initiate data input function Flashcards
What is accounting?
Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions.
Accounting is the ‘language of business.’
Accounting assumptions (4)
Economic entity = financial activity of business separated from owner
Time period = economic info captured and communicated meaningfully over short periods of time
Monetary unit = dollar is most effective communicator
Going concern = continue operations into foreseeable future = if not selling assets then cost principle appropriate
GAAP?
Generally Accepted Accounting Principles are the standards and general body of rules accountants understand and observe.
Income statement: what? how? principles (2)? single vs multi?
Note: total comprehensive = includes additional gains and losses, etc.
What = report of expenses and revenues
How = revenues - expenses = profit or loss (over period of time)
Matching principle = expenses recorded in period Resources used to generate revenues
Revenue recognition principle = revenue recorded when resource earned
Single = TR - TE = Net Profits
Multi = groups of revenues and expenses + several subtotals (more information) = gross profit, before and after tax…
Balance sheet: what? how? principles (1)? current Vs non-current?
What = a reflection of a companys assets, liabilities and equity at a given moment in time
How = (A = L + E)
Cost principle = assets to be recorded at cost of acquisition
Current = list in order of liquidity (A) and within one year (A and L)
Non-current (fixed)= after one year
H analysis and V analysis? Trend analysis? common-Size statements?
H = % change of account prior to current
V = accounts % representation of base account
Trend analysis = use of H and Z to forecast future financial perfformance and identify problem areas.
common-size statements = IS/BS converted into percentages for comparative analysis with similar companies or across years
SCE: what? how?
What = shows changes in a companys equity, particularly retained earnings. How = BRE +/- Net income/loss - Dividends = ERE
CFS: what? how?
What = reports a business’s cash inflows and outflows and reveals level of solvency
How = Over period of time reflects cash flows from Operating, investing and financing activities.
Operating Cash Flows +/– Investing
Cash Flows +/– Financing Cash Flows = Net change in cash
Information beyond the financial statements (3)?
What = textual and numerical information immediately following financial statements
Notes to the financial statements = disclose accounting methods + additional explanations + information not provided.
Auditors report = independent auditor review of GAAP use and fairness.
Management discussion/analysis = future + obligation satisfaction ability + companys results opinion
Qualitative characteristics of accounting information (8)?
Understandability = understood by person with reasonable understanding of business Relevance = capacity to make difference Reliability = represent what purports to Comparability = ability to compare with others Consistency = same entity comparison over time Conservatism = deal with uncertainty Materiality = threshold for affecting decision making
Accounting information system (4)? Dual nature?
A company’s accounting information system (pen/paper, excel books, etc.) identifies, records, summarises, and communicates the various transactions of a company.
Dual nature = money has a SOURCE and a USE = two accounts always affected.
Steps in the accounting cycle (7)
1 Journalise and post accounting transactions. 2 Prepare an unadjusted trial balance. 3 Journalise and post adjusting entries. 4 Prepare an adjusted trial balance. 5 Prepare financial statements. 6 Journalise and post closing entries. 7 Prepare a post-closing trial balance.
Deferred = ? Accrued =? Facts about adjusting (3)
Deferred = Cash first
Accrued = Cash later
Facts about adjusting entries = one IS account + 1 BS account + never involves cash.
Internal control: what? components (5)? limitations? cash controls + memorandums(2)?
What = system of policies and procedures to ensure assets do not walk out of door, management instructions are carried out and the accounting records reflect all transactions that occurred and only those transactions.
Components = control environment, risk assessment, control activities, information and communication, Monitoring.
Limitations = human error, cost-benefit analysis.
(1) Bank reconciliation = bank to actual + company to actual and then actual to company. (DiT = deposited but not recognised by nap, OC = cheque distributed but not recognised by bank yet, DC = cheque banked but NSF so bank cant add funds to company)
Cmemorandum = addition to bank recorded cash (interest earned)
Dmemordanum = subtraction from bank recorded cash (service charges)
(2) Petty cash fun = set amount of easy$ for minor exp
Cash equivalent? Cash analysis? Free cash flow?
Cash equiv = (1) convert within 3 months to (2) known amount
Cash analysis = H and V for cash activities to understand ability to pay debts, invest, etc.
Free cash flow = companies ability to invest beyond bills, capital expenditures, and shareholder payouts i.e. Cash flows from operating activities - capital expenditures - dividends = free cash flow
Accounts receivable: classification? Sales discount? Sales returns and allowances? NRV why and what? Methods of accounting receivables (2)? Method of bad debt estimation (2)? Receivable turnover ratio + DRR + allowance ratio?
Classification = current asset
Sales discount = contra-revenue
Sales RandA = contra-revenue
NRV = net realisable value = following conservatism principle = gross receivables - amount expected to not receive.
Direct-write-off = expense recorded when deemed noncollectable and written off = two entries = 1st sale entry and then bad debt expense entry (write off) = allows earnings manipulation for tax negation + violates matching principle + bad estimate of AR effect on expected cash inflows = not usable for material transactions
Allowance = expense recorded as estimate + write off known uncollectibles = Allowance for bad debts account (contra-asset)
POS = Credit sales x set % = simple + good matching but no consideration of existing allowance account balance
POAR = AR x set % = credit allowance account by amount required to give allowance account a credit balance of the amount calculated by AR x set %. The amount you had to credit by will be the recorded expense! = very meaningful net realizable value
RTR = net credit sales / average receivables
DRR = 365/receivable ratio
AR = allowance / gross AR
Inventory: what? principle? Systems (2) Cost of goods sold methods (4) retail inventory method? LCNRV? ITR + Diir?
What = current-asset intended for resale
Principle = cost principle
Perpetual = updated as per every change = inventory balance manipualted to represent total cost of acquisition
Periodic = updated as per end of year stock = revenue recorded but not COGS (until year end) = purchases account (temporary asset account) used to record any changes to inventory = Transportation-in + Purchase returns and allowances (contra-asset) + purchase discounts (contra-asset) = count inv at end of period for COGS = doesnt factor purchases between sales
Special identification = know exact unit x amount x value
FIFO = duh
LIFO = dont use in aus
moving average = cogs and ending inv balance in between fifo and lifo
weighted average = cost of all units / units
RIM = estimate cost of goods sold by historical gross profit %
LCNRV = at end of ac period principle of conservatism requires inv reported at net realisable value (inventory loss expense account)
ITR = COGS / avg inv balance = ability to sell inv
Diir = 365 / ITR
Managerial vs Financial? Long term (strategic) planning activities (4) short-term (operational) planning activities (4)? Operating activities? controlling activities?
Financial = external users + gauging companies financial position within market/economy = make informed decisions for external user
Managerial = Internal users + inform managerial decisions for optimal future outcome = planning, operating, controlling
Strategic = Long-term planning activities = market share, new equipment/investment, sales growth, plant location
Operational = Short-term planning activities = current cash needs, customer service needs, sales quotas, time budgets
Operating activities = day-to-day decisions (should we?)
controlling activities = ensure we reach goals
Traditional environment? Lean production and JIT environment?
Traditional = similar machines grouped + raw materials, WIP and finished goods with inventories acting as buffer for unexpected orders + lengthy distribution of WIP throughout process Lean = fast and efficient supplier relationships = orders taken and then production commences = low inventory on hand = lower costs + manufacturing cells
Manufacturing costs? Non-manufacturing costs? Journalising transactions?
M costs = costs incurred in manufacturing process = direct labour + direct materials + overhead (indirect material + indirect labour + other factory costs)
Non-m costs = costs incurred outside of manufacturing (design, admin, RandD, sales, etc.)
Journalising = only use raw/wip/final inventory accounts (not overhead +direct labour, etc.) and wages/accounts payable/cash…
Schedule of cost of goods manufactured + sold
start with beginning amounts for raw/WIP/finished add manufacturing costs to WIP and subtract Ewip for COGM then add COGM to finished and subtract Efinished for COGS and then use COGS to find G profit…
NOTE: COGS, Sales and G profit are Balance sheet and used with period (non-manufacturing costs) to find net profit as per income statement
Full product cost components (3)? Contribution margin income statement? sales mix formula? contribution margin ratio how and what? operating leverage?
Components = mixed (component with V on top of F) + variable (volume proportionate) + fixed (volume indifferent)
Contribution margin statement = Sales - variable expenses = Contribution margin and then Contribution margin - fixed expenses = Net profit
Sales mix formula = weighted average contribution margin = total contribution margin of each unit within the ratio mix / number of mixed units i.e. for a 3:1 ratio you would have 3 units of the first product and 1 unit of teh second and hence 4 units
CMR = CM/sales = when high profit is strongly effected by an increase or decrease in sales
Operating leverage = CM / Net income (loss) = used as an indicator of how sensitive net profit is to a change in sales.
Budgeting types (3)? Master budget? The operating cycle stages (4)?
Planning (goals), Control (comparing actual to budget), Operating (day-to-day action)
Master budget = a comprehensive budgeting approach whereby sales are identified first using a “sales budget”. Next the “production Budget” is prepared to specifiy the volume of product for each month. Next material purchases, direct Labour and manufacturing overhead budgets are prepared separately, as well as a budget for SandA expenses. Next cash receipts (expcted incomes each month), cash disbursements (estimated costs for materials, labour, overhead and SandA) and a summary cash budget (totals for operating cash flows, investing cash flows, financing cash flows) are all prepared. These budgets can then all be used for a budgeted income statement and budgeted balance sheet.
Operating cycle = Cash > manufacture > sell > collect cash > repeat
Cost levels (4)? ABC stages (2) Why use ABC costing over traditional costing?
Unit level = incurred each time a unit is produced (supplies, depreciation)
Product level = incurred for each type of product produced (product development costs)
Batch level = incurred for batches of goods produced (depreciation for setup equipment)
Facility level = sustain general facility processes (insurance and tax, salary of plant manager)
ABC = activity based costing = identify activities + identify cost drivers i.e. the unit level activity “repair and maintenance of factory equipment” is driven by machine hours, labour hours, or number of units.
ABC vs Traditional = Whilst traditional costing is simple and fast, it does not factor in the differing proportions of costs allocated to each type of product as it simply uses one relevant factor to assign overhead through (doesn’t factor diverse products).
