ACCT1005: Financial Accounting - Cash Flows & Errors

These flashcards cover key concepts related to cash flows and errors in financial accounting as outlined in ACCT1005 lecture notes.

Statement of Cash Flows

Depicts the way cash has changed during an accounting period, showing where cash came from (inflow) and how it was used (outflow).

Operating Activities

Main revenue-producing activities of an entity that are not investing or financing activities, including cash received from customers and cash paid to suppliers and employees.

Investing Activities

Acquisition and disposal of non-current assets and other investments that are not considered to be cash equivalents.

Financing Activities

Activities that alter the equity capital and borrowing structure of the entity.

Working Capital

The money available to meet current, short-term obligations, calculated as current assets minus current liabilities.

Solvency

The ability of the business to meet financial obligations as they become due.

Net Income % (Net Profit Margin)

Shows how much profit is generated on every dollar of sales, calculated as Net Income divided by Total Revenue or Net Sales Revenue.

Return on Owner’s Equity

Measures the net profits generated by the business based on each dollar of owner’s investment, calculated as Net Income divided by Average Owner’s Equity.

Error of Omission

When a financial transaction is not recorded at all, leading to inaccuracies in accounting records.

Error of Commission

Mistake made by recording a transaction in the wrong account of the same class.

Error of Principle

Classifying a transaction incorrectly, such as debiting the wrong type of account.

Error of Original Entry

When an incorrect figure is recorded from source documents, affecting the accuracy of financial statements.

Compensating Error

Errors that cancel or balance each other out, not affecting the overall accuracy of accounts.

Suspense Account

A temporary account used to hold entries until the final destination of the entry is determined.

Single-Sided Entry

An incomplete double entry error where only one side of a transaction is recorded, affecting the balance.

Mathematical Errors

Mistakes in calculations, including slide errors and transposition errors that affect account balances.