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Asset
is a present economic resource controlled by the entity as a result of past events.
Current asset
are cash and other types of assets held primarily for the purpose of sale or trading, or are reasonably expected to be converted to cash, sold or consumed by a business within 12 months after the end of the reporting period.
Non-current asset
are expected to be used by the business entity for a number of years and are not held for resale.
Liability
is a present obligation of the entity to transfer an economic resource as a result of past events.
Current liabilities
are obligations of the entity that are reasonably expected to be settled within 12 months after the end of the reporting period.
Non-current liabilities
are obligations of the entity that are not required to be settled within 12 months after the end of the reporting period.
Owner's equity
is the residual interest in the assets of the entity after deducting liabilities
Revenues
are increases in assets or decreases in liabilities that result in increases in owner's equity, other than those relating to contributions from the owner.
Expenses
are decreases in assets or increases in liabilities that result in a decrease in owner's equity, other than those relating to distributions to the owner.
Relevance (Q.C)
usefulness of financial information in helping users make decisions
Faithful representation (Q.C)
the requirement that financial information must accurately reflect economic events. Material should be free from error and bias
Comparabiltiy (Q.C)
the ability to contrast similar type of financial information effectively with other entities or over different reporting periods
Verifiability (Q.C)
the ability to ensure that different knowledgeable and independent observers can reach a consensus (arrive at the same conclusion) that a particular depiction of an event is faithfully represented. Maintained by retention of source documents used to record the transaction and checked through auditing
Timeliness (Q.C)
providing information to users as quickly as possible so that it remains useful for decision making
Understandability (Q.C)
financial information should be presented clearly and concisely, and headings and sub-headings should assist, so that users can easily understand it
Accounting entity assumption (AA)
the records of assets, liabilities and business activities of the entity are kept completely separate from those of the owner of the entity as well as from those of other entities
Accrual basis assumption (AA)
recording revenue when it's earned and expenses when they're incurred
Going concern assumption (AA)
a business will continue to operate, and isn't expected to be wound up in the near future
Balance Sheet
Assets, liabilities and Owner's Equity at a particular point in time
Classification
grouping together items that have some common characteristics
Ethics
the principles/values of right and wrong that guide/govern a person or business in making decisions
Receipt
A source document for cash coming into a business
Cheque butt
A source document for cash payments a business
EFT (electronic funds transfer)
Exchange of money by sending bank records via a computer network
Sales invoice
A source document for selling goods on credit to a customer. The business keeps a duplicate. Placed in the sales journal
Purchase invoice
A source document for buying goods on credit from a supplier. The business keeps the original. Placed in the purchase journal
Tax invoice
A source document that is used to provide evidence of transactions that include the GST
Memo
A source document. A note between the owner and accountant
Credit note
A source document that represents a return of inventory
Purchase order
A business document that requests inventory
Delivery docket
A business docket that lists items that have been provided to a business on delivery
GST
a 10% tax levied by the federal government on sales of goods and services. Divide by 11 if GST is included in the price
Cash receipts journal
a special journal used to record only cash receipt transactions. Uses receipts, bank statements and EFTs
Cash payments journal
a special journal used to record only cash payment transactions. Uses cheque butts, bank statements, EFTs
Sundries column
Infrequent transactions are recorded in this section when they do not belong in the other columns
Statement of receipts and payments
An accounting report which lists cash receipts and payments during a reporting period, the change in the bank balance, and the opening and closing bank balance
Credit transactions
The goods/services are supplied immediately, but payment follows at a later date. Uses an invoice
Credit terms
State the period of time offered to credit customers, the discount available and when the amount is due. Eg. 4/10, n/30
Subsidiary records
Additional accounting records. In this case, to keep information on acc rec and acc pay
Purchase journal
A special journal used to record only purchases on credit. Uses purchase invoices only.
Sales journal
A special journal used to record only sales on credit. Uses sale invoices only. Looks at sales/GST to accounts receivables
Cash Flow Statement
A financial report that shows the flow of money in and out of the business. Separates transactions in operating, investing and financing activities
Operating activities
Day to day cash transactions
Investing activities
Transactions involving buying or selling non-current assets with cash
Financing activities
Cash flows that result because of changes in a firm's financial structure. Eg. drawings of cash, cash contribution of capital, loan received, loan repayments
Liquidity
The firm's ability to meet its short term debts as they fall due
Working capital ratio
CA/CL this indicates a company's ability to cover short term liabilities, also called current ratio. Measure of a company's liquidity. The higher, the better. Eg. 1.5:1 is good
Income Statement
A financial report showing the revenue minus expenses for a period. Calculates the net profit (or loss)
Profitability
The business' ability to earn a profit, compared to assets, sales, OE. Expressed as a %
Non-financial indicators
eg. the number of complaints, the number of hours worked, hit on the business website, staff turnover, the state of the economy
Net profit margin
Profit / net sales. Looks at how well the business controls expenses and earns revenue
Gross profit margin
Gross profit / net sales. Looks at the mark up of a business
Benchmarks
Past periods, budgets, similar firms
Period assumption (AA)
The life of the business must be divided into 'regular intervals' of time to allow reports to be prepared.
Items not placed in the Income Statement
Loan, purchase of assets, GST, drawings, capital. Only place in R and E - nothing else
Items not placed in the Cash Flow Statement
Any transaction on credit (uses an invoice) any transaction that hasn't occurred (eg. delivery docket or order form)
Cash flow cover
a liquidity indicator that measures the number of times Net Cash Flows from Operations is able to cover average Current Liabilities