Accounting Unit 3 Flashcards
Why do companies keep incomplete records
To save time and resources for the business
What is the layout of the sales ledger control account
Debit. |Credit
B/d. |Receipts
Credit sales. |c/d
What is the layout of the purchase ledger control acc
Dr |Cr
Payments |B/d
C/d |Credit purchases
What is the layout of the statement of affairs
Opening capital(closing assets last year) \+capital introduced \+profit -drawings =closing assets for the year end
What is the layout of an expense account
Dr |Cr
B/d accrual |B/d pre payment
Bank |Income statement figure
C/d pre payment |C/d accrual
What is the layout of the income account
Dr |Cr
B/d pre payment |B/d accrual
Income statement fig |Bank
C/d accrual |C/d pre payment
What are the reasons you might need to do a cash account in incomplete records
If cash is missing
Working Out cash sales
Working out total cash (bal b/d)
How do we reconcile a stock take
Stock as per print out Less: purchases Add: purchase returns Add:sales Less:sales returns =stock at years end Exam tip: remember to adust for markup or margin with sales/ sales returns
What are the two inventory valuation methods and how do they work
Fifo- this means first in first out.
Avco- average cost method.
What is IAS 1
Title-Presentation of the financial statements
It includes all accounting concepts and states how all financial statements should be presented
What is IAS 2
Title - inventories
This is defines how we value inventory(lower of cost or NRV)
Also fifo and avco methods of valuing inventory
Exam tip: prudence and consistency concept
What is IAS 7
Title- cash flow statements
This IAS states that all accounts of limited companies must include a cash flow statement it also states how it should be set up
What is IAS 8
Title- accounting policy, changes in account estimates and errors
This IAS defines that all companies should have a set of policies that define how they deal with measurements like depreciation and how the accounts are presented. It also say about how we deal with errors from previous reporting periods.
What is IAS 10
Title- events after reporting period
This defines how we deal with items of income/expenditure and accruals/pre payments
Exam tip:Accruals concept
What is IAS 16
Title- Property, plant and equipment
This IAS is responsible for valuing property plants and equipment this includes what to do with deprecation and revaluation.
What is IAS 18
Title- revenues
This IAS is responsible for setting the requirements of when revenue/ income should be recognised
What is IAS 36
Title- impairment of assets
This defines how a company deals with an impairment, after an impairment a company must value their asset/s at the higher of fair value or value in use
What is IAS 37
Title- provisions, contingent liabilities and contingent assets
This states that we should on put contingent liabilities in if they are probable and put into the accounts as a provision. Profits should not be realised till they are certain, due to prudence profits should be understated rather then overstated
What is IAS 38
Title- Intangible assets
This outlines how we deal with intangible assets and states that if it is not purchased we cannot include it in the account as we cannot place a value on it. If purchased we can put it into the accounts.
E.g. Good will
What are the benefits and limitations of internal sources of finance
Benefits No interest or repayments No loss of control Limitations Limited amount Owner might have other plans for the money Conflict with stakeholders
What is the conflict between stakeholders when using internal sources of finance
If revenue used for financing activities the shareholders are not getting dividend
Where as management want the business to grow
Employees want the revenue to be used for higher wages
What are the benefits and limitations of a Debenture loan
Benefits
Interest is fixed this helps with budgeting
Dont pay it back till the end this helps with short term liquidity
Limitations
Hard to get one
At the end of the periord could face liquidity problems if you havent save a lump sum to pay it
What are the Benefits and limitations of selling shares
Benefits Don't have to payback Don't have to pay divided Limitations Loss of control Share holders will expect more dividend
What does an appropriation account look like(partnership accounts)
Profit for the year Less salary Less interest on capital Add interest on drawings Profit= Split of profits=
What does a partners current account look like
Parnership acc
Debit. |Credit
B/d if the partner owes money |B/d if the partner is owed money
Interest on drawings |Salary
Drawings |Interest on capital
Share off loss |Share of profit
What kind of structural changes can happen in a partnership
Changes in the ratios
New partner
Retirement of partner
What does the partnership act 1980 state
Profits split equally
No salary and interest on capital or drawings
Interest on partners loan is paid 5%
What does paris stand for
Purpose Amount Repayment Interest Security
What is the lay out of a cash flow statement
Net cash flow from operations
Cash flow from investing activities
Cash flow from financing activities
Net increase/ decrease in cash
Cash at the start of the year
Cash at the end of the year
How do we work out operating profit
Increase/decrease in retained earning \+dividend \+tax in the income statement \+interest paid = operating profit
How do we work out net cash from investing activities
-Purchase of non current assets
+proceeds from the sale of non current assets
+Dividend received
-interest received
How do you work out operating cash flow from operating profit
Operating profit
+depreciation
+increase in trade payables or -decrease in trade payables
-increase in inventories or +decrease in inventories
-increase in trade receivables or +decrease in trade receivables
-profit on disposal or + loss on disposal
= cash from operations
- interest paid
- tax paid
=net cash flow from operations
