Chapter 2 Flashcards
What is the statement of cash flows
statement that shows a business’s sources and uses of cash for period
What is the income statement (statement of financial performance)
measures and reports the profit (or loss) generated for a period, deducts total revenue from total expenses
What is the statement of financial position (balance sheet)
shows the assets of a business and the claims on those assets
What is an asset
a resource held by a business, provide economic benefits
What is a claim
obligations of a business to provide cash or some other benefit to an outside party
What are the three qualifying characteristics of an asset
- must be an economic resource, provides rights to economic benefits
- the economic resource must be under the control of the business (through legal ownership or contact)
- resource must be capable of measurement in monetary terms
What are the two types of claim
equity and liabilities
What is equity
it represents the owners claim on the business (owners capital)
What is a liability
claim of an individual or other organisation apart from owner arisen from past transactions / events
What is the reporting period
the time span for which a business prepares its financial statements
What is a current asset
an asset held for the short term and expected to be sold within a year
Three main current assets
- inventories
- trade receivables
- cash
What is a non current asset
a fixed asset held for the long term, a tool of the business
Seven types of non current asset
- plant
- fixture and fittings
- equipment
- machinery
- motor vehicles
- property
- intangible assets
What is a current liability
amounts due to be settled in the short term and exist as a result of trading with no right to defer beyond a year
What is an example of a current liability
amount owed on credit (trade payable)
What is a non current liability
a longer term liability
What is an accounting conventions
generally accepted rules by accountants when preparing financial statements
Business entity convention
for accounting purposes the business and its owner are treated as separate
Historic cost convention
assets should be recorded at their historic cost (acquisition cost)
Prudence convention
caution should be exercised when making accounting judgements
Going concern convention
financial statements should be prepared on the assumption that a business will continue in operation for foreseeable future
Dual aspect convention
that each transaction has two aspects (debit and credit)
What is goodwill
an intangible asset used to cover positive attributes eg. quality of products / skills of employees
What is the term product brands
covers attributes such as brand image, trademark
What is an arms length transaction
one undertaken between two unconnected parties
What does a NCA with a finite life do
provide benefits to business for limited period of time (equipment)
What does a NCA with an indefinite life do
provides benefits to business without a forseeable time limit (property)
What is the carrying amount
the difference between the cost (fair value) of an NCA and the accumulated depreciation (AKA netbook value, written down value)
What is fair value
the current marker value of an asset
What happens when an tangible asset is revalued on basis of fair values
all assets within a particular group must be revalued
What is the general rule when the carrying amount is higher than the recovered amount
to reduce the carrying amount to the recoverable amount
What is impairment loss
the amount by which the asset is reduced due to a change in a fundamental factor (market for service provided collapses)
When must an intangible NCA be tested for impairment
at the end of each reporting period
What is the realisable value
selling price - selling cost
