Financial Accounting Concepts and Statements Review

Comprehensive vocabulary practice flashcards covering incomplete records, company rules, control accounts, manufacturing accounts, and bank reconciliation statements.

Rate of Inventory Improvement

A technique to increase the rate of inventory turnover by maintaining a lower average inventory.

Statement of Affairs

A method used to calculate missing capital and profit information in incomplete records, calculated as $\text{Capital} + \text{Profit} - \text{Drawings}$.

Articles of Association

The legal document detailing how a limited company is run internally, covering meetings, voting rights, dividends, and calls on shares.

Memorandum of Association

The legal document setting out what a limited company is allowed to do, as well as the official name of the company.

Sales Ledger Account Credit Balance

A credit balance on a customer's sales ledger account caused by customer overpayment, returning goods after paying, paying in advance, or cash discounts not being deducted prior to payment.

Incomplete Records

Accounting records that lack full detail, commonly caused by a business owner or staff who are inexperienced in bookkeeping and accounting.

Closing Capital

The final capital balance in an incomplete records system, calculated as $\text{Opening Capital} + \text{Additional Capital (bank)} + \text{Profit} - \text{Drawings}$.

Margin

An expression of gross profit as a percentage of revenue, calculated using the formula $\text{Margin} = \frac{\text{Gross Profit}}{\text{Revenue}} \times 100$. A 20\text{\null}\null\text{\%} margin corresponds to a 25\text{\null}\null\text{\%} markup.

Markup

An expression of gross profit as a percentage of the purchases price or cost.

Control Accounts

Accounts, also known as total accounts, that summarize total transactions and are used for credit sales and credit purchases only.

Sales Ledger Control Account

A control account that summarizes all individual accounts of trade receivables.

Purchases Ledger Control Account

A control account that summarizes all individual accounts of trade payables.

Advantages of Control Accounts

Benefits including assisting in locating errors when the trial balance fails to balance, and providing proof of the arithmetical accuracy of the ledgers they control.

Purchases of Finished Goods (Manufacturing)

Finished goods acquired by a manufacturer to meet demands when production is insufficient, when it is cheaper to buy than make, or when items cannot be produced by the business.

Unit Cost

The cost of producing one item, calculated as $\text{Unit Cost} = \frac{\text{Cost of Production}}{\text{Number of Units Produced}}$ (for example, $\frac{£10000}{150} = £66.67$).

Cost of Sales (Manufacturing)

The total cost of sales in a manufacturing trading section, calculated as $\text{Opening Inventory of Finished Goods} + \text{Cost of Production} + \text{Purchases of Finished Goods} - \text{Closing Inventory of Finished Goods}$.

Bank Statement

A copy of a customer's account in the books of the bank sent to the customer at regular intervals.

Cash Book and Bank Statement Entries

The principle that entries in the bank column of the cash book appear on the opposite side to that on which they are recorded on the bank statement.

Standing Order

An instruction to a bank to pay an automated regular payment of a fixed amount.

Debit Order

An automated payment instruction to a bank for payment of a varying amount.