The Accounting Equation And The Double-Entry System Flashcards
What are assets?
Present economic resources controlled by the entity as a result of past events.
What are the two forms an asset can be recognised as?
Current assets that are controlled or owned for less than one financial year.
Non-current assets that will be controlled or owned for longer than one financial year.
What are liabilities?
Liabilities are present obligations of the entity to transfer economic resources as a result of past events.
What two forms can a liability be recognised as?
Current liabilities are obligations that will be met within one financial year.
Non-current liabilities are obligations that will be met in over one financial year.
What is equity?
Equity is the residual interest in asset value after all liabilities have been deducted.
What is the business entity rule?
The books of the business should not reflect the personal wealth of the owners outside the business.
What are proprietary accounts?
These are the owner’s accounts used to record transactions between the owner and the business.
What are the two proprietary accounts?
Capital
Drawings
What is profit?
The amount by which income exceeds expenses.
What is gross profit?
The amount by which sales revenue exceeds cost of sales.
What is operating profit?
Profit made from normal operating activities. This is gross income (gross profit plus other income) less operating expenses.
What is net profit?
The remaining income after all expenses, including tax and interest, have been deducted.
What is income?
An increase in an asset or a decrease in a liability that increases owner’s equity.
What are expenses?
A decrease in assets or an increase in liabilities that decreases owner’s equity.
What is cost of sales?
The expense incurred when trading inventory previously purchased is sold.
