Essential Things To Remember Flashcards
Purpose of financial reporting
Providing useful financial information to investors, lenders and other creditors in making decisions about providing resources to the entity
Users of financial information (7)
Investors Employees Lenders Suppliers Customers Government Public
Business entity concept
A business is considered to be a separate entity from its owner
Two fundamental characteristics of financial statements
Relevance Faithful representation (complete)
Four enhancing characteristics of financial information
Verifiability
Timeliness
Understandability
Comparability
Material
Omissions/misstatements that could influence economic decisions of users
IAS1 objective
Provide information about the financial position, financial performance and cash flows of an entity
Shows results if managements stewardship over resources
Assists predicting entity’s future cash flows
Accrual basis of accounting
Items are recognised as assets, liabilities, equity, income and expenses when they satisfy the definitions and recognition criteria for those elements in the conceptual framework
Historical cost
Transactions are recorded at their cost when they occurred
ICAEW code of ethics (5)
Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour
ICAEW code of ethics is ______ based
Principles
Accounting equation
Assets= capital + liabilities
Source document
Business transactions involving sales or purchases, receiving or paying money, or owing or being owed money, which are usually recorded on a source document
Gross pay to employees (4)
PAYE
Employees’ NI contributions
Employees’ pensions contributions
Net pay (amount paid to employees)
Total payroll cost to employer = ?
Gross pay + Employer NI + Employer pension
Standing data
Reference data that doesn’t change regularly
Real time processing vs batch processing
1) transactions entered the point at which they take place
2) processing transactions together in a group
Three types of ledger
Nominal ledger
Receivables ledger
Payables ledger
Purpose of receivables ledger and payables ledger?
To show individual transactions, which the nominal ledger doesn’t
First step in preparing statement of profit or loss?
Create a profit and loss ledger account
Cost of sales= ?
Opening inventory + purchases + delivery inwards - closing inventory
Gross profit= ?
Revenue - cost of sales (cos)
Cost of delivery _____ is added to the cost of purchases
Inwards
NRV equation
Estimated selling price - estimated costs of completion - estimated selling and distribution costs
FIFO will tend to give ____ inventory values and _____ profits
Higher
Higher
Margin= ?
Profit/sales * 100
Mark-up= ?
Profit/cost * 100
When to write off inventories?
If worthless
NRV is less than original cost
Reversing accruals and prepayments formula
Plus opening payments
Less closing payments
Less opening accruals
Plus closing accruals
Accrued income
When income has been earned during the accounting period but not invoiced or received
Deferred income
Income received in advance of it being earned
Four steps for accrued income and deferred income
- Reverse opening income in arrears/advance
- Post cash received during the year
- Post closing income in arrears/advance
- Balance off the accounts
Capital expenditure
Acquisition of long-term assets
Improvement of earning capacity
Revenue expenditure
For trade purposes
Maintenance of existing warning capacity of long-term assets
Capital income
Profits from sale of non-current assets
Revenue income
Everyday income (selling inventory provision of services, dividends)
Asset register
List of all non-current assets owned by the organisation
Cost of non-current asset (2)
Purchase price
Directly attributable costs to bring the asset to its intended location and ready for use
Depreciation
(Cost or valuation of asset - residual value) / useful life
When a non-current asset is depreciated, two things must be accounted for:
Charge for depreciation
Reducing statement of financial position cost
Carrying amount
Cost - accumulated depreciation
Impairment
Unscheduled depreciation
If the recoverable amount is lower than the carrying value, do nothing or impairment?
Impairment
Impairment loss= ?
Carrying amount - recoverable amount
Sales proceeds > carrying amount => ?
Sales proceeds < carrying amount => ?
Profit in disposal
Loss on disposal
Part exchange allowance journal entry?
DR new asset cost
CR disposal account
Disclosures are not required if the information they provide is _____
Immaterial
Items are material if….
Omitting, misstating or obscuring them could influence the economic decisions of users taken on the basis of the financial statements
