week 6 Flashcards
if shares are sold for more than the par value, the stock is sold at…
premium
participating in a new issue of shares of a company before it is offered to others is an example of which shareholder right
pre-emption
what are the key financial statements
-balance sheet/statement of financial position
-income statement/statement of profit or loss
-statement of cash flows
statement of changes in equity
what does par value mean
original price of stocks
inventory (stocks)=
include goods which have been sold or have not
equation to use to find the cost of goods (inventory)
cost of goods=(opening inventory+purchases)-closing inventory
gross profit=
sales revenue- cost of goods sold
info about depreciation:
- most non current assets have limited lives( they are eventually used up in the process of generating revenue)
how to pay of a non current asset
- need to spread the cost of purchasing the noon current asset across its useful life
- it is treated as an expense in the income statement which affects a company’s profit
what are the 4 factors to consider for depreciation:
- the cost(fair value) of the asset
- the useful life of the asset
the residual value of the asset
the depreciation method- straight line or reducing balance method
straight line method equation
depreciation expense= (original cost of the asset- estimated residual value)/ estimated useful life
what is a reducing balance method for?
a percentage depreciation rate is applied to the original cost of the asset after deducting any depreciation charged in the previous period
reduced balance method=
depreciation expense=(original cost of the asset-previous depreciation expenses) depreciation rate
what does reduced balance/net book value=
original cost of the asset- previous depreciation expenses
revenues=
are recorded when they are earned not when the cash is received
expenses=
are recorded when they are incurred not when the cash is paid
accruals info
an amount owing for a service provided during an accounting period but still unpaid for at the end of it
- included in the amount charged to the statement of profit or loss for the period as part of the cost of the service provided
accruals (delay of cash)
(amount paid during the year+ closing accruals)- opening accruals
prepayments info
an amount pre paid in cash during an accounting period for a service that will be provided in a subsequent period
-deducted from the amount charged to the statement of profit or loss for he period as part of the cost of the service provided
prepayment=
(amount paid during the year+opening payments)- closing prepayments
*closing prepayments are shown on the statement of financial position as part of the current asset
bad debts=
refers to debt that is highly unlikely to be ever be paid
