Week 3 Flashcards
What does Bank mean on a trial balance?
Bank in Dr = Cash in Bank
Bank in Cr = Bank overdraft
What does Vehicle mean on trial balance?
Physical owning of a vehicle
Who regulates financial statements in the UK?
Listed companies = IAS regulation, done by IFRS
Unlisted companies = UK FRC
What does prudence mean?
The inclusion of a degree of caution in the exercise of judgements, such that assets and income arent overstated and liabilities arent understated
Basically airing on the side of caution
What are debits and credits in terms of an economic transation?
Credits show the source of benefits from an economic transaction while debits show the destination.
What accounts increase when debited and decrease when debited?
DEA
Dividends
Expenses
Assets
What accounts increase when credited and decrease when debited?
LER
Liabilities
owner’s Equity
Revenue
What are the 5 main different types of accounts?
Assets / Liabilities / Equity / Income / Expenditure
What is an accrual?
An accrued expense is when a business has incurred an expense but not yet received an invoice or been paid
How is an accrual recognised?
The expense accrued -> debited to expenses (PnL)
The liability -> credited to an ‘accruals’ account on SFP
What is a prepayment?
WHen a business pays for a good/service before they have been received -> the expense isn’t incurred
How is a prepayment recognised on financial statements?
Decrease in asset -> SFP cash is credited
Increase in asset -> SFP, new section called ‘prepayment’ is debited
Where do accruals and prepayments go on a trial balance?
Accruals = Credit
Prepayments = Debit
What is the layout for a Journal entry?
Date / Ref / Account / Debit / Credit
