Lecture 3a+b Flashcards
What is an accrual?
Amounts of money that have been earned or spent, but not yet paid
What is a ‘going concern’?
It is assumed that a company will continue to operate in the future unless the opposite is known to be true
What is the prudence convention? Apply to accounting
Prudence is exercising caution whe making judgements under uncertain circumstances. Accountants must be cautious to not overstate assets and income and liabilities and expenses are not understated
What are the 4 qualitative characteristics of financial statements?
Understandability
Relevance (does it help make decisions)
Reliability
Comparability
What are assets by framework definition?
Asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to arise
Why is a brand considered an intangible asset?
Because it is internally generated and doesn’t have physical substance
What is an intangible asset?
a non monetary asset without physical substance
when can intangibles appear on a balance sheet?
must be identifiable, controlled and the cost of the asset must be measured reliably
what is a liability?
a present obligation, because of a past event e.g setting up a contract. the settlement is expected to result in the outflow from the enterprises of resources embodying economic benefits
what is a provision?
a liability uncertain of timing or amount
What is the realisation concept?
Profit is only realised when control of goods is passed to the buyer
What 3 criteria are assumed to be met with the realisation concept?
-revenue can easily be measured
-it is probable the economic benefits will be received
-ownership and control is passed to the buyer
what is capital expenditure?
one off purchases, which the benefits are expected to las more than 12 months (non-current asset)
e.g fixtures and fittings
what is a revenue expenditure?
frequent purchases and benefits are expected to last 12 months or less (an expense)
e.g electricity bill/ wages/ depreciation
What are the 2 ways to calculate depreciation
Straight line method
Reducing balance method
How do you calculate the Straight line method?
(Original cost-estimated disposal value)/ estimated lifetime in the business
How do you calculate Reducing balance method?
(residual value (the estimated value at the end of its useful life)- the initial cost)/ by the number of years the asset is expected to be in use
What is a depreciation charge?
The amount charged to the statement of profit or loss to spread the cost of non-current assets over the life of those assets
What is the accumulated depreciation?
The total depreciation that has been charged on an asset since it was purchased
What is the estimated useful life?
The expected length of time that a non-current asset will be used in the business
What is residual value?
Is the estimated amount that a non-current asset will be worth at the end of its useful life
What is the net book value (NBV)?
Is found by taking the cost of an asset and deducting the accumulated depreciation that has been charged on that asset since it was purchased
What is the consistency concept?
It guides preparers of accounts to treat all similar items in a consistent manner and to treat them in a similar way from one year to the next in order for meaningful comparisons to be made over time.
What is a bad debt?
Arises when a customer who owes money to the business for goods or services received on credit becomes unable to pay the amount due.
