Final Ones Flashcards
Fundamental Qualitative Characteristics
Relevance
Faithful representation
Enhancing Qualitative Characteristics
Comparability
Verifiability
Timeliness
Understandability
Vertical presentation of the SFP
Assets
Non current assets
Current assets
TOTAL
Capital and liabilities Capital Non current liabilities Current liabilities TOTAL
Working capital/ net current assets
Current assets - current liabilities
If positive = net current assets
If negative = working capital
Errors of commission
One side of the transaction has been entered into the wrong account
Errors of principle
The correct and incorrect amounts are of different types I.e. Dr has gone to SFP instead of SPL
Error of original entry
Wrong amount has been used for both debit and credit entries
Carriage outwards (sales)
carriage on goods sold by the organization
treated as an expense against gross profit
Carriage inwards (purchases)
carriage charged by the supplier on purchases
treated as an expense in cost of sales
Cash discounts
referred to as a settlement discount
MUST BE ACCOUNTED FOR
TAX employers
DR Wages payable
CR HMRC
DR Wages expense
CR wages payable
DR Entries
Increase in assets Decrease in liabilities Decrease in capital Increases in expenses Decreases in revenue
CR Entries
Decrease in assets Increase in liabilities Increase in capital Decreases in expenses Increases in revenue
Credit sales returns
DR sales returns
CR receivables
Cash sales returns
DR sales returns
CR Cash
Credit purchase returns
DR payables
CR purchase returns
Cash purchase returns
DR cash
CR purchase returns
Cash discount allowed
DR Discounts allowed
CR Receivablespart of net profit number in SPL
Discount received
DR Payables
CR Discounts receivedpart of the net profit number in SPL
Trade discounts
ONLY DEDUCTED FROM QUOTED PRICE AND NOT ACCOUNTED FOR
Cash discounts
MUST BE ACCOUNTED FOR
if given both trade and cash discount, trade discount must be applied before the cash discount is calculated
Output tax
VAT on sales
CREDIT sales tax account
Input tax
VAT on purchases
Can be reclaimed
DEBIT sales tax account
Irrecoverable debts
DR Irrecoverable debts expense account (SPL)
CR receivables account (SFP)
DR Bank accountCR receivables account
part payment of an irrecoverable debt after write off
Bring CR balance down from receivables
Payment
CR receivables
DR Bank
Write off
DR irrecoverable debts expenses account
CR receivables
Double entry for allowance for receivables
DR Irrecoverable debts expense account (SPL)
CR Allowance for receivables account (SFP as liability)
Accounting for increase in allowance for receivables
DR irrecoverable debts expense
CR allowance for receivables
Capital employed
Capital employed represents the capital investment necessary for a business to function. Consequently, it is not a measure of assets, but of capital investment: stock or shares and long-term liabilities.
Valuing inventory
should be valued at the lower of cost and net realizable value
Net realizable value
Revenue expected to be earned in the future when the goods are sold, less any selling costs
AVCO
previous balance value + new receipts value
/
previous units + new units
Straight line depreciation
original cost - estimated residual value
/
estimated useful life= depreciation per annumor% x cost
reducing balance depreciation
Shown as a reduction against the cost of non current assets
Cost x
Accumulated depreciation (x)
= carrying value x
Accounting for disposal step 1
remove the cost from the books and transfer to disposal account
DR disposal account
CR non current asset cost account
Accounting for disposal step 2
remove the accumulative depreciation from the books and transfer to the disposal account
DR accumulative disposal account
CR disposal account
Accounting for disposal step 3
record the cash proceeds
DR cash account
CR disposal account
Disposal through part exchange (PEA)
Steps 1 & 2 same as disposal process
Step 3 record the part exchange
DR non current asset cost account
CR Disposal account
Step 4 record the cash proceeds (if any)
DR non current asset cost account
CR cash payable
Purchase daybook double entry
DR purchases
DR sales tax
CR payables
Sales daybook double entry
DR receivables
CR sales tax
CR sales account
Returns in daybook double entry
DR returns inwards
DR sales tax
CR receivables
Returns out daybook double entry
DR payables account
CR sales tax
CR returns outwards account
The Journal
Where you note transactions that don’t naturally fall into the normal books of prime entry i.e. year end adjustments, bad and doubtful debts, accruals and prepayments, inventory
IS A BOOK OF PRIME ENTRY AND PART OF THE DOUBLE ENTRY
Books of prime entry
where transactions are first recorded
daybooks i.e. sales day book list of sales made on credit, purchases daybook list of purchases made on credit
records outside of double entry
memorandum accounts
Role of an auditor
issue an opinion whether financial statements are true and fair
perform control tests to confirm client controls and detect misstatement
Role of management
to safeguard assets
act as stewards to the owners
historical cost convention
in times of rising costs historical cost convention will overstate profits and understate asset values
objective of an internal audit
to assist directors of a company in the effective discharge of their financial responsibilities towards the members
role of an internal auditor
to report to management on the accounting systems
realisation
revenues should be recognised when goods and services have been supplied; costs are incurred when goods and services have been received
capital maintenance
profit is earned only if the value of the organisations net assets or it’s operating capability has increased during the accounting period
stewardship
is concerned with ensuring that there are procedures in place to safeguard assets, provide properly for liabilities, protect against misuse of assets and report adequately to the shareholders or stakeholders of an organisation
not for profit company accumulated fund
equivalent of owners capital
prime cost
total of direct costs
Capital in single entities
is equity
Accounting equation is assets = equity + liabilities
