Finals Prep Flashcards
Income statement
Revenue - expenses = Net income/(loss)
Revenue
Forms of income earned by a business
Expenses
Costs that the business incurs when running their operations
Statement of changes in equity
Share capital + retained earnings + net income - dividends = total equity
Share capital
Ordinary/preference shares issues to the shareholders of the business
Retained earnings
The cumulative earnings of a business over the years
Dividends
A contra equity item, paid/distributed to shareholders when the business is profitable. Can be in cash or in stocks.
Balance sheet
Assets = liabilities + equity
Connection between balance sheet and cash flow
The movement in the cash account under current assets will tally with the usage/generation of cash in the SCF
Statement of cash flows (definition)
How has the business used/generated it’s cash this year? Was it via operating, investing, or financing activities?
Expanded accounting equation
DEALER
Dividends + expenses + assets = liabilities + equity + revenue
Fundamental characteristics of the IFRS
Relevance and faithful representation
Enhancing characteristics of IFRS
Comparability, verifiability, timeliness, and understandability
Accounting assumptions
Accrual basis of accounting and going concern
Purpose of the t account
To track the balance for every account in the business
Accounting cycle
Analysing transactions, recording transactions, summarizing effects of transactions, preparing reports
All journal entries
Must have at least one DR and CR
All DR must equal all CR
In what cases must adjustments be made?
1) paid or received cash in advance
2) revenue and relevant expenses have not been matched
3) has not yet recorded depreciation
4) errors made during initial recording
Journal entries for closing entries
DR revenue
CR expenses
CR dividends
CR retained earnings (profit)
DR retained earnings (loss)
Reasons for bank recon (bank side)
+ Deposits in transit ( you haven’t deposited received cheques)
- outstanding cheques (suppliers haven’t deposited your cheques)
+/- bank errors
Reasons for bank recon (ledger) - journal entries must be made
+ electronic funds transfer receipt
DR cash CR AR
- electronic funds transfer payments
DR AP/Exp, CR cash
- non sufficient funds cheque
DR AR CR cash
+ Bank interest income
DR cash CR interest income
- bank fees
DR bank fees CR cash
+/- recording errors
Steps for allowance of UA
Creation of allowance
DR bad debt expense CR allowance for UA
Usage of allowance
DR allowance for UA CR AR
Collection of bad debts
DR cash CR allowance for UA
Top up allowance
DR bad debt expense CR allowance for UA
Method to account for notes receivable
Interest when you are lending a short term loan (notes receivable)
DR interest receivable
CR interest revenue
