Unit 1 AOS 2 Flashcards
What is a credit transaction
= when a service is performed or goods are exchanged h/r cash relating 2 transaction is x exchanged until later date, meaning customer owes debt 2 seller
What is the impact of credit purchases on accounts payable
= credit purchases of materials / supplies will inc. bus accounts payable. @ some stage bus will need 2 pay there accounts payable with cash
What is accounts payable from credit purchases
= supplier who is owed a debt by bus 4 g/s purchased from them in credit
What is accounts receivable from credit purchases
= a customer who owes debt 2 bus 4 g/s sold 2 them on credit
What is a purchase journal
= an accounting record that summarises transactions involving purchase of materials / supplies on credit
What is a receipt from cash receivable
-> credit sales / fees will inc a bus accounts receivable.
@ some stage bus will receive accounts receivable in form of cash
What is a sales jounral
= an accounting record that summarises all transactions involving sales / performing services on credit during a period
What is a statement of accounts
= statement provided 2 credit customers 2 give details of transaction occurred during a period of time + resulting balance owing @ end of period
New GST formula…
Starting GST balance
+ GST received from c’er
+ GST on credit sales
- GST paid 2 suppliers
- GST on credit purchases
+ GST refund
- GST settlement
+ve final balance = accounts payable
-ve final balance = accounts receivable
What is an accounts payable record
= a subsidy accounting record that records each individual transaction in each individual account payable + shows balance owing 2 that account payable @ any point of time
What is an accounts receivable record
a subsidy accounting record that records each individual transaction in each individual account receivable + shows balance owing 2 that account receivable @ any point of time
What is a subsidy record
= secondary record
What is an account payable schedule
= a listing of name and balance of each accounts payable record
What are the qualitative characteristics
Relevance
Faithful representation
Verifiability
Comparability
Timeliness
Understandability
What is the Q.C relevance
= financial info must be capable of making a difference 2 decisions made by users helping them form predictions and or confirm / change previous recommendations
What is the Q.C faithful representation
= financial info should be faithfully rep of the real world economic event it claims 2 represent : complete, free from material error + neutral
What is the Q.C verifiability
= financial info should allow dif. knowledgeable + independent observers 2 reach a consensus that an event is faithfully represented
What is the Q.C comparability
= financial info should be able 2 be compared with similar info re. other entities + with similar info re. same entity 4 another period / date
What is the Q.C timeliness
= financial info should be available 2 decision makers in time 2 be capable of influencing decisions
What is the Q.C understandability
= financial info should be understandable/comprehensible 2 users with reasonable knowledge of bus + eco activities + presented clearly + precisely
What is an accounts receivable schedule
= listing of the name + balance of each Accounts Receivable records
What is the element revenue
= inc in assets / dec in liabilities that -> inc in O.E, other than those relating 2 contributions from the owner
Revenue - Expense = profit
What is the element expense
= dec in assets or inc in liabilities that -> dec in O.E, other than drawings
Are cash fees considered revenues
Yes
Are credit sales considered revenues
Yes
Are cash received from accounts receivable considered revenues
No
Are capital contributions considered revenues
No
Are wages considered expenses
Yes
Is electricity considered expenses
Yes
Are payments 2 an accounts payable an expense
No
Is the purchase of office furniture an expense
No
What is an income statement
= an accounting report that details revenue earned and expenses incurred during the reporting period
How to calculate equities
Capital
+ Net profit
- Drawings
= Equities
What is an instance where a net profit is earned but a cash deficit
-> there are cash outflows that aren’t expenses t/f contribute 2 cash deficit h/r not affect net profit
e.g cash drawings, loan repayment, cash purchase of NCA, gst settlement
What is an instance where a net loss is incurred but a cash surplus
-> cash inflows that are x revenues t/f contribute 2 a cash surplus h/r do x effect / prevent loss
e.g capital contribution, gst received, gst refund, loan received
What is the net profit / loss question structure
( 4 marks )
1) Cash and profit are…
2) Net profit is… , Net cash is…
3) Some items impact 1 but x the other + there are some that can impact both h/r by differing amounts
4) 1 example is…
5) Another example is…
Benefits of preparing an income statement
1) Aids decision making
2) Assesses if bus. is meeting revenue + expense budgets / KPIs
3) Assists in planning 4 future service activities, including budgeting
4) Assesses performance management
What is profitability
= ability of a business 2 earn a profit, measured by comparing its profits against a base, such as sales, assets or owners equity
What is profit
= under accrual basis accounting, revenues earned - expense incurred within a period, expressed in $ terms
What is the Net profit margin formula
NPM = Net profit / Net sales X 100
What is expense control
= firms ability 2 manage its expense so that they are x increasing at a faster rate than revenue is increasing
What are KPI benchmarks (examples)
1) past performance
2) budgeted performance
3) Industry averages
Strategies for improving Net Profit Margin
- Change in suppliers
- Buy materials in bulk
- Review staff rostering -> ensure appropriate lvls
- Effective marketing -> attract new clients
- Improve service delivery -> better rep
What is asset turnover
= efficiency indicator which measures how productively a bus has used its assets in the generation of sales revenue
-> measures number of times in the period the value of assets is earned as sales revenue : faster asset turnover, more capable firm is of using its assets 2 earn revenue
What is the asset turnover equation
A.T = Net sales / average total assets
What is return on assets
= a profitability indicator assessing how effectively bus used assets 2 earn profit
What is the return on assets formula
ROA = Net profit / average total assets x 100
Strategies 2 improve return on assets
- inc net profit through greater sales by effective advertising / distribution channels
- increase net profit through expense control
- less assets so x idle / obsolete assets
What is return on owners investment
= profitability indicator showing how effectively bus has used owners capital 2 earn a profit
-> measures from owners perspective
What is the return on owners investment equation
ROI = Net Profit / Average capital X 100
What is liquidity
= ability of the bus 2 meet S.T debts as they fall due
What is stability
= ability of the bus 2 meet its debts and continue in the long term
What is the debt ratio formula
DR = Total liabilities / total assets X 100
What does the debt ratio measure
-> measures the proportion of the firms assets that are funded by external sources providing an indication of the stability of the business
-> higher debt ration = greater risk
What is the relationship between return on owners investment and debt ratio
- Higher DR -> inc reliant on external finance rather than internal
- Lower DR -> less reliant on external rather than internal
What are non-financial indicators
= x calculated using $ figure. H/r they can still be an indicator that can be used 2 assess profitability of a bus / reasons behind poor performance
What is the working capital ratio
= liquidity indicator that measures ratio of current assets 2 current liabilities 2 assess the firms ability 2 meet it’s S.T debts as they fall due
What is the working capital ratio formula
-> WCR = Current Assets / Current liabilities
-> number of times : 1
How to evaluate using the working capital ratio
- If WCR < 1:1 = bus has inc current liabilities than current assets t/f struggle to meet S.T debts
- If WCR > 1:1 by a lot = bus has excess of current assets that are idle or being employed effectively
Strategies 2 improve WCR: if low
- inc cash flow from operations
- less drawings / more cap contribution
- Renegotiate s.t debts to l.t debts
Strategies 2 improve WCR: if high
- less inventory of materials through more bus expenditure
What is the cash flow cover formula
-> CFC = net cash flows from operations / average current liabilities
What is the cash flow cover
= liquidity indicator that assesses firms ability of operating cash flows 2 meet short term debts as they fall due
What is the question word Discuss
= present a clear, considered + balanced argument / prose that identifies issues + shows strengths/weaknesses / opinions
What is the question word Analyse
= identify components + significance of relationships b/n them; draw out + relate implications; determine logic + reasonableness of info
What is the question word Explain
= give detailed account of why+/how with reference 2 causes + effects, continuity, change, reasons / mechanisms
-> IDL
