Unit 2 - Principles of bookeeping controls Flashcards
The dual effect principle
Every Business transaction has 2 effects
Separate entity concept
Business is a completely separate accounting entity from the owner.
Asset
Resource with economic value that is owned or controlled, with an expectation that will provide a future benefit.
Non-current asset
Assets that’ll be used within the business over a long period. (Land & buildings).
Current asset
Expected to be realised within the business in the normal course of trading.
Liability
Obligation to transfer something of value as a result of past transactions or events.
Current liabilities
Short-term payables of a business. Usually paid within 12 months of statement of financial position date.
Non-current liabilities
Payables that will be paid over a long period of time, typically in excess of 1 year of the statement of financial position date.
Capital
Residual interest in a business and represents what is left when the business is wound up, all assets sold and all outstanding liabilities paid. It is effectively what would be repaid to the owner if the business ceased to trade.
Income
Recognition in profit of the inflow of economic benefit to the entity in the reporting period.
Expenses
Recognition of the outflow of economic benefit from an entity in the reporting period.
Irrecoverable debts
Debt relating to a receivable which is not going to be received. It’s therefore not prudent for the business to consider this debt as an asset.
Clock card
Card that records the hours worked by an employee.
Income tax
Tax on individuals income
Tax-free income
Personal allowance which an individual is entitled to earn without paying any tax
PAYE scheme
National scheme whereby employers deduct tax from their employees wages and salaries when the employees are paid. The deductions are then paid monthly to HMRC by the employer.
Cheques
Unconditional order in writing, signed by the drawer, requiring a bank to pay a certain sum of money on demand to a named person.
Bankers draft
Cheque issued by a bank rather than an individual. Funds are transferred from the individual account to the bank. Then the bank issues the cheques made payables to the payee requested by the individual.
Building society cheques
Same as bankers draft but can be stopped by the drawer to prevent payment being made.
CVV
Card verification value. Adds an extra layer of security when making purchases online or over phone. Provides verification that the user has a physical copy of the card in their possession and helps prevent account holders if the card number is stolen by identity thieves or hackers.
Standing order
Customers instruction to their bank to pay a fixed amount regular intervals to a named party.
Direct debit
Allows authorised recipients to claim payments from a customers bank account.
BACS
Bankers Automated Clearing System. Method of clearing payments in which transactions are recorded in magnetic tape or disks. Transactions are then processed at the BACS computer centre instead of the clearing house.
CHAPS
Clearing House Automated Payments System. Large sums of money. Payments are credited to the payee on the same day as instructions are received. Useful when large sum of money needs to be cleared immediately.
FPS
Faster Payments System. Interest based system introduced to reduce payments times between different banks customer accounts. Transfer times reduced to few seconds.
Bank reconciliation
Statement that explains the differences between the balance in the cash book and the balance on the bank statement at a particular date.
