Financial Accounting: Final Accounts Adjustments, Incomplete Records, Manufacturing Accounts, and Control Accounts

Comprehensive vocabulary flashcards covering financial statement adjustments, incomplete records, manufacturing accounts, and control accounts.

Expenses Owing

An unpaid expense at the end of the financial period that must be added to the amount already paid in the Statement of Profit or Loss and treated as a current liability in the Statement of Financial Position.

Revenue Owing

An earned but uncollected income amount that must be added to the amount already received in the Statement of Profit or Loss and listed as a current asset in the Statement of Financial Position.

Expenses Prepaid

An amount paid in advance for an expense that must be deducted from the total amount paid in the Statement of Profit or Loss and listed as a current asset in the Statement of Financial Position.

Revenue Prepaid

Income received in advance that must be deducted from the total received in the Statement of Profit or Loss and classified as a current liability in the Statement of Financial Position.

Provision for Bad Debts (PFBD)

An estimated allowance against receivables; an increase in the provision is recorded as an expense while a decrease is recorded as other revenue, and the full new balance is deducted from accounts receivable in the Statement of Financial Position.

Straight Line Depreciation

A method of calculating depreciation expense determined by the formula: $\text{Straight line depreciation expense} = \text{cost of non-current asset} \times \text{depreciation rate}$.

Reducing Balance Depreciation

A depreciation method computed on book value: $\text{Reducing balance depreciation expense} = (\text{cost of non-current asset} - \text{provision for depreciation}) \times \text{depreciation rate}$.

Incomplete Records (Single Entry)

A partial bookkeeping system that does not maintain strict double-entry principles and is typically limited to the cashbook, lists of assets and liabilities, and memorandum data for non-cash transactions.

Statement of Affairs

A statement structured like a balance sheet based on the accounting equation $\text{Assets} = \text{Equity} + \text{Liabilities}$, prepared from lists of balances at the start or end of a period to derive opening or closing capital.

Mark up

The gross profit expressed as a fraction or percentage of the cost of sales: $\text{Mark up} = \frac{\text{Gross Profit}}{\text{Cost of Sales}}$.

Margin

The gross profit expressed as a fraction or percentage of sales: $\text{Margin} = \frac{\text{Gross Profit}}{\text{Sales}}$. If mark up is $\frac{a}{b}$, margin equals $\frac{a}{a+b}$.

Manufacturing Account

A cost statement prepared prior to the income statement that tracks and compiles all direct and indirect input costs associated with factory production during the period.

Raw Material

Direct input items physically consumed and incorporated into the production process (e.g., flour and sugar in a bakery, or fruits and sweeteners in a juice factory).

Indirect Material

Inventory items utilized indirectly in the production process that cannot be directly traced to specific products, such as packaging supplies, lubricants, and oven fuels.

Work in Progress (WIP)

Incomplete units remaining in the production system at the start or end of a given manufacturing period.

Finished Goods

Completed items manufactured by the business that are fully processed and ready for dispatch or sale.

Prime Cost

The direct costs traceable to goods produced, consisting of direct/raw material used, direct labour cost, and direct expenses.

Factory Overheads

Indirect manufacturing costs that are associated with factory operations but not directly traceable to individual units, including indirect materials, indirect factory wages, and apportioned indirect factory expenses.

Cost of Production

The total manufacturing cost obtained by adding prime costs, factory overheads, and net work in progress ($\text{Opening WIP} - \text{Closing WIP}$).

Factory Profit

A percentage mark-up added to the cost of production before transferring completed goods to the income statement, recorded as other revenue in the statement of profit or loss.

Transfer Value of Goods Produced (TVGP)

The valuation at which completed factory goods are transferred to trading/cost of sales, calculated as $\text{Cost of Production} + \text{Factory Profit}$.

Provision for Unrealized Profits (PFUP)

An adjustment made to eliminate the unearned factory mark-up included in unsold closing inventory of finished goods, ensuring closing stock is not overstated above cost.

Realization Concept

An accounting principle stating that revenue and profits can only be recognized when goods pass from the seller to an external buyer, meaning internal transfers between factory and warehouse do not generate realized profits.

Historical Cost Concept

The accounting principle requiring business resources and assets to be stated at original cost, requiring marked-up closing finished goods inventory to be reduced by the PFUP.

Control Accounts

Extensions of the double-entry bookkeeping system used as internal checks to verify total ledger account balances against summarized subsidiary journals and detect errors.

Sales Ledger Control Account (SLCA)

A total debtors control account that summarizes all credit customer transactions (e.g., credit sales, cash received, bad debts, discounts allowed) to verify the sales ledger balance or deduce credit sales.

Purchases Ledger Control Account (PLCA)

A total creditors control account that summarizes transactions with credit suppliers (e.g., credit purchases, cash paid, returns outwards, discounts received) to verify the purchases ledger balance or ascertain credit purchases.

Set Off (Contra)

An inter-ledger adjustment made to clear reciprocal balances when the same individual or firm is both a customer in the sales ledger and a supplier in the purchases ledger.

Asset Disposal Account

A ledger account used when selling a non-current asset to determine the net gain or loss by comparing the asset's net book value ($\text{NBV}$) to the cash selling price.

Combined Drawings

The aggregate total of owner withdrawals during an accounting period, consisting of cash drawings plus withdrawals of goods or inventory: $\text{Combined drawings} = \text{cash drawings} + \text{drawings of stock}$.