Introductory Financial Accounting - Lecture 5 Flashcards

This flashcard set covers the key vocabulary and concepts from Lecture 5: Revenue Recognition (AASB 15), Bank Reconciliation, and Receivables Management.

Revenue

The increase in economic benefits during the accounting period in the form of inflows or increases in assets or decreases in liabilities that result in increases in equity, other than those relating to the contributions from equity participations.

AASB 15

Revenue from Contracts with Customers; the accounting standard that provides a $5$ step framework to identify when revenue should be recognised.

Contract

An agreement between two or more parties that creates enforceable rights and obligations.

Performance Obligation

A promise in a contract with a customer to transfer either a distinct good or service, or a series of distinct goods or services that are substantially the same.

Transaction Price

The amount of consideration (cash or non-cash) an entity expects to be entitled to in exchange for the provision of goods and services.

Stand-alone selling price

The price at which an entity would sell a promised good or service separately to a customer; used to proportionately allocate the transaction price when not specified.

Bank Reconciliation

The procedure of comparing the bank’s records and the firm’s bank ledger account to maintain control over the cash account.

Timing differences

A cause for lack of agreement between firm books and bank statements occurring when parties record the same transaction in different accounting periods.

Deposit in transit

A cash receipt recorded by the business but not yet recorded by the bank.

Unpresented Cheques

Cheques recorded and issued by the business that have not yet been processed or recorded by the bank.

Accounts receivable

Also known as trade receivables; these are often the most significant receivables for most firms and represent amounts owed by customers for credit sales.

Direct Method

A method of accounting for uncollectible debts where bad debts expense is recognised only when a specific account is identified as uncollectable and written off.

Allowance Method

A method that uses a contra asset account to make an adjustment in anticipation of future bad debts, attempting to match revenue and expense.

Allowance for Doubtful Debts

A contra asset account subtracted from Accounts Receivable in the Balance Sheet to show Net Receivables.

Net Receivables

The value of Accounts Receivable reported on the Balance Sheet after subtracting the Allowance for Doubtful Debts.

Percentage of Accounts Receivable method

A technique used to estimate the allowance for doubtful debt closing balance as a percentage of the total Accounts Receivable balance.

Ageing method

A technique used to estimate the allowance for doubtful debt closing balance based on an analysis of how long debtors' accounts have been past due.

Percentage of Credit Sales method

A technique used to estimate doubtful debt expense based on a percentage of the credit sales conducted during the period.