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Name the errors that require a suspense account
Single-sided entry, both sides posted to same side & unequal double entry
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Name the errors that do not require a suspense account
Error of omission, error of commission, errir of principle & reversed double entry
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What is an error of omission?
Nothing has been posted
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What is an error of commission?
Posted incorrectly
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What is an error of princle?
Misposting expenses for FA which affects overall profit
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What is VAT?
a tax charged on goods & services by businesses who are VAT registered
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What is indirect tax?
Tax on spending
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What is input tax?
VAT on purchases
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What is output tax?
VAT on sales
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How must VAT be recorded?
In it's own nominal ledger account which appears on the balance sheet as a liability or asset
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Closing capital =
opening capital + Profit - Drawings
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Net assets =
Capital
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Increase in net assets =
Capital + Profit - Drawings
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Gross profit =
Sales - cost of sales
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Cost of sales =
Opening inventory + Purchases - Closing inventory
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Profit Margin =
Gross profit / Sales
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What is Margin?
Income (based on sales price)
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Mark up =
Gross profit / COS
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What is Mark Up?
Based on cost price
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Name the 5 accounting concepts
Going concern, Accruals concept, Consistency, Prudence and Materiality
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What is going concern?
the assumption that the business will continue trading for the foreseeable future
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Waht is the Accruals concept?
(matching concept) - Costs & revenues should be matched together and included in the period to which they relate
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What is Consistency?
to treat similar items in the same way in the current accounting period and from one accounting period to the next. This allows comparisions to be made.
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What is prudence?
Being cautious and not overstating revenues and profits & not understating liabilities
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What is Materiality?
Accounts show a true and fair view - misstatements are material if they could influence the decisions someone using the financial statements may make.
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Name the 6 qualitative characteristics
Relevence/Reliabilty, Faithful representation, Comparability, Verifiability, timeliness & understandablity
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What is relevance?
Capable of making a difference in the decision made by users
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What is faithful representation?
represent economic performance and position in words and numbers. Info must be relevant and faithfully represented if it is to be useful
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What is comparability?
there are standard formats of presentation and rules to follow when preparing financial statements that make it easier to compare accounts
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What is verifiability?
Helps to assure users that the info faithfully represents the economic reality of the transaction.
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What is timeliness?
Info is available to decision-makers in time to be capable of influencing their decisions.
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What is understandablitiy?
Classifying, characterising & presenting info clearly and concisely will make it understandable.
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Why would investors look at the financial statements?
To see whether they should invest in the business or sell their investment - interested in profitability and how stable the business is
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Why would employees look at the financial statements?
Wage and salary negotiation & assessment of opportunity in terms of employment
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Why would lenders look at the financial statements?
Interested in current and future profitability and growth prospects of business & cash the business holds - will they get their money back if they lend?
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Why would suppliers look at the financial statements?
Interested in financial stability of the business in terms of cash flow and the ability of the business to meet its short term liabilities.
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Why would customers look at the financial statements?
Interested in the business's short and longer term financial stability and its potention to supply high quality goods and services.
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What does the statement of p/l show?
income and expenditure for the year, which will result in either a profit or loss
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What does the statement of financial position show?
assets & liabilities of the business
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What is a non-current asset?
Items that will be owned by the business for more than a year (e.g. property or vehicle)
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What are current assets?
Items that will be owned by the business for less that a year
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What are current liabilities?
Amounts owed by the business to other people that need to be paid within one year
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What are non-current liabilities?
Amounts owed to other people that will be paid for in more than a year (e.g. bank loans)
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What is a net asset?
the difference between the total assets owned by the business and the total liabilities owed by the business
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What is capital?
the amount owed to the owner of the business
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What are drawings?
amounts taken out of the business by the sole trader/owner for their own use.
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Other cards in this set

Card 2

Front

Name the errors that do not require a suspense account

Back

Error of omission, error of commission, errir of principle & reversed double entry

Card 3

Front

What is an error of omission?

Back

Preview of the front of card 3

Card 4

Front

What is an error of commission?

Back

Preview of the front of card 4

Card 5

Front

What is an error of princle?

Back

Preview of the front of card 5
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