Chp 6 & 8 Flashcards
Cash surplus
An excess of cash receipts over cash payments leading to an increase in a positive bank balance or a decrease in a bank over draft.
Cash deficit
An excess in cash payments over cash receipts, leading to a decrease in a positive bank balance or an increase in a bank overdraft.
Deficit vs overdraft
A deficit refers to a decrease in the firms bank balance whereas the overdraft refers to a negative balance.
Assets
A resource controlled by the organisation as a result of previous events, from which future economic benefits can be expected.
Liability
A liability is a present obligation of the organisation as a result of previous events, the settlement of which will result in a outflow of economic benefits.
Owner’s Equity
The owner residual intrest in the assets after the liabilities have been accounted for
Revenue
Provide Examples.
An inflow of economic benefit (or saving in an outflow), in the form of an increase in assets (or decrease in liabilities) that increases owners equity ( except for capital contributions).
Eg. The main core business and how it receives money from that activity.
Expenses
Provide Examples
An outflow or consumption of an economic benefit ( or reduction in an inflow) in the form of a decrease in assets ( or increase in liabilities) that reduces owner’s equity ( except for drawings) .
Eg. Wages, advertising, interest, electricity, vehicle expenses, Stationary and stock if they have been consumed.
What is the use of an income statement?
an accounting report which details the revenue earned and expenses incurred during the reporting period. To identify whether or not the business is making a profit to increase the owner’s equity.
What is the use of the Statement of Receipts and Payments?
An accounting report which details the cash received and cash paid during the reporting period. To asses the firms cash flow and situation, to determine the firms bank balance.
Profit
Profit is the net increase in the owner’s equity as a result of the firms operations. It is calculated by measuring the firms revenue and deducting from this its expenses.
Cash vs profit
Since not all cash receipts are revenues and not all cash payments are expenses, it becomes possible for a business to suffer a loss while making a surplus or to make a profit and a deficit. This is that certain items that are classified in one report and not the other.
