Theories Flashcards
Accounting entity
activities of business is seperate from actions of the owner.
Accounting Period
Life of business is divided into regular time intervals
Accrual Basis of Accounting
Business activities that have occurred must be recorded in relevant accounting period
Consistency
Once an accounting method is used, it must be applied for all future accounting periods.
Objectivity
Accounting information recorded must be supported by reliable and verifiable evidence so that financial statements are free from bias and opinions
Historical cost
Transactions should be recorded as original cost
Monetary
Only business transactions that can be measured monetarily are recorded
Matching
Expenses incurred must be matched against income earned in the same period to determine profit
Prudence
Accounting treatment chosen should be one that least overstated assets and profits AND least understates liabilities and losses
Revenue Recognition
Revenue is earned when goods have been delivered/services have been provided
Purpose of receipt
Acknowledges payment received from customers immediately after goods sold or services provided
Purpose of Remittance Advice
Informs credit supplier that payment by cheque has been made for a specific invoice
Purpose of Invoice
Informs credit customers of amount owed after business sold goods/provided services
Purpose of Credit Note
Reduces amount owed by credit customers:
- who were overcharged
- whose goods were returned
Purpose of Credit Note
Reduces amount owed by credit customers:
- who were overcharged
- whose goods were returned
Purpose of Debit Note
Increases amount owed by customers who were previously undercharged
Purpose of Payment Voucher
Processes payment to credit suppliers
- Must be approved by authorised personnel
- Must be supported by original supplier invoice
Purpose of Bank Statement
Checks and Tallies against the business records of its CAB account
NCAs
- Office equipment
- Motor Vehicles
- Fixtures and Fittings
- Machinery
- Property
- Accumulated depreciation of NCA(contra Asset)
CAs
-Cash At Bank
-Cash in Hand
-Inventory
-Trade Receivables
-Income receivables
-Prepaid Expense
-Allowance for impairment of TR(contra asset)
NCL
Loan
CLs
- Trade Payables
- Bank overdraft
- Income received in advance
- Expense payable
- Dividends payable
Equity
- Capital
- Profit/loss
- Share Capital
- Retained earnings/accumulated losses
- Drawings (contra equity)
- Dividends (contra equity)
Expenses
-Cost of Sales
-_______ expense
-Depreciation on NCA
-Impairment loss on TR
-Impairment loss on Inventory
Income/Other income
-Service fee revenue/Sales revenue
-Sale income(contra income)
-Discount received
-Interest on deposit
-Rent/Commission income
