CIMA BA3 Fundamentals of Financial Accounting

Flashcards covering the fundamental concepts of financial accounting, regulations, and preparation of financial statements for the CIMA BA3 syllabus.

What is the primary objective of financial statements according to IAS 1?

To provide information about the financial position, performance, and cash flows of an entity that is useful to a wide range of users in making economic decisions.

How does a limited liability company differ from a sole trader in terms of debt liability?

The business's debts and the personal debts of the owners (shareholders) are legally separate; shareholders cannot be sued for business debts unless they gave a personal guarantee.

What is the separate entity concept?

The principle that a business must be treated as being separate from its owner(s), regardless of whether it is recognized as a separate legal entity by law.

What is the accounting equation?

Assets = Capital + Liabilities.

What are 'drawings' in accounting?

Money or goods taken out of the business by the owner for personal use, which decreases the owner's investment and is deducted from capital.

What is the difference between capital and revenue expenditure?

Capital expenditure results in the acquisition or improvement of non-current assets, while revenue expenditure is for day-to-day trade or maintenance of assets.

What is the purpose of a book of prime entry?

To categorize and list financial transactions (like invoices and credit notes) as the first step in building accounting records before they are summarized in the nominal ledger.

Explain the 'imprest system' for petty cash.

A system where a business maintains a fixed float; as cash is spent, it is replaced by vouchers, and the total of cash and vouchers must always equal the preset imprest amount.

What does the mnemonic 'DEAD CLIC' stand for in double-entry bookkeeping?

Debits: Expenses, Assets, Drawings. Credits: Liabilities, Income, Capital (representing the items that increase on each side).

What is a trial balance?

A list of the debit and credit balances brought down from each nominal ledger account used to check the accuracy of the double-entry system.

How is depreciation defined in IAS 16?

The systematic allocation of the depreciable amount of an asset over its useful life.

What are the PIRATE criteria used for identifying?

The development criteria that must be met to recognize development costs as an intangible asset under IAS 38.

How should inventory be measured according to IAS 2?

At the lower of cost and net realisable value (NRV).

What is an allowance for receivables?

A prudent provision made for doubtful debts where it is uncertain if customers will pay, used to show trade receivables at a recoverable value on the statement of financial position.

What is the difference between an accrual and a prepayment?

An accrual is an expense incurred but not yet paid; a prepayment is an expense paid in advance for a future period.

What is 'output tax' in the context of sales tax?

Sales tax charged by a registered business on its sales to customers.

What components make up the 'total cost of employing' staff in payroll?

Gross pay plus employer's social security contributions and employer's pension contributions.

In a bank reconciliation, what are 'unpresented cheques'?

Cheques paid out by the business that have been recorded in the cash book but have not yet appeared on the bank statement.

What is a 'contra entry' between ledgers?

An entry used when a business is both a customer and a supplier to another party, offsetting the receivable and payable balances.

Distinguish between an error of principle and an error of commission.

Principle: Entry made to the wrong type of account (e.g., asset instead of expense). Commission: Entry made to the wrong account of the same type (e.g., different customer).

Define 'Margin' in terms of cost structures.

Gross profit expressed as a percentage of sales.

What are the components of 'Prime Cost' in manufacturing accounts?

Direct raw materials, direct labour, and direct expenses.

What are the three sections of a statement of cash flows under IAS 7?

Operating activities, Investing activities, and Financing activities.

What does the 'Quick Ratio' (acid test) measure?

Liquidity, specifically the relationship between liquid current assets (excluding inventories) and current liabilities.

What is the 'Going Concern' assumption?

The assumption that the entity will continue in operation for the foreseeable future and has neither the intention nor the need to liquidate.