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Poa > Definitely 10 > Flashcards

Definitely 10 Flashcards

1
Q

current ratio

A

measures the ability of a business to convert current assets into cash to pay short term debts when due

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2
Q

quick ratio

A

measures the ability of a buinesss’s quick assets to pay short term debts when they fall due.

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3
Q

rate of inventory turnover

A

measures the number of times a business sold and replenished its inventory.

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4
Q

days sales in inventory

A

measures the number of days a busniess takes to sell its inventory

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5
Q

rate of trade receivables turnover

A

measures the number of times a business collects payment from credit customer

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6
Q

trade recievables collection period

A

measures the number of days a business takes to collect payment from its credit customer.

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7
Q

sales revenue

A

amount earned from main business activities

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8
Q

other income

A

amount earned from other business activities

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9
Q

income received in advance

A

amount of income that has been recieved this year but has not been earned

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10
Q

income receivable

A

amount of income that has been earned but has not been rcieved this year

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11
Q

importance of being profitable

A

company can grow and sustain for a long period of time

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12
Q

importance of profitability ratios

A

they calculate operational efficiency of a company to derive profits. it helps the company owners stay aware of its position of the company and if conditions are bleak, they may take corrective measures.

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13
Q

how to improve gross profit

A
  1. increase sales revenue by increasing quantity sold
  2. decrease cost of good sold by lowering raw material costs
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14
Q

how to improve profit of the year

A
  1. increase other sources of income by paying suppliers early to enjoy cash discounts
  2. reduce other expenses by cutting down on utilities expenses
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15
Q

importance of liquidity of a business

A

liquidity is the measure of the busniness ability to convert current assets into cash to pay short term debts when they fall due. it is important for a busniess to have healthy liquidity because cash is needed for daily operation, unforeseeen emergencies, secure loan and plan for financial future.

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16
Q

diff between profitabilty and liquidity

A
  1. profitability is more impt in the long run of a business. liquidity is more impt for the short term of the business.
  2. profitability is a measure of financial performace. liquidity is the measure of cash position in the company and how liquid the business is to meet short term obligations.
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17
Q

return on equity

A

measure how much profit is earned per dollar of equity invested by owner or shareholders of a business

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18
Q

working capital

A

is the amount of cash available to meet business obligations. it measures the excess of current assets over current liabilitles

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19
Q

application of materiality theory

A

a capital expenditure may be recorded as revenue expenditure instead if the amount spent is insignificant to decison making when compared to size of income, profit, assets or equity pf the busiess.

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20
Q

why need to charge depreciation with theory

A
  1. matching theory
  2. as NCA is used to generate income, a portion of cost of NCA will be recorded as depreciation expense to match against income earned in the same year to arrive at profit for the year.
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21
Q

explain presentation of net book value with theory.

A
  1. prudence theory
  2. accumalated depreciation is deducted from the original cost of non current assest in the statement of financial position to arrive at the net book value so that the business does not overstate the non current asset.
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22
Q

trade receivables

A

amount owed by credit customers as goods previously sold to them on credit

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23
Q

allowance for impairment of trade receivables

A

amount of debts estimated to be unlikely collected from trade recievables

24
Q

impairement loss on trade receivables

A

reported loss when credit customers are ulikely to pay their debts

25
Q

state valuation method of TR for statement of financial position

A

TR is valued at TR lEss ALFIOTR

26
Q

state valuation method of inventory in statement of financial position

A

inventory shld be valued at lower of cost or net realisable value.

27
Q

explain valuation rule of inventory with theory

A
  1. prudence theory
  2. business shld not overstate assets and profit and understated losses and liabilities.
28
Q

expenses

A

costs incurred during operations to earn income in the same financial year

29
Q

cost of sales

A

total cost price of goods sold

30
Q

prepaid expenses

A

amount of expenses that has been paid this year but has not been incurred in the current year

31
Q

expense payable

A

amount of expenses incurred but has not been paid in the current year

32
Q

four stages of accounting cycle

A
  1. identify and record
  2. adjust
  3. report
  4. close
33
Q

cash discount

A

reduction off invoiced price

34
Q

trade discount

A

reduction off list price

35
Q

depreciation

A

allocation of cost of NCA over estimated useful life

36
Q

accumalated deprectiaion

A

total depreciation to date

37
Q

scrap value

A

amount that business can rcieve at the end of estimated useful life of NCA

38
Q

causes of depreciation

A

wear and tear
usage

39
Q

explain sustainabitlity of depreciation method for diff types of NCA

A

THE METHOD SHLD BEST REFLECT THE USAGE PATTERN OF NCA.
1. straightlien method assumes NCA provides same benefit throughout the useful life.
2. reducing balance method assumes NCA provides more benefit in the earlier years than the later years of useful life.

40
Q

capital expenditure

A

costs to buy and bring NCA for intended use and costs to enhance NCA

41
Q

REVENUE EXPENDITIURE IS THE COSTS TO REPAR OPERATE AND MAINTAIN THE nCA in wprking condition

A
42
Q

diff between capital expenditure and revenue expendit

A
  1. cap ex provides benefits for more than than one year and is recorded as NCA in the positon
  2. rev ex provided benfits that last for only onr year and is recorded as expese in the performance.
43
Q

receipt

A

acknowledges payment recieved from customer immediately after goods have been delivered or services have been provided

44
Q

remittance advice

A

received from credit customer that payment by cheque has been made for an invoice

45
Q

bank statement

A

recieved from bank to check and tally against busines records of cash at bank account

46
Q

purpose of internal control

A

safeguard assets of business, ensure transactions are recorded accurately and comply with law and regulations.

47
Q

why is internal controls over cash impt

A

as cash is highly portable, it has a high chance of getting stolen. IC ensures that cash is well protected and accurately reported to deter and detect fraud

48
Q

examples of internal control

A
  1. segregation of duties
  2. custody of cash
  3. authorisation
49
Q

segregation of duties

A

serperate cash handling and cash recording duties mong diff employees so that no single person has control over the entire cash process.

50
Q

custody of cash

A

secure cash and cheques in a locked storage and limit access of cash to authorised personnel only

51
Q

authorisation

A

obtain proper approval for all payments from authorised personnel and require valid supporting documents for all apyemtn.

52
Q

purpose of bank rec

A

compare the business cash at bank acc and bank statemtnt ot identify items that caused the difference between the ending balances of CAB acc and BS

53
Q

REASONS FOR DIFF OF ENDING BALACNES IN BANK REC

A

timing diff in recording
errors in recording CAB or BS

54
Q

examples of timing diff

A

CNYP, DIT and direct payment or deposit

55
Q

easons for dishounoured cheque

A

cheque is post dated or expired.

56
Q

order of accouting process in AIS

A

source doc,journal, ledger, trial balance, FS

Poa (2 decks)

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