Revision Flashcards
1
Q
Stmt of P/L & other com Inc
A
Records revenues, expense
other comp income = surplus on revaluation is added
2
Q
Stmt of FIn Pos
A
Assets, liabilities, capital
3
Q
Accounting equation
A
- Capital = Assets - Liability
- Increase in net assets = capital + profit - drawings
- Closing net assets = Opening net assets + Capital injections + Profit – Drawings
4
Q
What is an early settlement discount?
A
Discount given if paid quickly
5
Q
What is meant by gross margin?
A
Gross profit expressed as percentage of the sales.
6
Q
Double entry for sale of goods on credit:
A
Dr Receivables
Cr. Sales
7
Q
Double entry for purchase of good s on credit:
A
Dr. Purchases
Cr. Payables
8
Q
Will an increase in income be a debit or a credit entry in the ledger account for the income?
A
An increase in income will be a credit entry in the income account.
9
Q
Will drawings be a debit or a credit entry in the drawings account?
A
Debit entry
10
Q
Will an increase in a liability be a debit of a credit in the ledger account for the liability?
A
An increase in a liability will be a credit entry in the liability account.
11
Q
Will an increase in an asset be a debit or a credit in the ledger account for the asset?
A
An increase in an asset is a debit entry in the asset account.
12
Q
Will an increase in an expense be a debit or a credit in the ledger account for the expense?
A
An increase in an expense is a debit entry in the expense account.
13
Q
Redeemable and irredeemable pref shares:
A
RPS: Non current liability
IPS: Equity
14
Q
Conceptual framework:
A
Fundamental:
1.Relevance
2. Faithful Rep
Enhancing:
1. Comparability
2. Verifiability
3. Timeliness
4. Understandability
15
Q
Double entry for taxation at yr end
A
Dr expense - sopl ( accrued = estimated)
Cr taxation liability - sofp ( current liability)
16
Q
Double entry for when corporation tax is paid few months later is…
A
Dr taxation liability - sofp
Cr bank - sofp
actual amount is paid
17
Q
What is statement of changes in equity
A
Is a reconciliation of the movements between the company’s opening and closing balances per its share capital and reserves
18
Q
Double entry for a provision is
A
Dr relevant expense - sci
Cr provision - sofp
19
Q
Revenue recognition steps:
A
1.Identify the contract
2. identify the separate Performance obligations with the contract
3. determine the Transaction price
4. allocate the transaction Price t the Performance obligations in the contract
5. recognize revenue when a performance obligation is Satisfied
IPTPS
20
Q
Disclosure requirements
A
- Disclosure of accounting policy used for revenue recognition
- Disclosure of the total amount of revenue recognized categorized into different categories.
- Disclosure of any significant amendments made applying the 5 step approach
21
Q
Adjusting events examples
A
- The bankruptcy of a customer indicates that their debt was
irrecoverable at the reporting date. - The sale of inventory at less than cost indicates that it should
have been valued at NRV in the accounts. - The determination of cost or proceeds of assets bought/sold
during the accounting period indicates at what amount they
should be recorded in the accounts. - The discovery of fraud or error showing that the financial
statements are incorrect. (LSBF)
22
Q
Non-adjusting events - examples
A
A purchase or sale of a non-current asset.
- The destruction of assets due to fire or flood.
- The announcement of plans to discontinue an operation.
- An issue of shares (LSBF)
23
Q
Profitability ratios:
A
- Gross profit margin : (Gross profit / revenue) * 100%
- Operational profit margin: (Operating profit -> pbit / revenue) * 100%
- ROCE : (PBIT/Cap employed) * 100%
- Net asset turnover : (revenue/cap employed) * 100 %
24
Q
Liquidity ratios:
A
- Current ratio: Current asset/ current liab
- Quick ratio/acid test: (Current assets - inventory) / current liab
25
Efficiency ratios:
1. Inventory turnover ratio: Year end inv / cogs * 365
26
Mark up is
Mark-up is a gross profit as a percentage of cost of sales
E.g. 25%
Sales= 125%
Cost of sales= 100%
Profit= 25%
27
Margin is
Margin is a gross profit as a percentage of sales.
20%
Sales = 100%
Cost of sales = 80%
Profit = 20%
28
BRS learn 01
Timing differences are summarized as follows: (E4d–E4f)
Balance per bank statement. X
Less: unpresented cheques
(X)
Plus: outstanding lodgments
X
Balance per bank ledger (accounts)
X
29
A typical bank reconciliation statement
Balance per bank statement x
Less: un presented cheques -x
Add : outstanding lodgments x
Errors made by bank X
Balance per accounts x
30
Role of external auditors
Appointed by the shareholders to report their opinion on the truth and fairness of the financial statements
31
Who’s responsibility is it to prevent errors and fraud
Director’s
32
What is corporate governance
System by which organisations are directed and controlled
33
What is corporate government concerned about
Reducing the extent the conflicts of interest arising between various stakeholder groups
34
What is the accruals concept?
all amounts in the statement of profit or loss must relate to activity in the financial year which it covers. The accruals concept is also known as matching – the income for the period is matched with the expenses that were used to generate that income.
35
What is the prudence concept?
States that caution should be exercised when making accounting judgements
Liabilities and losses should not be understated. While assets and profits should not be overstated
This means that all losses whether actual or expected should be recorded at once and in full while profits are only recognized when they actually arise
36
What is the double entry for sales returns
Dr sales return ( reduces income )
Cr cash or receivables
37
What is the double entry for purchase returns
Dr cash or payables
Cr purchase returns ( reduces expense)
38
How to calculate the closing capital value..?
Closing capital= opening capital + capital introduced + profits - drawings
39
How is closing inventory valued
Closing inventory should be valued at the lower of cost and net realisable value
40
Value of cost of inventory
Cost includes:
* Purchase price
Import duties
Carriage in
Manufacturing costs such as labour, a proportion of overheads etc
41
Net realisable value ( NRV ) ?
The net realisable value of an item of inventory is its expected selling price, less:
1. Costs to complete the manufacture of the item
2. Any costs necessary to make the sale.
42
Impact on profit
When considering the impact on profit as a result of an inventory adjustment, debits to the statement of profit or loss will reduce profit/increase a loss whereas credits to the statement of profit or loss will increase profit/reduce a loss.
43
What is the impact of different assumptions on the financial statements
A higher closing inventory valuation
Higher net assets value
Higher profits
A lower closing inventory valuation
Lower net assets value
Lower profits.
44
Recording purchases of goods for resale:
Dr Purchases
Cr Cash or payables
45
Period end inventory records
At year end count inventory value inventory and record the following journal
Dr inventory(asset) - sofp
Cr closing inventory - sopl
Journal for opening inventory at start of next acc period would be
Dr opening inventory ( sopl) and cr inventory(sofp)
46
inventory learn 01
Cost of inventory can include (less trade discount)
Carriage inwards
Overheads
Depreciation of plant or equip
General admin overheads are admin expenses and should not be counted in cost of sales
Carriage out is a distribution expense
47
Periodic method of calculating avco
Average cost = (total value/total units) * units unsold
48
What is the accounting treatment for irreccoverable debt
Irrecoverable debts are not an asset of a business. They must therefore be written out of the accounts. This is achieved by:
Dr
Irrecoverable debts expense (statement of profit or loss)
Cr
Receivables (statement of financial position (LSBF)
49
What is the journal to recover debt which was written off
Dr Bank (SFP)
Cr Irrecoverable debts (SPL) (increases a profit or reduces a loss)
50
What is the journal to increase an allowance
Dr Irrecoverable debts (SPL)
Cr Allowances for receivables (SFP)
51
Expense in sopl calculation
Irrecoverable debts x
Less: Cash received from previously irrecoverable
Less/ add: Change in the allowance for receivables
52
Non current learn 01
All costs directly attributable to bringing an asset to its intended location and condition necessary for it to operate may be capitalized.
53
Non current learn 02
Subsequent expenditure that enhances the performance of an asset may be capitalised, all other expenditure (referred to as revenue expenditure) should be expensed
54
Depreciation of assets
Straight line depreciation is calculated as either
– (Initial cost – Residual value)/Useful life of asset in years
– Original cost × % (to reflect useful life)
55
Reducing balance depreciation
Reducing balance depreciation is calculated as (Original cost – Accumulated depreciation b/fwd) × % (to reflect useful life)
56
Learn NCA 03
Regarding internally generated intangible assets, research expenditure is always expensed, development expenditure may be capitalised if the six criteria are all met
57
Accounting for a revaluation gain
Must increase the asset value and create a revaluation surplus
Dr asset cost
Dr accumulated depreciation
Cr revaluation surplus
58
What is the definition of an associate?
An associate is an entity over which the investor has significant influence but which is not a subsidiary (usually due to a shareholding of 20% to 50%).
59
What is meant by revenue expenditure?
Revenue expenditure refers to expenses of running the business (will appear on the Income Statement).
60
What is meant by capital expenditure?
Capital expenditure refers to the purchase of non-current assets and expenditure that enhances the asset (will appear on the Statement of Financial Position).
61
Sales tax
Remember: input output --> direction of goods
tax on purchase = input tax
tax on sales = output tax
62
What is an error of principle?
An error of principle is when an entry that should have been recorded in an asset account has been recorded in an expense account (or vice versa).
63
What is an error of commission?
An error of commission is when an entry has been posted to the wrong account.
64
What is an overdraft?
An overdraft is a negative balance at the bank (i.e. the company owes money to the bank).
65
If a bank statement is showing a debit balance for a company, does it mean that the company has money at the bank or that the company is overdrawn?
A debit balance on a bank statement means that the company is overdrawn.
66
What is an uncleared lodgement (or lodgement not yet credited)?
An uncleared lodgement is a receipt that has been entered in the cash book but has not yet appeared on the bank statement.
67
What is an outstanding (unpresented) cheque?
An outstanding cheque is one that has been entered in the cash book but has not yet appeared on the bank statement.
68
Will a rights issue of shares appear on a Statement of Cash Flows?
It will appear under the heading Cash Flows from Financing Activities.
69
Will a surplus on revaluation appear on a Statement of Cash Flows?
It will not appear because there has been no cash received.
70
Will a bonus issue of shares appear on a Statement of Cash Flows?
It will not appear because there is no cash received – the shares are issued free.
71
What items appear on the Statement of Cash Flows under the heading Financing Activities?
Proceeds from the issue of shares*
Long term borrowings made or repaid
72
What items appear on a Statement of Cash Flows under the heading Investing Activities?
Cash spent acquiring non-current assets
Cash received from the sale of non-current assets Income from investments
73
According to IAS 38 – Intangible assets – how should research be treated in the financial statements?
Research costs should be expensed in the Income Statement.
74
How is a contingent asset treated in the Financial Statements if the likelihood of the asset being confirmed is regarded as probable?
If it is probable, then the asset should not be recognised in the Financial Statements, but it should be disclosed by way of note.
75
How is a contingent asset treated in the Financial Statements if the likelihood of the asset being confirmed is regarded as possible?
If it is possible, then the asset should not be recognised in the Financial Statements and should not be disclosed by way of note – it is ignored completely.
76
How is a contingent liability treated in the Financial Statements if the likelihood of the liability being confirmed is regarded as remote?
If it is remote, then the liability should not be provided for in the Financial Statements and should not be disclosed by way of note - it is ignored completely.
77
How is a contingent liability treated in the Financial Statements if the likelihood of the liability being confirmed is regarded as possible?
If it is possible, then the liability should not be provided for in the Financial Statements but should be disclosed by way of note.
