Week 2 - The financial statements Flashcards
What are the five types of accounts?
Explain them briefly
- Assets: things the business owns.
- Liabilities: debts the business owes.
- Income: the revenue generated from the sale of goods or services.
- Expenses: the costs incurred in producing the goods and services
- Equity (or capital): the investment made by shareholders into the business.
Profit = income – expenses
Equity = assets - liabilities
What are the steps in the transaction recording process?
Additionally, what is important to remember about the transactions? And what is the term for that?
Steps:
- Identify what type of account is affected (assets, liability, income, expense or equity); and
- Determine whether the transaction increases or decreases that account.
Remember:
- Every transaction affects at least two accounts: **double entry bookkeeping **
When goods are bought, they become an asset (inventory/stock). When the same goods are sold, there are two transactions.. Which?
- The sale, either by cash (asset) or credit (liability); and
- The transfer of the cost of those goods, now sold, from inventory to an expense, called cost of sales, or cost of goods sold.
Fill in the last two columns
What are the three types of financial statements?
Statement of Comprehensive Income
Statement of Financial Position
Statement of Cash Flows
What is the Statement of Comprehensive Income?
the profit (or loss) of a business for a financial year, using the accruals method
What is the Statement of the Financial Position?
the assets, liabilities and equity on the last day of the financial year
What is the Statement of Cash Flows?
the movements in and out of the company’s bank account (or cash equivalents) during a financial year.
What statement is this?
Statement of Comprehensive Income
What statement is this (simple version)?
Statement of Financial Position (simple version)
What statement is this?
Statement of Financial Position
What statement is this?
Statement of Comprehensive Income
What statement is this?
Statement of Changes in Equity
What statement is this?
Statement of Financial Position -
What statement is this?
Statement of Cash Flows (Indirect method)
What is the accruals (mathching) method?
Everything that happens one year need to be accounted for in same year. E.g.: Schoolexpenses need to be accounted for in that schoolyear
What is another term for total assets?
Capital employed
What is the Fundamental Accounting Equation?
- Net Assets = Total assets – Total Liabilities = Equity
- Total Assets (or capital employed) = Total Liabilities + Equity
Explain prepayments and accruals
What is Provisions?
- Estimates of possible liabilities that may arise, but where there is uncertainty as to timing or the amount of money.
- Some are shown as liabilities (e.g. warranty claims), others are shown as deductions from assets:
- Doubtful debts • Inventory
- Depreciation
What information is needed to calculate the depreciation of an asset?
Asset cost
Periods (life)
Resale value
Regarding depreciation,
- What is the Accounting of Transaction?
- What happens to the statement of comprehensive income
- What happens to the statement of financial position?
When is “Goodwill” relevant?
And what is it?
What type of account?
1) Only at the time of aqutition
2) Means product is worth more. It is the difference between price of company and assets, when company bought. You need to make a test of impairment every year
3) Intangible Assets
When accounting for Goodwill, what happens to the statement of comprehensive income and statement of financial position in this example:
