Accounts Form 4 Flashcards
Accruals
Amounts owing at the end of the financial year resulting to liabilities and so they are showed in the current liabilities section
Accruals concept
We should always include the amount that should have been paid/received and not the amount actually paid/recieved
Allowance for depreciation account
Where depreciation of assists is recorded and accumulated
Allowance for doubtful debts
Used to record and adjust the estimate of the amounts of receivables that may be lost to bad debts
Bank reconciliation statement
Prepared when the bank balance in the cashbook is different to the bank statement sent by the bank, prepared to make sure the differences are due to timing differences and not errors
Bank statement
Statement sent by bank to all account holders showing all transactions affecting the bank account for a period
Capital employed
Total amount of capital used to make profits
Total assets - current liabilities
Compensating errors
2 unrelated errors that affect trial balance (errors that cancel out) not affecting trial balance
Depreciation
Loss in value of a non current asset through use and passing of time
Direct costs
(Manufacturing) costs that are directly related to produce a good ex: raw materials
Dishonoured cheque
Cheque that was received by bank but cannot be caused due to : money availability, no signature, no date , words don’t match amounts
Error of commission
Wrong account of same type used : t mine, t mone
Error of omission
Error where a transaction was completely left out
Error of original entry
Wrong amounts in both accounts
Error of principle
Wrong account of wrong type
Fixed costs
(Manufacturing ) don’t change with level of production : rent
Manufacturing account
Prepared to calculate cost of making goods for the year
Net current assets/working capital
Calculates availability of assets that can quickly change to cash to do business with, after short term debts are paid
Current assets - current liabilities
Non current liabilities
Debts that must be paid back after more than one year
Overheads
Manufacturing - indirect factory costs, factory expenses that are Indirectly related to making the product
Partnership
Business between 2-20 people
Partnership deed
Agreement between partners about how profit/losses will be shared, interest to be paid on capital, interest to be charged on drawings and partners salaries to be paid
Prepayment
Amount of expense or revenue that was paid/received before it was due. In advance
Prime cost
Manufacturing- cost of making product before overheads are added
Production cost -
Manufacturing- total cost of producing the goods in a year
Reducing balance method
Calculated as a % of NBV
Revaluation method
Value at start+ new assets -disposals -value at end
Standing order
Permission given to the bank to pay a bill or transfer to another account through the bank account
Straight line method
Depreciation equal per year, used for assets that are used as much when they are new as when they are older. Calculated as a percentage of cost or using
Cost - estimated resale value divided by estimated years of use
Statement of corrected net profit
Statement prepared to recalculate the net profit after errors have been corrected
Suspense account
Account opened when trial balance doesn’t agree. Used in correcting errors that affect the trial balance agreement and should balance out when all errors have been corrected
Unpresented cheques
Bank reconciliation - cheque paid and credited in the cashbook ha snot been cashed so won’t appear on bank statement
Variable cost
Manufacturing - costs that change with level of production e.g.- raw materials
Work in progress
Manufacturing - goods still in the process of production at the beginning or end of the year
Working capital / net current assets
Calculates availability of assets that can quickly change to cash to do business with, after short term debts are paid
Current assets- current liabilities
