accounting_flashcards
What is the definition of accounting?
Accounting is the systematic recording, measuring, and communication of financial transactions to support decision-making.
What are the core accounting principles?
Accruals, Going Concern, Prudence, Comparability, Materiality, Business Entity, Substance over Form, and Double Entry Concept.
What is the Income Statement?
A financial statement summarizing revenues and expenses over a defined period, determining net profit or loss.
What is the Balance Sheet?
A snapshot of the financial position of a business at a specific point in time, showing assets, liabilities, and equity.
What is the purpose of the Cash Flow Statement?
To track cash inflows and outflows categorized as operating, investing, and financing activities.
What is the Accruals Concept?
Revenue and costs are recognized when earned or incurred, not when cash is exchanged.
How is depreciation calculated using the Straight-Line Method?
(Cost − Residual Value) ÷ Useful Life.
What is Marginal Costing?
A costing technique that divides costs into fixed and variable components to analyze profitability and decision-making.
What is the Break-Even Point?
The level of sales where total revenue equals total costs, calculated as Fixed Costs ÷ Contribution per Unit.
What is Contribution per Unit in Marginal Analysis?
Selling Price − Variable Cost per Unit.
What are Current Assets?
Assets expected to be converted into cash within one year, such as stock, debtors, and cash.
What are Fixed Assets?
Long-term assets used in operations, such as buildings, equipment, and machinery.
What is the purpose of Bank Reconciliation?
To ensure the bank statement aligns with the company’s cash book by accounting for timing differences and errors.
What is the Prudence Concept?
Revenues and profits are recorded only when realized, while liabilities and expenses are recognized when probable.
What is the purpose of Financial Ratios?
To analyze a company’s performance, financial position, and investment potential through key metrics like profitability and liquidity ratios.
How is the Gross Profit Margin calculated?
(Gross Profit ÷ Revenue) × 100.
What does the Current Ratio measure?
The company’s ability to pay short-term obligations, calculated as Current Assets ÷ Current Liabilities.
What is the Return on Capital Employed (ROCE)?
A profitability ratio measuring efficiency in using capital to generate profits, calculated as (Operating Profit ÷ Capital Employed) × 100.
What are the components of a Cash Flow Statement?
Operating Activities, Investing Activities, and Financing Activities.
What is Gearing?
The proportion of a company’s financing that comes from debt compared to equity, calculated as Debt ÷ (Debt + Equity) × 100.
What is Dividend Yield?
The return on a share investment, calculated as (Dividend per Share ÷ Share Price) × 100.
How is stock valued in accounting?
At the lower of cost and net realizable value.
What are the advantages of Budgeting?
Provides advance warning of problems, encourages cost control, and aligns departmental objectives.
What is the purpose of the Sales Budget?
To forecast sales quantities and revenues, forming the basis for other budgets.
