Theory Flashcards
What is a Levy?
Money collected from members to fund the buying of new fixed assets
What is a life membership?
Fee paid by a member entitling him/her to use the club’s facilities for life
what is a subscription?
a fee paid by the members which goes towards the day-to-day running of a club
what is a non-cash item?
It is an expense or a gain that affects profit but not cash e.g. Depreciation (as it doesn’t involve money being spent)
what is a non-cash item?
It is an expense or a gain that affects profit but not cash e.g. Depreciation (as it doesn’t involve money being spent)
What is Financial Reporting Standard (FRS)?
A standard is prepared by the regular authorities. It is best practice in accounting which allows accounts to be compared from year to year and from company to company.
what is a principal budget factor?
a factor that limits outputs and therefore prevents continuous expansion
why do we prepare a flexible budget and what does it show?
-to compare budgeted costs and actual costs at the same activity level
-to compare like with like
-to help in controlling costs or to plan product levels
what is an adverse variance?
where actual costs exceed budgeted costs
what are controllable costs?
costs that can be controlled by the manager of a cost centre
what are uncontrollable costs?
costs over which the manager of a cost centre has no control and therefore cannot be held responsible for variances in these costs e.g rates to the local authority
what is a cash budget?
a forecast or plan of cash inflow and cash outflow over a period
what are the advantages of cash budgets?
-highlights whether enough cash will be available to meet future needs
-helps to give advance knowledge so that an overdraft can be arranged if shortfall occurs
-helps to predict future surpluses so that short-term investments can be made
what is a capital budget?
a budget that deals with any planned capital expenditure e.g purchase of fixed assets and planned capital receipts e.g sale of fixed asset
examples of principal budget factors:
-supply of materials
-availability of labour
-capacity of the plant
-availability of capital
what is a master budget?
a summary of all the other budgets and provides an overview of the operations for the planned period
what does a master budget for a manufacturing account consist of?
-budgeted manufacturing account
-budgeted trading account and profit and loss account
-budgeted balance sheet
what is a cash budget?
a plan or forecast that summarises the expected inflows and outflows of cash during a period
what is contribution used for?
it is put towards paying off the fixed costs
how do you calculate contribution?
sales - variable costs
what is meant by the term sensitivity analysis?
it is a technique used by management accountants to show the effect on profit brought about changes in the following: selling price, sales volume, variable costs, fixed costs
outline why budget control is necessary in an organisation:
-draw up a plan of performance-budgets are roadmap for the business
-identify areas of responsibility to provide direction and motivation to staff to achieve targets
-to identify future costs and revenue in order to plan cash inflows and outflows and control costs
what is meant by a favourable variances?
when actual costs are less than budgeted costs
explain how a favourable variances might arise in a manufacturing firm
-the purchase of price of raw materials is less than expected because of economies of scale
-less labour hours (lower wage costs) were required due to improved productivity from employees
what is a financial reporting standard?
a rule that must be applied to all financial statements in order to give a true and fair view of the company’s financial position. It sets out best practice in accounting that allows accounts to be compared from year to year and from company to company
distinguish between a cash gain and non cash gain:
cash gain- increases profit and cash, e.g investment income
non-cash gain- increases profits but not cash, e.g profit on sale of fixed asset
what is a levy?
a payment made to a club by its members to fund a special project such as a clubhouse extension. It must be used for the purpose for which it is collected
what is a life membership?
where a club member pays a fee that entitles her/him to use the facilities of the club for the rest of her/his life
explain two fundamental accounting concepts
prudence- when preparing accounts, caution should be exercised. Possible losses must be recorded immediately but income must not be recorded until it is reasonably certain
consistency- items must be treated in the same way from one accounting period to the next
what is an exceptional item?
a material item of significant size. It is a profit or loss that must be shown separately in the P+L because of its size
what is an audit?
the independent examination of, and the expression of opinion on the financial statements of an enterprise by an appointed auditor
