the reporting period
NON CURRENT ASSESTS
present economic resource controlled by the entity ( as a result of past events) that is not held for resale and is reasonably expected to be used for more than the next 12 months after the end of the reporting period
Current liability definition
a present obligation of the entity (arising from past events) that are reasonable expected to be settled with a TRANSFER OF AN ECONOMIC RESOURCE withi the next 12 months after the end of the reporting period
Non- current Liabilities
a present obligation of the entity (arising from past events) that are NOT EXPECTED to be settled with a transfer of an economic resource within the next 12 months after the end of the reporting period.
EXAMPLE CURRENT ASSETS
inventory of supplies (stock
Accounts recieveable
Bank
EXAMPLE NON- CURRENT ASSETS
Equipment
Vehicle
premises
EXAMPLE OF CURRENT LIABILITIES
Loan (due in 6 months)
Bank (overdraft)
Accounts payable
EXAMPLES OF NON CURRENT LIAILITIES
Loan in over 12 months
WHAT IS OWNERS EQUITY
Residual interest in the asset of the entity after the liabilities are deducted
= what is left over from the firm once the liabilities are met or the owner claim on the firms assets
What is accounting entity assumption
The assumption that the accounting records of asset, liabilities and business activities of the entity are kept completely separate from those of owner of the entity as well from those of other entities
What goes on a balance sheet first for assets
Bank
Accounts Receivable
Inventory of supplies
What goes on a balance sheet first for liabilities
Accounts payable
mortgage
Bank
What is the impact of transactions o the accounting equation?
Every transaction that a business’ is involved in affects at LEAST 2 items in the accounting equation with the equation still being able to balance.
What is a transaction>
an exchange of a good or service with another party
What is accounts receivable?
a customer to whom a service has been provided on credit and the amount is still owing for sales
What is inventory of supllies
this is a store of goods/ supplies on hand that the business can use in the process of providing the service their business delivers
Accounts payable is
a supplier for whom goods have been purchased on credit and the amount still owing for those products
Mortgage is
a loan taken out from a financial institution for the purpose of buying a property/ premises
Liquidity
the ability of the business to meet its short term debts as they fall due
Stability
the ability of a business to meet its debt and continue operation in the long term
Working capital ratio
(formula and what it measures)
Current Assets/ Current liabilities
x:1 ratio
MEASURES LIQUIDITY ( whether the business has sufficient economic resources)
What is the purpose of a balance sheet?
It is a tool used to determine key financial indicators that can measure stability and liquidity of a business
Internal finance Capital
AD AND DIS
AD
No set repayment structure
No interest
Owners willing to wait for a profit b/f expecting a dividend
DIS
Limited to the resources of the owner(s)
External finance TRADE CREDIT (accounts payable)
WHAT IS IT
> a form of external finance offered by some suppliers which allows customers to purchase goods and pay @ a later date
d
External finance BANK OVERDRAFT
WHAT IS IT
Finance provided by a bank that allows the account holder to withdraw more than their current balance
External finance BANK OVERDRAFT
ADVANTAGES
Available immediately facility is est
Flexible and used for seasonal variations
External finance BANK OVERDRAFT
DISADVANTAGES
High interest usually to an O/D
can be recalled in short notice
External finance
TERM LOANS
WHAT IS IT
provided by banks and other lenders for a specific purpose and repaid over a set time
External finance TERM LOANS
ADVANTAGES
Can purchase more expensive assets
if secured lower interest rate
External finance TERM LOANS
DISADVANTAGES
Interest is charged
Must be paid back in line with contractual terms (mortgage)
What is a mortgage
a loan that is secured against a property
EXTERNAL FINACE TRADE CREDIT ADVANTAGES
Immediate access to goods/ service
Can generate sales b/f $$
EXTERNAL FINANCE TRADE CREDIT
DISADVANT
only used with that supplier
late fees may be incurred
Debt ratio
FORMULA
what does it measure????????
Total Liabilities/ total assets X 100
MEASURES STABILITY
