Test 1 Flashcards

1
Q

Basis Framework of Accounting

A

Assets and Expenses on the left
Liabilities, Equity and Income on the right
Increase on the left is a debit
Increase on the right is a credit

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2
Q

Assets

A

what the business owns
valuable, measurable things

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3
Q

Liabilities

A

what the business owes
obligation to pay creditors

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4
Q

Income

A

what the business generates from
activities
value generating activities

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5
Q

Expenses

A

what the business needs to
pay, to generate income
Value sacrificing activities

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6
Q

Equity

A

Obligation to owners

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7
Q

Statement of Profit or Loss

A

(Income Statement) –
Financial performance over the year

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8
Q

Statement of Changes in Equity

A

(Capital Account) – Changes in ownership investment

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9
Q

Statement of Financial Position

A

(Balance Sheet) – Position at a moment in time (generally the end of the
financial year)

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10
Q

Statement of Cash Flows

A

(source and use of cash)

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11
Q

Entity concept

A

recording transactions from the perspective of the business

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12
Q

Distribution

A

A distribution is a company’s payment of cash, stock, or physical product to its shareholders

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13
Q

Double entry system

A

Every transaction has two parts to it, the source of the funds and the
use of the funds.

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14
Q

Accounting Equation

A

(A = O + L)

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15
Q

Profit at the start of a new year

A

Equals zero

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16
Q

Acrrual basis of accounting

A

ensuring that Income and Expenses (all
transactions) are recorded in the year in
which they occur and NOT when cash is
received or paid.

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17
Q

Cost price

A

what it costs to bring the item to the
location and condition where it is ready for the
purpose for which intended.

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18
Q

Carrying Amount

A

cost price less accumulated
depreciation

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19
Q

Depreciable amount

A

cost price less what the
item can be sold for (scrap value or residual
amount) at the end of its useful life – i.e. cost less
scrap value, only this figure to be depreciated

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20
Q

Useful life

A

‘period over which an asset is
expected to be available for use by an entity’ or
‘the number of production or similar units
expected to be obtained from the asset by an
entity’.

21
Q

Depreciation

A

Depreciation is ‘the systematic allocation of the
depreciable amount (cost*) of an asset over its
useful (economic) life’
it is an expense

22
Q

Bad debt journal entry

A

Dr Bad Debts Exp; Cr Accounts Receivable: Debtor’s
name (if avail

23
Q

Inventory

A

Assets to sell

24
Q

Is rent prepaid an asset or expense

A

Difference between asset and expense. Rent prepaid is asset because you haven’t had the use of the rent

25
Accounts receivable
outstanding payment to be received
26
Accounts payable
outstanding payment to be payed
27
Journal entry for depreciation
When equipment depreciates journal entry is accumulated depreciation
28
Journal entry for supplies being used up
When supplies are used up they are entered as supplies expense
29
Allowance for bad debts is written journal entry
allowance for doubtful debts and as bad debts expense
30
Capital account equation
Capital contribution + profit - drawings
31
Sole Proprietorship
sole trader * No formal procedures to establish * No separate legal entity (persona) * No separate taxation (owner draws and is taxed on profits)
32
Partnership
combining resources (expertise and financial) of a group of individuals * No formal procedures to establish * Legal relationship (generally max 20 individuals) * Not separate legal entity – all partners jointly & severally responsible for debts incurred * Not taxed separately – partners pay tax
33
Company
an incorporated entity * Separate legal entity – owns assets, respondible for debts * Separate tax entity * Owners are shareholders – do not own assets – benefit dividends; do not owe liabilities – limited liability
34
private company
shareholders restricted
35
public company
often listed on stock exchange
36
a company must supply annual financial statements to...
shareholders
37
who appoints the directors of a company
shareholders
38
non current asset
A non-current asset is a long-term investment that a business owns and expects to generate income from, but that is not easily converted to cash within a year
39
current asset
A current asset is a resource that a business can use, sell, or convert to cash within a year. Current assets are also known as short-term assets or liquid assets because they are easier to convert to cash than long-term assets.
40
examples of non current asset
Examples of non-current assets include: Fixed assets: Property, plant, and equipment Long-term investments: Bonds and shares Intangible assets: Copyrights and patents Natural resources: Assets with no fixed expiry
41
examples of current asset
Examples of current assets include: cash, accounts receivable, inventory, marketable securities, prepaid expenses, and supplies
42
when recording a sale of inventory, what is the entry on P/L statement
sales (asset) increases by quantity sold income increases by quantity sold cost of sales of cost of inventory bought, affects assets and expenses
43
entry when you receive cash for credit purchase
cash from rec +the purchase amount Acc receivable -the purchase amount
44
what are expenses paid in advance in A = OL
asset
45
Capital account formula
Capital contribution + gross profit - drawings
46
Gross profit formula
Sales - cost of sales
47
Selling inventory journal entry
Debit Bank Credit Sales Debit Cost of Sales Credit Inventory
48
Ownership interest
Ownership interest is a legal term that refers to a person or entity's stake in a property, business, or other asset.
49