FINANCIAL ACCOUNTING, Y1, BCU

What is the purpose of financial accounting?

To provide financial information to external users for decision-making.

What is the accounting equation?

Assets = Liabilities + Equity

What is double entry?

Every transaction has a debit and a credit entry.

What is duality?

Every transaction affects two accounts

What does the Statement of Financial Position show?

Financial position at a point in time.

What does the Statement of Profit or Loss show?

Performance over a period.

Define an asset.

Resource controlled with future economic benefits.

Define a liability.

Obligation to transfer economic benefit.Obligation to transfer economic benefit.

Define capital / equity.

Residual interest after liabilities.

Examples of current assets?

Inventory, receivables, cash

Examples of non-current assets?

Buildings, vehicles, machinery

Examples of current liabilities?

Payables, tax, expenses, short-term loans (less than 12 months).

Examples of non-current liabiities?

Long-term loans (over 12 months.)

What are drawings?

Money withdrawn from the business for the owener’s personal use.

What is income?

Earnings in a period.

What are expenses?

Costs incurred to earn income.

Formula for profit?

Income – Expenses

What is gross profit?

Sales - Cost of Sales.

Cost of sales formula?

Opening inventory + purchases – closing inventory

What is opening inventory?

Stock from previous period

What is closing inventory?

Unsold stock (asset)

What increases profit?

Higher income or lower expenses

What decreases profit?

Higher expenses

Examples of expenses?

Wages, rent, electricity

What is net profit?

Final profit after expenses

Profit goes where?

Capital

Drawings effect?

Reduce capital

Debit increases what?

Debit, Expenses, Aseets, Drawings

Credit increases what?

Credit, Income, Capital, Liabilities

Cash sale entry?

Dr Cash, Cr Sales

Credit Sale Entry?

Dr Receivables, Cr Sales

Cash purchase entry?

Dr Purchases, Cr Cash

Credit purchase entry?

Dr Purchases, Cr Payables

Payment to supplier?

Dr Payables, Cr Bank

Customer pays?

Dr Bank, Cr Receivables

Drawings entry?

Dr Drawings, Cr bank

What is a ledger?

Collection of accounts

What is a T-account?

Format for recording transactions

What is balancing off?

Finding account balance

Balance c/f means?

Carried forward

Balance b/f means?

Bought forward

What is trial balance?

List of balances

Trade discount?

Not recorded

Cash discount?

Recorded

Discount allowed?

Expense

Discount recieved?

Income

Entry for discount allowed?

Dr Discount allowed, Cr Receivables

Entry for discount received?

Dr Payables, Cr Discount recieved

Sales return entry?

Dr Returns inwards, Cr Receivables

Purchase return entry?

Dr Payables, Cr Returns outwards

Returns inwards = ?

Sales returns

Returns outwards = ?

Purchase returns

What is depreciation?

Allocation of asset costs