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ACA KAPLAN > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

What are the two types of assets?

A

non-current and current assets

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2
Q

What is a current asset?

A

assets acquired for resale or expected to be realised within the normal course of trading

eg.
inventory - stock
receivables (money owed by credit customers) and cash

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3
Q

What is a receivable?

A

money owed by credit customers

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4
Q

What is a non-current asset?

A

assets acquired for on-going, long-term use in the business

these may include assets purchased outright or those leased my the business (known as right of use assets)

eg.
land and buildings
plant and machinery

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5
Q

What is the accounting equation known as?

A

statement of financial position (SFP) equation

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6
Q

What is the statement of financial position (SFP) equation?

A

detailed expansion of the equation showing assets, liabilities and capital

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7
Q

What are the two types of liabilities?

A

non-current and current

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8
Q

Non-current Liabilities

A

long-term liabilities payable more than 12 months after the statement of financial position date

eg.
loan

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9
Q

Current Liabilities

A

liabilities which are payable within 12 months of statement of financial position date

eg.
trade receivables (money owed to credit suppliers)
overdraft

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10
Q

trade receivables

A

Money owed to credit suppliers

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11
Q

What is the business entity concept?

A

the concept states that financial statements should only show the activities of the business and not the personal activities of its owners

therefore the business entity is treated as separate from its owners

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12
Q

What are examples of flow of money between owner and business?

A

extra capital invested into the business by the owner

‘drawings’ being funds withdrawn from the business by the owner

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13
Q

Where are flows of money between the owner and the business reported?

A

within the statement of financial position as capital

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14
Q

Assets = ?

A

liabilities + capital

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15
Q

Capital = ?

A

assets - liabilities

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16
Q

What is a consequence of business entity concept about assets, liabilities or capital?

A

a business will buy assets using borrowed funds (liabilities) or capital from its owner

17
Q

What does the top half of the financial position show?

A

assets

18
Q

What does the bottom half of the financial position show?

A

liabilities and capital

19
Q

What is capital?

A

how much a business owes the owner

20
Q

How is capital calculated?

A

opening capital + profit + capital injections - drawings

21
Q

What does the duality concept state?

A

every transaction has a duel effects/two impacts

22
Q

What does the duality concept mean?

A

if a company were to purchase goods on credit, it would:

increase trade payables because the company now owns a supplier

and

increase inventory because the company now holds stock

23
Q

Duality concept - if the business sells inventory for more than it cost?

A

business has made a profit which increases capital

24
Q

Duality concept - if the business sells inventory for less than it cost?

A

business has made a loss which reduces capital

25
Q

What does a statement of profit or loss (SPL) show?

A

how the profit figure included in the calculation of capital has arisen

it shows income less expensive over period of time

26
Q

What happens if expenses > income in a SPL?

A

a loss will be reported

27
Q

What are the two types of sales?

A

cash sales

credit sales

28
Q

Cash Sales

A

will increase cash

29
Q

Credit Sales

A

sales that allow customers to pay later will increase trade receivables

30
Q

What does the statement of profit or loss need to reflect in relation to sales?

A

it needs to reflect how much it has cost the business to make it sales

31
Q

How is the cost of sales calculated?

A

opening inventory + purchase - closing inventory

32
Q

Opening inventory

A

inventory held in the business on the first day of the period

33
Q

Purchases

A

what the business bought during the period to sell

34
Q

What are the two types of purchases?

A

cash

credit

35
Q

Cash Purchases

A

will decrease cash

36
Q

Credit Purchases

A

purchase that allow us to pay later will increase trade payables

37
Q

Closing Inventory

A

inventory help in the business on the last day of the period

38
Q

What are expenses?

A

running costs of the business and reduced profit and therefore the capital

39
Q

Relationship between the statement of financial position and statement of profit or loss

A

capital at the start of the period

+ profit (or - loss) from statement of profit or loss

+ cash injects/introduced from owner

  • cash drawings taken by owner

= capitals at the end of period

ACA KAPLAN (13 decks)

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