Keywords 2

consistency

the concept that states the same accounting policies should be used in each accounting year year unless there is valid reason for change.

contribution per unit

the difference between the selling price and the variable cost of a unit

cost

the concept that states that the assets should be recorded at their cost valuation (the amount they were bought for).

current ratio

a liquidity ratio that measures a companys ability to pay its current liabilities

debenture

a long-term loan issued by a company to raise capital

directors remuneration

the reward package given to directors including salary and bonuses

disposal

when a non-current asset is sold

dividend

a share of the companys profit paid to shareholders

duality

the concept that states that for every transaction there must be an equal debit and credit entry

equity

the sum of all issued ordinary shares, capital and revenue reserves

expenses in relation to revenue

a profitability ratio that compares overheads to sales revenue

financial ratios

calculations that are used to help analyse financial performance

fixed cost

costs that do not change in relation to output

going concern

the concept that states that accounting records should be prepared on the assumption that the business will continue to trade into the foreseeable future

gross profit margin

the ratio that measures the gross profit as a percentage of sales revenue

incremental budgeting

a budgeting technique whereby budgets are prepared by taking the current periods budgeted or actual figures and adjusting them by incremental amounts

interim dividend

a dividend paid to the shareholder part way through the financial year

irrecoverable debt recovered

when an amount previously written off, is received

limited liability

the maximum amount that an owner can lose is the total value of their capital. personal assets are protected

liquid capital ratio

a liquidity ratio that measures a companys ability to pay its liabilities, without considering the value of inventory

liquidity

the ability to turn assets into cash to be able to pay current liabilities

loan

an amount borrowed, usually from the a bank. it must be repaid over a period of time, with interest.

margin of safety

the difference between the current level of sales and the break-even point

marginal cost

the cost of producing one extra unit

markup

the ratio that measures the gross profit as a percentage of sales

master budget

a budgeted income statement and budgeted statement of financial position

materiality

the concept that states that if the amount is insignificant, normal accounting policies do not to be followed, as it it would not lead to misleading information

money measurement

the concept that states that all information recorded in financial accounting must be in monetary form

mortgage

a loan which is used to buy property

net realisable value

the estimated selling price of inventory, after deducting any costs incurred to achieve the price set

nominal value

this is the face (original) value of a share

ordinary shares

shares which are sold to shareholders who in return for their investment, become part owners of the company

part exchange

when a a non-current asset is traded in to help cover the costs of a replacement

prepaid revenues

when amounts are paid in advance of an income being earned

private limited company

a company in which shares are not traded on the stock exchange

profit for the year after tax

the profit for the year before deducting corporation tax

profit for the year before tax

the profit for the year after deducting corporation tax

profit from operations

the profit earned before considering finance charges and taxation

profit in relation to revenue %

a profitability ratio that expresses a companys profit as a percentage of its sales revenue

profitability

the ability of a company to earn profits

provision for doubtful debts

an estimated amount set aside by a business to account for an expected amount of irrecoverable debt

prudence

the concept that states that assets and profits should be understated rather than overstated

public limited company

a company in which shares are traded on the stock exchange

rate of inventory turnover

a ratio that measures how many times a company sells and replaces its invesntory over a period

rate of inventory turnover (days)

a ratio that measures how many times a company sells and replaces its inventory over a period in days.

realisation

a concept that states that revenues should only be recorded when a sale has been agreed

reducing balance method of depreciation

a depreciation method where the depreciation expense is calculated as a percentage of the remaining book value of the asset each year

retained earnings

the profits of a company that have not been paid out as a dividends to shareholders

return on capital employed %

a ratio which calculates the amount of profit created in relation to the capital invested in the business

revaluation

the process of revaluing assets to reflect its current value

revenue expenditure

money spent on running costs. it also includes repairs and maintenance costs

revenue income

revenues that are recorded on the income statement

revenue reserves

profits that have been retained within the business

rights issue

a method of raising additional capital by offering new shares to existing shareholders at a discounted price

sale or return

when a supplier sends inventory to a business. the sale is not realised at this point meaning the supplier owns the inventory

service business

a business that dosent sell a physicla product but supplies a service. e.g. an accounting firm

share issue

the process by which a company raises capital by issuing new shares to investors

share premium

the difference between the issue price of a share and the nominal value

statements of changes in equity

a financial statement produced by companies that outlines changes to capital and revenue reserves

stepped costs

a cost that remains fixed up untill a certain level of output. at this point the cost will increase, and then remain fixed until another level of output

target profit

the profit figure that a business aims to achieve during a specific period

trade discounts

a discount that is agreed at the time of sale. given for reasons such as to encourage bulk buying or offered to a business who are in the same industry

trade payable days

a ratio that measures the average time it takes a company to collect payment from its credit customers

trading business

a business that sells a physical product

unlimited liaibility

the owner(s) are responsible for all the businesses debts. their personal assets are at risk

variable costs

costs that change in direct relation to output

zero based budgeting

a budgeting technique whereby all budgets are set at £0. managers must gain approval for any spending

capital expenditure

should include of:

cost of instalation of

delivery of legal cost of

improvement of

all these will be included as part of the original cost recorded to the Dr of the NCA a/c.

capital income

is income derived from non-regular (one-off) transactions.

e.g. sale of NCA or loans received

revenue expenditure

refers to the cost incurred in the day-to-day operations of the business

e.g. repairs and maintenance or salaries and wages

revenue income

the total income generated by the sales of goods or services as part of the companys primary operations

e.g. service fees or sale revenue from products

net realisable value

estimated selling price of goods, less any costs required to make the sale

NRV= new selling cost (-) any cost required to sell (e.g. delivery)

valuation of inventory

inventory is valued at the lower of cost or net realisable value

irrecoverable debt

• - from trade receivables

• + to expenses

recovery of irrecoverable debts

• + to bank - dr

• + to additional income - cr

accrual of:

I.S SOFP

• + to expense (dr) CL (cr)

• + to income + CA (dr)

prepayment of:

I.S SOFP

• - EXP (CR) CA (DR)

• - INC (DR) CL (CR)

new provision for doubtful debts

1. find percentage of TR not paying

2. dual effect + whole provision to exp (dr)

   • - the provision from TR in CA

change in provision

1. find the percentage of TR

2. find the difference between last years and this years provision

3. either have an increase or decrease in provision

   • + the increased amount to exp (dr), - the whole new provision in CA

     • + the decreased amount to Inc (cr), - whole new provision from TR in CA

sale or return

sales (TR): likely to have been included in sales and TR

• minus selling price from sales

• plus cost price to closing inventory

  purchases (TP): we have the goods but do not own them.

  but they will be included in closing inventory at cost.

  • remove all traces from our accounts e.g. closing inventory.

reducing balance depreciation

RB dep’n = NBV x %

NBV = cost - dep’n

• + current year dep’n to exp

  • - accumulated dep’n in NCA (last years + current years)

disposal of NCA

when a NCA is sold we need to calculate if a profit is made or a loss on disposal a/c is made.

have we depreciated enough?

-no, then we make a loss and add to exp

-too much, then we make a profit + to income

disposal account

dr disposal cr

NCA (cost) Dep’n

Bank (sale proceeds)

(profit) (loss)