Section B written question practice Flashcards
What are bad debts and provision for doubtful debts?
Bad Debts: Amounts deemed uncollectible, typically due to customer bankruptcy or inability to pay.
Provision for Doubtful Debts: An estimated allowance for potential future bad debts based on historical data.
Where are bad debts found?
(expense) will be found in the Statement of Profit or Loss
Where is the provision of doubtful debts found?
Statement of Financial Position
What is depreciation?
expensing of the use of an asset for the financial year
What is accumulated depreciation?
total of the amounts depreciated on that Asset type
Where is depreciation found?
Depreciation (expense) will be found in the Statement of Profit or Loss
Where is accumulated depreciation found?
Accumulated Depreciation will be found in the Statement of Financial Position.
Identify
and explain four main differences between the two forms of accounting and list the target
users for each.
- Purpose:
Financial Accounting: External financial reporting.
Management Accounting: Internal decision support.
- Users:
Financial Accounting: External stakeholders.
Management Accounting: Internal managers. - Regulation:
Financial Accounting: Follows standards (e.g., IFRS, GAAP).
Management Accounting: Flexible and unregulated. - Time Orientation:
Financial Accounting: Historical data.
Management Accounting: Future-focused.
Explain what ratio analysis is based on AND how it is used. Choose any ONE ratio and explain
the benefit of using that ratio to understand financial statements.
Ratio analysis uses financial ratios to evaluate a company’s performance and financial health, aiding in decision-making.
Example: Current Ratio
Formula: Current Assets / Current Liabilities
Benefit: The current ratio measures liquidity, showing if a company can cover short-term debts. A ratio above 1 indicates good liquidity, while below 1 signals potential issues.
