definitions

Question 1

what is owners equity?

Answer 1

• also known as capital
• the amount of money that is placed into a business by an owner
• type of liability that is placed into a business by an owner
• shown in the SOFP as a non current liability
• arises from the business entity principle

Question 2

what is the business entity principle?

Answer 2

states that the business must be separate from the owner

- this is what owners equity is based upon

Question 3

what is profit?

Answer 3

• used to measure performance
• to find profit you must deduct expenses from revenue
• profit is worked out a two level (GP and net)

Question 4

what is invoice discounting?

Answer 4

• short term financing
• create a flow of cash
• invoice company will give a business payment in order to fill gap of TR
• o.o2-0.03% payment
• business still have responsibility to collect their debts

Question 5

what is the materiality concept?

Answer 5

concept that address the issue f significance and rigour

• which accepted accounting principles should be applied
• e.g depreciation would not occur on stationary

Question 6

what isa bank reconciliation statement?

Answer 6

• report which compares bank balance as per companies accounting with the balance stated in the bank statement
• if there is something wrong then it must be reconciled

Question 7

what is working capital?

Answer 7

• capital in which is used in day to day business activities
• calculated by dedicating current liabilities from current assets
• common measure of general health of a business and operating liquidity of the business

Question 8

what is an expense?

Answer 8

these are costs that are matched with revenue on an income statement

• expenses can be reductions in assets value (depreciation)
• liability

Question 9

what is cooperative governance?

Answer 9

• system in wchih governs all compnanies

- businesses in uk stocks market must adhere to rules such as having a qualified audit person

Question 10

what is an asset?

Answer 10

an asset is something that in which a company has complete control over and own outright
can be either a current or non current

Question 11

what is the realisation principle?

Answer 11

relates to revenue recognition
- states that revenue should not be recorded until substantially complete - for cash this is when cash has been handed over or credit when an invoice has been received

Question 12

what is the periodicity concept?

Answer 12

defining the current accounting period in which statement are done

Question 13

what is the consistency concept?

Answer 13

requires like items to be treated consistently with in an accounting period
- use of LIFO should be used throughout a business accounting period and years to come in order to make results more comparable

Question 14

what is the error of principle?

Answer 14

• wrong type of account has been debited or credited

- will not cause an imbalance

Question 15

what are the articles of association?

Answer 15

• application needed to strat a limited company
• basic internal rules on relationship between company and shareholder
• policies regarding directors
• contract between member and company
• for future and current members

Question 16

what is meant by ‘true and bad view’?

Answer 16

it is an audit opinion which is gained through an indeendnat and trained auditor
looks at companies accounts in which they decide whether accounts give a fair view of finicinail position

Question 17

what is the going concern principle

Answer 17

• assumption that the business will continue for the foreseeable future
• future benefits will be derived from current assets e.g stock will yield cash

Question 18

what is the prudence principle?

Answer 18

• caution should be exercised when making accounting judgements
• liabilities not understated and profit not over stated
• evolved to counteract optimistic managers that may overstate financial position