Topic Four, Part 3 - Accounting Concepts Flashcards
What is the formulas for Variable costs?
Number of Units * Variable Cost
What is the formulas for Profit/loss?
Revenue – Total Costs
What is the formulas for Contribution?
selling price - variable cost per unit
What is the formulas for Break-even?
Total Fixed Costs / Contribution costs
What are the two main categories of accounting?
- Financial accounting
- management accounting
What is financial accounting?
Track company’s financial transactions for external stakeholders
What is management accounting?
Provide information to internal company managers to make decisions
What are principles of accounting?
Ensures accounts are produced in a standardised manner
What is consistency as a principle of accounting?
Expects a business to have a policy for the formation of accounts
What is going concern as a principle of accounting?
Expects a business to operate as normal for the foreseeable future
What is matching (accruals) as a principle of accounting?
Dates are made when the transactions occurs not payment
What is materiality as a principle of accounting?
Calculating a business’ value is realistic (cant value every business asset)
What is objectivity as a principle of accounting?
Accounts are based on facts not guesses
What is prudence as a principle of accounting?
Profits are understated and losses overstated
What is realisation as a principle of accounting?
The legal ownership occurs when product changes hands, not when payment is made
