Module 1 Flashcards
What are Assets?
A present economic resource controlled by the entity as a result of past events
An economic resource is a right that has the potential to produce economic benefits
What is an economic resource?
A right that has the potential to produce economic benefits
What are liabilities?
A present obligation of the entity to transfer an economic resource as a result of past events
What is capital?
The residual interest in the assets of an entity after deducting all its liabilities
What is income?
Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims
Encompasses both revenue and gains
What are expenses?
Decreases in assets, or increases in liabilities, that result in decreases in equity other than those relating to distributions to holders of equity claims
Encompasses losses as well as expenses
What does DEAL stand for?
DEBIT
Drawings
Expenses
Assets
Loss
What does CLIP stand for?
CREDIT
Capital
Liability
Income
Profit
What is the separate entity concept?
From the business or organisations perspective
Transactions affect the entity directly
Profit goes to owner so not an asset
What are the three types of business entities?
Sole trader
Partnership
Limited liability company
Why is he limited liability company different to sole traders and partnerships?
It is a legal separate entity
What are the five main elements of an entity’s financial statements?
Assets Liabilities Capital Income Expenses
What is the Accruals concept?
Recognise transactions in the period that they happen
Don’t rely on movements of cash
‘Matching’ concept
Revenue and costs are recognised as they are incurred not as money is actually received
What is prudence?
Exercise a degree of caution
Don’t overvalue or overestimate
What is the matching concept?
Accruals
Recognise revenue and costs as they are incurred not as money is actually received
What are the 5 Books of Prime Entry?
Purchase Daybook Cashbook Payments Journal Book Cashbook Receipts Sales Daybook
What does the Purchase Daybook record?
Credit purchases only
What does Cashbook Receipts record?
Cash sales, Credit card sales
What does the sales Daybook record?
Credit - business gives customer days to pay
What happens after the books of prime entry?
Totals posted into nominal ledger
Where double entry happens
Nominal ledger what happens at year end
Trial balance
After trial balance?
Profit and Loss Account
Balance Sheet
What does the journal book record?
Transactions not involving us of the other books of prime entry
What is the nominal ledger?
A summary record of the monetary amounts in each account
What categories is the nominal ledger split into?
Assets Liabilities Capital Income Expenses
What does the P+L show?
The total profit or loss earned by the entity in the period
‘For the year ended’
What is the balance sheet?
Lists the assets, liabilities and capital of an entity at the year end and provides a snapshot of the financial position as at that date
What is a credit note?
If good last sold on credit are unacceptable the business may issue a credit note
Not the same as a refund
Effectively cancels out credit sale
What is a sales invoice?
Issued to the customer when a business sells goods or services on credit
Detail what is provided and how much is due/how/when to pay
Purchase ledger control account column of Cashbook represents
Payments made to suppliers on the purchase ledger
Total column of cashbook receipts is posted where in the nominal ledger?
Bank
Receivers money from trade debtors and cash sales, reflect effect on the bank account
What are the two types of limited liability company?
LTD (private)
PLC (public) stock exchange
Sales Daybook and purchase Daybook are
Sales and Purchases on credit
Cashbook record what
All cash received and call cash paid
Cashbook receipts- cash coming in, sales and settle trade debtor balances
Cashbook payments- cash going out
Journal book
Covers what others don’t
Adjustments
Drawings are in which financial statement?
Balance sheet
Never p+l
Depreciation does what in the balance sheet and p+l?
Reduces assets b/s
Increases expenses p+l
Possible and probably have what % chance of happening?
Probable 50%+
Possible -50%
Number at the bottom of the balance sheet is what?
The value of the business
Trade debtor is in what part of the balance sheet?
Asset as they owe money to you
An invoice raised to the customer shows?
Bought on credit, given days to pay
Customer pays gross or net?
Gross
Business gets gross or net?
Net, vat goes to gov from gross figure
Fixed/non-current time period vs current
More than 12 months for non-current
Less than 12 for current
What is a provision?
A liability but we don’t know when or how much
E.g a warranty, has to be a reliable estimate
Sold on credit double entry
Dr trade debtor
Cr bank
Bank account goes where in which financial statement?
Asset in balance sheet
