Key definitions and concepts Flashcards
Define accounting equation
The accounting equation is the total equity of a business by showing the total assets and total liabilities of the business
Total equity= assets - liabilities
Define Accounting framework
Accounting Framework is the collection, analysis and interpretation of financial information
Define accounts receivable
Are debt owed to a business that has allowed customers to purchase goods on credit
Define Accounts Receivable
Accounts Receivable are debts owed to a business that has allowed customers to purchase goods on credit.
Define accounts receivable turnover ratio
What is an activist shareholder?
Activist shareholders may hold only a small percentage of the company but uses it to put pressure on the business to keep company accountable and influence management decisions
Define Asset stripping
Activist stripping is a process where investors buy an undervalued company with large assets. The assets are sold and the company is liquidated. Employees and shareholder suffer as a consequence, while the corporate raider makes a substantial profit
Define Assets
Assets are the financial, physical and intangible resources of the business. They include anything of commercial or exchange value.
Define Aduit
An audit is a detailed examination of the financial records relating to a business decision to determine whether the business is conducted in a legal and proper way. there are both internal and external audits
What is the Australian Securities and investment commission?
(ASIC) is a federally funded but independent organisation that administers, supervised and regulates Australian companies, financial markets and businesses. ASIC has investigation powers and can initiate legal action
What is the Australian Securities exchange?
What is a balance sheet?
A balance sheet is a statement showing the financial position of a business at a point in time (usually 30th June). It shows what the business owns (assets) and what it owes (liabilities)
What is a bank bill?
A bank bill is a written IOU order by the business to a bank to pay an amount borrowed from the bank. There is a fixed date and amount to be repaid. This is a short-term method of external (debt Funding)
Define Banking deregulation
Banking deregulation is the reduction of restrictions in the Australian financial market. It has led to an increase in the number of foreign banks, changes in deposit and lending limitations, and easier transfer of funds between countries.
Define bills of exchange (bills for collection)
Involves exporters sending documents from their bank to the buyer’s bank after goods have been sent. The exporter can specify that goods are released to the buyer only after payment is received or an acceptance to pay at a future date is signed.
What is a budget?
A budget is a plan of forecasted income and expenditure for the coming period
Define budgeting
Budgeting is the outlining of the future income and expenditure of a business for a particular period of time
What is meant by capitalising expenses?
Capitalising expenses is changing the expense from a ‘one-off’ operating expense into a capital item which can then be depreciated over time
Define Cash flow
Cash flow is the movement of cash into and out of a business It is important to have sufficient cash to finance ongoing operations.
What is a cash flow budget?
Cash flow budget is part of the financial plan of a business. It is prepared to forecast cash receipts and cash payments over a year
What is a cash flow crisis?
Cash flow crisis is a situation where there is insufficient cash coming into the business to cover the amount that has to be paid out in that period
What is a cash flow statement?
Cash flow statements show the flow of cash into business and from business during a set period. It, therefore, indicates the cash levels of the business.
Define clean payment
Clean payment offers a relatively cheap and uncomplicated method of payment for both importers and exporters. All shipping documents, including title documents, are handled directly between the trading partners. The role of the bank is limited to clearing amounts required.
What are commercial bills?
Commercial bills are a non-bank bill of exchange issued by companies. The title commercial indicates that the bills are not issued by banks. Commercial bills are usually drawn for short periods ranging from three to six months. They are highly liquid and can be converted into cash easily by selling them at a discount to the banking system.
What is meant by comparative ratio analysis?
Comparative ratio analysis evaluates ratio results by comparing them over time with those of similar businesses and against common standards such as industry standards and benchmarks
define Corporate raiding
Cortporate raiding is when an investor purchases a controlling interest in an under-performing company, usually in the form of a hostile takeover.
What are cost centres?
Cost centres are the individual parts of a business that are responsible and accountable for the costs that they incur
Define costs of goods sold
Costs of goods sold= (opening stock + purchases)- closing stock
What are credit controls?
Credit controls are process of monitoring to ensure that what is owed to the business is actually paid in full and on time
Define current assets
Current assets are short term debts of the business that must be repaid within the year
