Financial Accounting Flashcards
1
Q
What are the features of the Accruals Concept in accounting?
A
- Record of transactions in the year they occur, not when the bills are paid.
- Uses double-entry accounting method.
- Revenue v Expense
2
Q
What are the 3 key financial statements in accounting?
A
- Income Statements/Statement of Profit or Loss
- Statement of Financial Position/Balance Sheet
- Statement of Cash Flow
3
Q
What is the Income Statement/Statement of Profit or Loss?
A
- Provides information about the performance of an entity over a period of time (financial year)
- Measures owners equity at start and end of accounting period.
- Made up of income & expenses
4
Q
What is the equation for profit?
A
Profit = sales revenue - expenses
5
Q
What are the 3 different types of profit?
A
- Gross profit
- Operating profit
- Profit of the period
All measures how affective a manager is at running the business.
6
Q
What is Operating Profit?
A
- Earnings before interest & tax
- Removes operating expenses, depreciation and amortisation
7
Q
What are examples of expenses?
A
- Cost of sales
- Distribution costs
- Administrative expenses (maintenance, insurance, wages)
- Finance costs (bank interest)
- Tax expense (corporation tax)
8
Q
What is an Asset?
A
- A resource available and controlled by the business with the expectation to produce future economic benefits
- Land, buildings, raw materials, vehicles, machines
9
Q
What is a Current Asset?
A
- Assets acquired with intention of sale/conversion into cash in a relatively short amount of time (usually <1yr). - Cash, assets for trading, inventory, trade receivables (made credit sales), prepayment.
10
Q
What is a Non-Current Asset?
A
Asset held for more than a year
11
Q
What is a Liability?
A
- A present obligation of the business, where the settlement of which is expected to result in an outflow of resources embodying economic benefits.
- Debts taken to improve the health and operations of a business.
- Bank borrowing, purchasing resources/inventory not yet paid for, or tax payable to gov.
12
Q
What is a Current Liability?
A
- Settled within a year of the balance sheet date.
- Trade payables, tax, unpaid bills (accruals), bank overdraft.
13
Q
What is a Non-Current Liability?
A
- Settled more than a year after balance sheet date.
- Bank loans (main one), debentures, bonds, mortgages.
- Can become a current liability when payment falls within 12 months of final payment.
14
Q
What is Equity?
A
Equity is shareholders money
Equity = Assets - Liabilities
15
Q
What is the Residual Amount?
A
- Residual Amount = Entity’s assets - Entity’s liabilities
- The remaining value of an asset after it has been fully depreciated.
