Lecture 1 Flashcards
What is the IASB definition of an Asset?
A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
What are Non-Current Assets?
Assets that are for long term use in the business and are used to generate profits, e.g. land and buildings, plant and machinery.
What are Current Assets?
Assets that are short term in nature and comprise the liquidity (cash) of a business.
List examples of Current Assets.
- Closing Inventory
- Trade Receivables
- Prepayments
- Bank
- Cash
What is the IASB definition of a Liability?
A present economic obligation for which the entity is the obligor.
What are Current Liabilities?
Debts that must be repaid within one (1) year.
List examples of Current Liabilities.
- Trade Payables
- Bank Overdraft
- Accruals
What are Non-Current Liabilities?
Debts that can be repaid in more than one year, e.g. bank loans, mortgages.
What is Capital in the context of a business?
The amount of money the owner invests in the business.
What is the Accounting Equation?
Assets = Capital + Liabilities
State the alternative forms of the Accounting Equation.
- Liabilities = Assets – Capital
- Capital = Assets – Liabilities
What does the Business Equation represent?
P = I + D - C
Define ‘P’ in the Business Equation.
Profit earned in current period.
What is the rule for recording an increase in an asset?
Debit the Asset Account.
What is the rule for recording a decrease in liabilities?
Debit the Liability Account.
What does Inventory refer to?
Unsold goods at the end of the financial year.
How can Inventory increase?
Through Purchases and Return Inwards.
What are the types of Purchases?
- Credit Purchases
- Cash Purchases
What is the double entry for Purchases?
Debit: Purchases Account
Credit: Cash/Bank/Trade payables account.
What is the double entry for Return Inwards?
Debit: Return Inwards account
Credit: Trade Receivables Account.
How can Inventory decrease?
Through Sales and Return Outwards.
What are the types of Sale Transactions?
- Cash Sales
- Credit Sales
What is the double entry for Cash Sales?
Debit Cash Account
Credit Sales.
What is the double entry for Return Outwards?
Debit: Trade Payables Account
Credit: Return Outwards Account.
