WA1 revision Flashcards
what is the accounting equation?
assets = liabilities + equity
what are assets?
assets are resources a business owns or controls that are expected to provide future benefits
what are liabilities?
liabilities are obligations owed by a business to others that are expected to be settled in the future
what is equity?
equity is the claim by the owners on the net assets of the business
or
the amount of cash and other assets contributed by the owners and the profit generated by the business
or
the amount owed by the business to the owner of the business
what is capital?
capital is resources contributed by the owner to the business
how do we calculate profit or loss?
income - expenses
what is drawings?
amount of cash or other assets of the business taken by the owner for personal use
what is the equation for equity?
equity = capital + profit / loss - drawings
how does equity increase?
when the owner contributes assets into the business
business makes profits
how does equity decrease?
owner withdraws assets from the business for personal use (drawings)
business makes losses
what is diviends?
a portion of retained earnings that is distributed to shareholders
what is income?
income refers to amounts earned through the activities of a business.
income comprises of revenue and other income
what are expenses?
expenses are costs incurred in the operation of a busines to earn income in the same accounting period
or
cost of goods and services or benefits used up during business operations
how do we calculate liability?
assets - equity
office equipment
non-current asset
plant and equipment
non-current asset
fixtures and fittings
non-current assets
motor vehicles
non-current assets
inventory
current asset
trade recievables
current asset
cash at bank
current asset
cash in hand
current asset
mortgage loan
non-current liability
loan from bank
non- current liability
trade payables
current liability
bank overdraft
current liability
what is a trading business?
buys from suppliers and sells goods to customers
what is a service business?
provides service to its customers
what are some examples of a trading business?
bookshops, supermarkets
what are some examples of a service business?
tuition centres, hair salons
what is a sole proprietorship?
a sp is owned by one person who contributes capital to set up the sp.
when the sp incurs debts and losses, the sole owner is obliged to pay them using his or her personal assets.
banks and other lenders are less willing to lend money to the sp, due to the lack of personal assets that can serve as collateral
what is a limited liability partnership?
a llp is owned by 2 or more partners where each partner contributes capital to set up the llp.
the control over the llp is shared among the partners with at least one partner heavily involved in running the business.
what is a private limited company?
a plc is owned by 50 or less shareholders where each shareholder buys shares and contributes capital. the shareholders have no control over the running of the business unless they are part of the management team. the company hires professionals to manage the business on behalf of shareholders.
how can an accountant exercise integrity?
by being straightforward and honest in all professional relationships
how can accountants remain objective?
by not letting bias, conflict of interest, or the undue influence of others override his or her professional judgement
why is it important for accountants to have integrity and remain objective?
as accountants provide information to stakeholders for decision making purposes, the information needs to be truthful and accurate. accountants who do not have integrity and is not objective may provide information that mislead users to make poor decisions. thus, it is important for accountants to have integrity and be objective.
property
non-current asset
profit
owner’s equity
capital
owner’s equity
loss
owner’s equity
cost of sales
owner’s equity
what is the order that assets need to written in the statement of financial position?
current assets inventory trade receivables other receivables cash at bank cash in hand
