Topics 1-3 Flashcards
What 2 things must accounting data be to be relevant?
Predictive, Helps make projections
Confirmatory, assist in reading accuracy of past predictions
What are the 3 main Financial Statements
- Statement of cash flows
- Income statement
- Statement of financial position (Balance sheet)
what 6 qualities influence the quality of accounting info
- Relevance
- Faithful Representation
- Comparability
- Verifiability
- Timeliness
- Understandability
What 2 main things does SOFP show?
- Assets controlled
- Liabilities owed
What 4 things must be true about assets?
Control
Result of a past event
Present
Economic Benefits
What does Faithful representation mean
= Monetary values that are complete, neutral and free of error
Difference between current and non-current assets and an example?
Non-current:
Not bought for resale in normal course of business, retained longer than 12 months, e.g. Factory
Current:
Short term less than 1 year constantly changing,
e.g. Inventory
What 5 things are needed to recognise a liability
- Obligation
- Unavoidable
- Past events
- Economic resource
- Measurable (Faithful Representation)
what is the accounting equation for total assets and for equity
Total assets = Total Liabilities + Equity
Equity = Total assets - Total Liabilities
What’s the standard layout of a SOFP?
Non Current + Current assets = Total assets
Equity + Non current liabilities + current liabilities = Equity + Liabilities
What is fair value?
What the amount could be sold or settled for at present
3 things that SOFP does’nt show?
- All assets like goodwill, traditions, employee knowledge etc
- All liabilities like environmental damage, future lawsuits
- Market value of org. What someone would pay rn
Whats the double aspects concept?
Double aspect on SOFP when purchases are made. E.g. buy stock, money goes down and inventory goes up
What does SOPL shwo?
All income earned and all expenditure incurred
SOPL equation?
Income - Expenditure = Profit or loss for the year
What is revenue?
Trading income arising from sales of goods and services
Name 2 other sources of income not revenue
Finance Income
Exceptional Income
What are finance and exceptional income?
Finance: Income received from dividends, interest received on deposits of cash etc
Exceptional: Not received in ordinary course of business, e.g. selling factory
3 types of expenditure?
- Cost of sales: Incurred in making/buying goods for sale
- Operating expenses: Cost of selling and distribution like transport and advertising
- Admin Expenses: All other costs of running business
What is accruals basis?
This means that all payments and receipts dont matter just when each event occured. All income is recorgnized in that accounting period.
What is a prepayment?
Expenditure paid in advance of the accounting period to which it relates. Prepayments are assets.
If business pays 100k in rent in 2022 for the year 2023. How is this recognised in the SOFP of 2022 and 2023
In 2022 we decrease bank by 100k and increase prepayment (current asset) by 100
In 2023 we have to decrease prepayment by 100k and increase rent expense by 100k
What is straight line depreciation
- Straight Line, cost of asset is take (200k) and 4 years of lifetime (depreciates 50k a year), In SOPL first year. Asset is 200k-50k = 150k. Each year number decreases by 50k
What is Residual value?
This is when an asset has a value even after its useful life. e.g. 200k machine has 20k residual value and 4 years useful life. so it reduces 45k per year for 4 years so 200-45, 155-45 etc. At end 20k is left.
