Key Words (Lectures 11-22) Flashcards
Bad debts
Those u no longer receive payment for (unrecoverable)
Doubtful debt
A debt that is possibly unrecoverable
Allowance for doubtful debts
Should be set up when a debt is possibly unrecoverable
Where do investments go on the SOFP
under non- current assets
Written Down Value (WDV)/ Net Book Value (NBV)
Historical cost of a NCA- accumulated depreciation
Useful life
Period where an assets expected to be available for use by the business
Residual value
Estimated amount business would get from disposal of asset at end of its useful life (- cost of disposal)
Straight line depreciation formula
Cost- residual value / useful life (years) OR given % rate x historical cost
Reducing balance method depreciation formula
Cost of asset x rate of depreciation CUMULATIVE
Rate of depreciation (RBM)
100- (UL x (square root of RV/Cost) x 100
What are the posting entries for Accruals?
Dr Expenses
Cr Accruals liability account
What are the posting entries for prepayments?
Dr prepayments
Cr expenses
Net Realisable Value (NRV)
Expected sales proceeds - associated costs to be incurred to make the sale
If the cost of an item is £27 and the NRV of an item is £32 which do you choose for the inventory figure?
Cost- £27
FIFO
First goods purchased are to be sold
Closing inventory consists of most recent purchases
LIFO
Latest goods purchased are to be sold first
Closing inventory consists of earliest purchases
Simple Average
Total cost/ no. of units sold
Outstanding cheques + outstanding lodgements
Cheques + cash received, paid into bank + entered in cash book but not yet credited on bank statement
Unpresented cheques + unpresented lodgements
Cheques drawn + entered in cash book which’ve not yet been presented for payment, thus don’t appear on bank statement
What are the errors that don’t change the trial balance?
Error of principle
Error of commission
Error of omission
Error of prime entry
Compensating error
Double posting error
COPPCD
Correct: Plant that was acquired at a cost of £5000 has been credited in the cash book but debited to the purchases account in error
Dr- Plant 5000 Cr- Purchases 5000
Correct: The purchase of consumable tools for £50 has been debited to repairs account in error
Dr- 50 Consumable tools Cr- 50 Repairs account
Correct: Bank charges of £27 shown on the bank statement have not been entered in the cash book
Dr- 27 Bank charges Cr- 27 cash book
Correct: a purchase invoice received from A. Creditor for £1,100 has been entered in the purchases day book as £100
Dr- 1000 Purchases Cr- 1,100 Payables
Correct: Wages paid of £40 have not been posted to wages account + debit side if purchases account has been overcast by £40
Dr- 40 Wages + Cr 40 Purchases
Correct: Rent received of £400 has been entered in both cash book + ledger as rent paid
Dr- 400 cashbook Cr- 400 Rent paid + Dr 400 Rent received + Dr 400 cashbook
What are the types of errors that cause a trial balance to disagree?
Arithmetic error
Posting error
Extraction error
Correct: the debit side of a cashbook has been overcast by £1,000
Credit- 1000 cashbook Debit- suspense account 1000
Correct: goods bought by cheque for £200 have been credited in cashbook but also not entered in purchases account
Dr- 200 Purchases Cr- 200 suspense account
Correct: rent paid of £50 has been credited in cash book but also credited in error to rent account
Debit- 100 rent account Credit- 100 suspense account
Correct: car repairs of £23 shown in cashbook have been debited to motor expenses as £32 in error.
Cr- motor expenses 9 Dr - suspense account 9
Correct: the sales account contains a balance of £2000 but this has been entered in the trial balance as £200
Dr- 1800 suspense account Cr- sales 1800
Sum of Year Digits Depreciation method
Annual depreciation expense= years of remaining useful life at start of year/ sum of years digits x depreciable amount
*depreciable amount = cost- residual value
Return on assets
Profit from operations/ total assets x 100
Profit margin/ gross profit margin/ operating profit margin
Profit/ revenue x 100
Gross profit/ revenue x 100
Operating profit/ revenue x 100
Markup
Profit/ cost of sales x 100
ROCE
Profit from operations/ assets - liabilities x 100
OR
Profit from operations/ share capital + reserves + long term loans x 100
Return on shareholders’ fund ROSF
Net profit after tax + preference dividend/ share capital + reserves x 100
Earnings per share
Net profit after tax + preference dividend / number of shares issued
Current ratio
Current assets/ current liabilities
Acid test
Current assets- inventories/ current liabilities
Inventory holding period
Inventories/ cost of sales x 365
Trade payables
Trade payables / cost of goods sold x 365
Trade receivables
Trade receivables/ revenue x 365
Asset turnover
Revenue/ total assets
Gearing
Non- current liabilities/total capital + non current liabilities x100
Interest cover
Profit from operations/ interest charges
What are the components of the appropriation account?
Interest on drawings
Interest on capital
Partners salaries
Share of profit
What are the postings for the current account?
Dr Cr
Bal b/d. Interest on capital
Interest on drawings. Salaries
Drawings. Share of profit
What does the capital section of the SOFP consist of? (Partnerships)
Capital accounts + current accounts
Write the SOPL+ SOCI for companies.
Turnover
Less cost of sales
Gross profit
Other income
Distribution expenses
Administrative expenses
Finance costs
Profit before tax
Tax expense
Profit after tax
Other comprehensive income:
Revaluation reserve
Total comprehensive income
What are distribution costs?
Anything relating to warehouse or sales costs
What are administrative costs?
Anything other, e.g rents + rates, wages, telephone
Write out a SOCE.
Share capital Share premium Reval reserve Retained earnings Total
Bal at XX/XX/XX
Shares issued
Dividends
Total comprehensive income
Bal at XXX/XXX/XXX
Write out a cash flow statement
Profit before tax
Adjustments:
Depreciation
Income from disposals of NCA’s
Finance costs
Increase/ decrease in inventory
Increase/ decrease in payables
Increase/ decrease in receivables
Cash flow generated from operating activities
Taxation
Interest charges
Net cash flow from operating activities
Cash flow generating from investing activities
Acquisition of NCAS
Proceeds from disposal of NCAS
Net cash flow from investing activities
Cash flow generated from financing activities
Dividends paid
Share capital
Proceeds from Loan
Net cash flow from financing activities
Total change in cash during period
+ Beginning cash bal
Ending cash bal
How do you work out dividends paid in the CF statement
Retained earnings from previous year
+ net profit after tax from current year
- retained earnings from current year
Working capital
Current assets- current liabilities
Name all the profitability ratios
Return on assets
Gross profit margin
Operating profit margin
Expense/ revenue %
ROCE
ROSF
Earnings per share
name all the Liquidity ratios
Current ratio
Acid test
Name all the efficiency ratios
Inventory holding period
Trade receivables period
Trade payables period
Asset turnover
Name all the position ratios
Gearing
Interest cover
Tax paid
Taxation from current year
- tax expense from current year
- taxation from previous year
