Equations, Formulas and Definitions Flashcards
What is the formula for assets?
Assets = Capital + Liabilities
What is the formula for capital?
Capital = Assets - Liabilities
What is the formula for liabilities?
Liabilities = Assets - Capital
What are non-current assets?
Assets that the company plans to keep and make use of for a long time (more than a year)
What are current assets?
Assets that frequently change in value.
What are non-current liabilities?
Amounts likely to be paid in the long term.
What are current liabilities?
Amounts that will be paid within the financial period (less than a year)
What is debt load?
Amount of money owed by a company or person. The amount can be huge.
What is accounts?
The art of recording, classifying, interpreting and summarizing information of a financial nature
Name 3 internal users of financial information.
Owners
Employees
Managers
Board of Directors
Name 3 external users of financial information.
Suppliers
Banks
Customers
Lenders
Competitors
Tax inspectors
Potential investors
Name 3 bookkeeper duties.
Balancing accounts
Preparing trial balances
Payroll records
Keeping inventory records
Storing documentation
Entering and posting transactions
Name 3 accountant responsibilities.
Budget and reviews
Prepare financial statements
Supervise accounting staff
Prepare tax assessments
Work with auditors
What are accounts receivables?
Anyone who owes the business money for goods supplied to them.
What are liabilities?
Money owed by the business to other individuals, businesses or organizations.
What are accounts payables?
Money owed by the business to it’s suppliers
What is bank overdraft?
When more is withdrawn than what the business has and the account essentially goes into negatives. Only businesses and organizations are allowed bank overdraft.
What is capital?
The owner’s investment into the business
What is drawings?
The owner taking cash out of business for his/her own private use.
What is the order of Current Assets on an SoFP?
Inventory
Receivables
Bank
Cash
What side is debit ALWAYS on?
The left side.
What side is credit ALWAYS on?
The right side.
An increase in assets goes to which account? Dr or Cr?
DEBIT
A decrease in assets goes to which account? Dr or Cr?
CREDIT
An increase in liabilities goes to which account? Dr or Cr?
CREDIT
A decrease in liabilities goes to which account? Dr or Cr?
DEBIT
An increase in capital goes to which account? Dr or Cr?
CREDIT
A decrease in capital goes to which account? Dr or Cr?
DEBIT
Debit or credit purchases?
DEBIT
Debit or credit sales?
CREDIT
Debit or credit returns inwards?
DEBIT
Debit or credit returns outwards?
CREDIT
What is an expense?
A recurring payment to a vendor because of the business’ continued use of the product/service.
What is revenue?
Income a company receives from it’s normal business activities usually for sale og goods and services to customers.
Debit or credit expenses?
DEBIT
Debit or credit revenue?
CREDIT
You must always ___ expenses. But if there’s a ___ you ___ it because it is an opposite action.
debit, refund, credit
T/F? A trial balance consists of balance b/d s.
TRUE
In terms of trial balances, name 4 accounts with DEBIT balances.
Assets
Expenses
Purchases
Returns inwards/sales returns
In terms of trial balances, name 5 accounts with CREDIT balances.
Liabilities
Capital
Sales
Revenue
Returns outwards/Purchases returns
After the trial balance is prepared, what financial statements follow?
The Income Statement
The Statement of Financial Position
What is an income statement?
A statement showing the revenues, expenses, profit or loss of a business based on its activities over a period of time.
What is a trading account used for?
Used to calculate profit from trade. This profit is called GROSS PROFIT.
What is a profit and loss account used for?
Used to calculate profit AFTER expenses have been paid. This is called NET PROFIT.
Formula for Net Sales.
Sales - Returns inwards
Formula for COGAS (Cost Of Goods Available for Sale).
Opening stock + Purchases + Carriage inwards - Returns outwards
Formula for COGS (Cost Of Goods Sold).
COGAS - Closing inventory
Formula for Gross Profit.
Net Sales - COGS
Formula for NET PROFIT
Gross Profit + any additional revenue - Expenses
T/F? It’s possible to not have a Net Sales.
TRUE
If you are doing a financial statement and something (like returns inwards) isn’t in the table what do you do?
Jump to the next section.
What are carriage inwards and outwards?
Expenses
In an Income Statement what does carriage inwards go under?
Less COGS
NOTE: IN AN SOFP FOR INVENTORY ALWAYS USE CLOSING INVENTORY.
NOTE: IN AN SOFP FOR INVENTORY ALWAYS USE CLOSING INVENTORY.
What does commissions payables go under?
Expenses.
In an Income Statement what happens if there is no returns inwards?
The sales figure stays the same and is put under NET SALES.
What is liquidity?
The ability to turn to cash as fast as possible.
The Order of Liquidity goes from most to least liquid. List the 4 assets.
Cash
Bank
Building
Land
What is capital expenditure?
Spending money to buy NCA
What is revenue expenditure?
Money spent on expenses (day-today things)
NOTE: WHEN DOING A TRIAL BALANCE WHATEVER SIDE BAL B/D IS ON (CR/DR) IN THE DOUBLE ENTRY IS THE SIDE IT’S ON IN THE TRIAL BALANCE.
NOTE: WHEN DOING A TRIAL BALANCE WHATEVER SIDE BAL B/D IS ON (CR/DR) IN THE DOUBLE ENTRY IS THE SIDE IT’S ON IN THE TRIAL BALANCE.
NOTE: IF AN ACCOUNT HAS NO BALANCE B/D IT WON’T APPEAR IN THE TRIAL BALANCE BECUASE A TRIAL BALANCE IS A LIST OF BAL B/D.
NOTE: IF AN ACCOUNT HAS NO BALANCE B/D IT WON’T APPEAR IN THE TRIAL BALANCE BECUASE A TRIAL BALANCE IS A LIST OF BAL B/D.
