Chp 7: The Accounting Equation And Its Components Flashcards
What is equity or owners’ capital?
Owner’s equity is the portion of a company’s assets that an owner can claim; it’s what’s left after subtracting a company’s liabilities from its assets.
What is an asset?
An asset is anything that has current or future economic value to a business
What is a liability?
Liabilities are any debts your company has, whether it’s bank loans, mortgages, unpaid bills, IOUs, or any other sum of money that you owe someone else.
What is the accounting equation?
Assets - liabilities = owners capital
Or
Assets = owners capital + liabilities
What is duality?
Also known as duality principle, dual aspect concept involves every transaction being recorded in debit and credit accounts
What is profit?
Hicks (1946) As the maximum amount that may be withdrawn in a period from the business while leaving capital intact.
What is a capital maintenance?
Capital maintenance, also known as capital recovery, is an accounting concept based on the principle that a company’s income should only be recognized after it has fully recovered its costs or its capital has been maintained.
What is capital?
Capital is the difference between an entity’s assets and liabilities.
What is capital expenditure?
•Capital expenditure - amounts which it is appropriate to carry forward as part of the next year’s opening statement of financial position.
•Capital expenditure is carried forward because it will be used over a number of periods and contributes to several periods’ revenues.
•Capital expenditure includes the cost of purchasing a non-current asset (including the costs of getting the non-current asset operational at the outset) and the cost of improvements to a non-current asset that lead to increased revenue, or sustained revenue
What is revenue expenditure?
Is expenditure which is incurred for the purposes of the trade of the business or to maintain the existing earning capacity of existing assets.
Summary of revenue expenditure?
- Operating costs required for the generation of sales
- These costs are used up in the period
- Matched against the revenue to which they relate.
- Matched against the period to which they relate.
- Repair costs to keep an asset operational ( not improvement costs)
Summary of capital expenditure?
- Purchase of non-current assets that will generate revenue over a number years.
- Initial costs associated with getting the non-current asset into working order
- Asset improvement costs (not repair costs)
- these costs increase revenue generation or enhance cost savings in the future
Summary of capital expenditure?
- Purchase of non-current assets that will generate revenue over a number years.
- Initial costs associated with getting the non-current asset into working order
- Asset improvement costs (not repair costs)
- these costs increase revenue generation or enhance cost savings in the future
What is fair value accounting?
Fair value accounting refers to the practice of measuring your business’s liabilities and assets at their current market value. In other words, “fair value” is the amount that an asset could be sold for (or that a liability could be settled for) that’s fair to both buyer and seller.
