POA notes chapter 3 Flashcards
What are the five accounting elements that represent all business activities?
Assets, liabilities, equity, income, expenses
What are assets?
Assets are resources a business owns or controls that are expected to provide future benefits.
What are liabilities?
Liabilities are obligations owed by a business to others that are expected to be settled in the future.
What are equities?
Equities are claims by the owner on the net assets of a business
What is income?
Income is the amounts earned from the activities of a business
What are expenses?
Expenses are costs incurred to earn income in the same accountint period
What are examples of assets?
Office equipment, motor vehicles, inventory, trade receivables, cash at bank, cash in hand, income receivables, prepaid expenses
Give an explanation of office equipment.
electronic equipment used in office (e.g computers, printers)
give me an explanation of motor vehicles.
Vehicles for business use (eg vans, trucks)
Give me an explanation of Inventory.
goods bought by the business to sell to its customers
Give me an explanation of trade receivables.
Amounts collectible from credit customers.
Give me an explanation of Cash at bank
Cash deposited with the bank
Give me an explanation of Cash in hand
Physical cash kept by the business
Give me an explanation of income receivables
Income earned but not yet collected
Give me an explanation of Prepaid expenses
Expenses not incurred but paid in advancfe
What are examples of Liabilities?
Loan from X, Mortgage loan, trade payables, bank overdraft, income received in advance, expense payable
Give me an explanation of Loan from X.
Money borrowed from X, which may be banks and other lenders
Give me an explanation of Mortgage loan
Money borrowed using collaterals
Give me an explanation of Trade payables
Amounts owed to credit suppliers
Give me an explanation Bank overdraft
Money borrowed when the bank account is overdrawn and the available balance goes to zero.
Give me an explanation income received in advance
Income not earned but collected in advance
Give me an explanation of Expense payable
The expense incurred but not yet paid
What are some examples of equities?
Capital, profit or loss for the period, drawings
Give me an explanation of Capital
Resources cointributed by the owner for business use
Give me an explanation of Profit or Loss for the period
The difference between the income earned and the expenses incurred within one accounting period
Give me an explanation of the drawings
Assets taken from the business for the ownerś personal use.
What are examples of the components of shareholderś equity?
Share capital, Retained earnings (or accumulated losses), Dividends
Give me an explanation of Share capital.
Cash raised by issuing shares to investors
Give me an explanation of retained earnings (or accumulated)
Accumulation of profits and losses that has not been distributed to shareholders yet since operation
Give me an explanation of Dividends.
A portion of retained earnings that is distributed to shareholders
Define Revenue.
Revenue refers to amounts earned through the main activities of the business. For a trading business, its main activity is the sale of goods.
give me an example of revenue for trading business.
Sales revenue
Define sales revenue
Money earned from selling goods.
Give me an example of revenue for service businesses.
Service fee revenue.
Define service fee revenue.
Money earned from providing services (eg legal fee revenue)
For a service business, its main activity is to provide services
Define ´other income’
Other income refers to amounts earned from business activities other than the main business activity.
What are examples of other income?
Rent income and Discount received
Define ‘rent income’
Money earned from letting out part of the shop/office space
Define ‘discount received’
Cash discount received from credit suppliers for making early payment
What are examples of expenses for trading business?
Cost of sales
Define ‘ cost of sales’
total cost price of good that have been sod.
What are examples of other expenses?
A business may incur many other expenses.
1) Interest expense
2) Depreciation of non-current assets
3) Discount allowed
Define ‘interest expense’
Charges for borrowing money from banks or other leaders
Define’ depreciation of non-current assets
A portion of the original cost of the non-current asset allocated over its useful life
Define ‘Discount allowed’
Cash discount given to credit customers for making early payment.
