VCE Accounting terms/ info

A present economic resource controlled by the entity as a result of past events

Assets

A present obligation of the entity to transfer an economic resource as a result of past event

Liabilities

Report are prepared for a particular period of time in order to obtain comparable results

Period assumption

Revenue and expenses are recognised when it is earned and incurred to calculate net profit

Accrual basis assumption

Reports are prepared on the assumption that the existing entity will continue to operate in the future

Going concern assumption

Requirement that a business has its own financial records and statements separate from that of its owner and other entities

Entity assumption

Information should be avaliable to decision-makers in time to be capable of influence on decision

QC: Timeliness

Information should be comprehensible to users with reasonable knowledge of business and economic activities

QC: Understandability

Information should directly assist the user in making decisions

QC: Relevance

Information reported is a faithful representation of real world economic events it claims to represent: complete, free from material error and neutral

QC: Faithful representation

Information should be able to compared with similar information about other entities, and with similar info from another date or period.

QC: Comparability

The ability to ensure that knowledgeable and independent observers can reach the same conclusion that an event is faithfully represented

QC: Verifiability

Captial gain

Earning a profit when reselling investment

Capital return

To be paid money directly from investment

The ability of a business to meet its short-term obligations/ debts as they fall due

Liquidity

Captial avaliable for use in day-to-day operation of a business

Working capital

Current assets : Current liabilities

Working capital ratio

Ability of the business to meet its debts and continues its operations in its long term

Stability

A financial indicator that measures the proportion of the firm’s assets that are funded by external resources

Debt ratio

Total liabilites/Total assets x100%

Debt ratio formula

Ability of a business to earn profit using its capital contribution

Profitability

Profitability indicator that measures how effectively a business has used owner’s capital to earn profit.

Return on investment

(Net profit / Average owner's equity) x 100%

Return on investment formula

Company

A business owned by shareholders that is a distinct legal entity, incorporated

Internal finance

Capital contribution, retained earning

External finance

Trade credit, bank overdraft, term loan, lease

Trade credit

Facility offers by suppliers that allows its purchased good or service, then pay at a later date

Bank overdraft

Withdraw funds greater than balance of account

Term loan

Loan for specific purpose & repaid over time

Lease

Rental agreement that allows business to control an asset over long time

Savings account

Accounts which you can invest your money in and earn interest over time

Superannuation

A long term investment strategy aimed at ensuring that an individual will have sufficient cash to live comfortably

Shares in companies

An investment in which the shareholder may be entitled to receive a dividend from the company if performance is good

Source documents

Documents that provide evidence that transaction has taken place

Uses of the cash flow statement

Aid decision making about the firm’s cash activities

To assess whether or not the business is meeting its cash target by comparing actual to budgeted

Assist in planning for future cash activities

Identify whether the business is generating enough cash from its operating activites to fund its investing and financing activities

GST payable

Collected more GST than paid

GST receivable

Paid more GST than collected

GST settlement

GST payable that will be paid by the business

GST refund

GST receivable that will be given to business

Internal control

Procedure and polices implemented to protect the assets of entity

Physical safeguard, preventative safeguard, separation of duties, rotation of duties

How can you protect your assets

Cash control

Procedure and polices implemented to protect the cash of entity

Electronic transferred, Use of EFTPOS, verified against register roll

How to protect your cash

Cash flow cover

Assessing the if firm's operating cash flow can meet its short-term debts as they fall due

Net cash flow from operations/average current liabilities

Cash flow cover formula

Protective measures designed to protect physical assets from unauthorized access, damage, or loss

Physical safeguard

Internal control principal that distributes the responsibility of key tasks between multiple member to reduce the risk of fraud and error

Separation of duties

Protects cash by minimising physical handling and therefore is a more secure way of payment

Use of electronic transfer

Cash is verified against register to ensure that the amount received throughout the day is the same as the amount recorded in the register

Verified against register roll

involves doing screening, assessments, and policy checks, to ensure that you hire honest and trustworthy employees

Careful hiring practices