What Should Already Know Flashcards
What items go on the Debit side of the TB?
Inventory
Purchases
Admin and expenses
Property Plant and equipment
Trade Receivables
Bank
What items go on the Credit side of the TB?
Revenue
Share Capital
Share Premium
Retained earnings
Loans
Trade Payables
Bank overdraft
Errors can fall into which 2 categories?
- Errors where the TB still balances
- Errors where the TB does not balance
What are the errors where the TB still balances?
- Errors of omission
- Error of commission
- Error of principle
- Compensating error
- Error of original entry (transposition error)
- Reversal of entries
What is error of omission?
A transaction has been completely omitted from the GL
What is error of commission?
A transaction has been recorded in the wrong account
What is error of principle?
A transaction has been recorded incorrectly in a way which breaches and accounting principle e.g., not to non-current assets but to repairs
What is a compensating error?
2 errors have been made which cancel each other out, e.g., a repair expense recorded as £670 in the GL as £760 and an insurance expense recorded as £1100 in the GL as £1010
What is a error of original entry (transposition error)?
The correct double-entry has been made but using the wrong monetary amount e.g., credit purchase of 985 was recorded as 859 in GL
What is a reversal of entries error?
the correct amount has been posted to the correct accounts but on the wrong side e.g., a cash sale of 200, has been debited to revenue and credited to cash at bank in the GL.
What is a suspense account?
an account in which debits and/or credits are held temporarily until sufficient info is available for them to be posted to the correct accounts
What would the effect on profit be if there was a
DR SFP
CR PL?
Profit increases
What would the effect on profit be if there was a
DR PL
CR SFP?
Profit decreases
The required formats for published company financial statements are provided by IAS 1, which components must be presented?
- SFP
- SPL
- SOCI
- SOCE
- notes to the financial statements
- statement of cash flows
What is the SFP?
summarises the asset, liability and equity balances at the end of the AP.
What is the SPL?
Summarises the income earned and expenses incurred during the financial period.
What is the SOCI?
Simply an extension of the SPL. The reason for this is that some gains made by the entity during the year are not realised gains.
What is the SOCE?
Equity represents the owners’ interests in the company. An alternative way of defining it is that it represents what is left in the company when it ceases to trade, all the assets are sold off and all liabilities are paid.
What is equity comprised of?
Share capital
Share premium
Reserves (revaluation surplus and retained earnings)
What is revaluation surplus?
This is created to recognise the surplus arising when tangible non-current assets (normally land and buildings) are revalued. The gain is not realised and therefore cannot be included in the retained earnings
What is retained earnings?
represents the sum total of all the profits and losses made by the company since its incorporation and that have not yet been paid to shareholders as a dividend.
Why are disclosure notes required?
- to explain the accounting policies
- to explain the movement between the opening and closing balances of major SFP items
- to show how certain balances are complied
- to provide further detail/explanation to users of the financial statements
What is IAS 10 Events after the reporting period?
those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue.
What are adjusting events?
These events provide additional evidence of conditions existing at the reporting date.
What are some examples of adjusting events?
- the settlement after the reporting date of a court case which confirms a year end obligation
- the receipt of information after the reporting date that indicates that an asset was impaired at the reporting date
- the bankruptcy of a customer after the reporting date that confirms that a year end debt is irrecoverable
What are non-adjusting events?
events arising after the reporting date but which do not concern conditions existing at the reporting date. Have no effect on the items in the SPL or SFP
What are some examples of non-adjusting events?
- Announcing a plan to discontinue an operation
- major purchases of assets
what is revenue?
income arising in the course of an entity’s ordinary activities
What is the 5 step approach for revenue recognition?
- identify the contract
- identify the separate performance obligations within a contract
- determine the transaction price
- allocate the transaction price to the performance obligations in the contract
- recognise revenue when (or as0 a performance obligation is satisfied
