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Accounting U1

Unit 1 -Accounting

QuestionAnswer
Current Asset a resource controlled by the entity (as a result of a past event) from which a future economic benefit is expected for in the next 12 months or less.
Non Current Asset a resource controlled by the entity (as a result of a past event) from which a future economic benefit is expected for more than 12 months.
Current Liability a present obligation of the entity (arising from past events) the settlement of which is expected to result in an outflow of economic benefits in the next 12 months.
Non Current Liability a present obligation of the entity (arising from past events) the settlement of which is expected to result in an outflow of economic benefits sometime after the next 12 months.
Owners Equity the residual interest in the assets of the entity after the liabilities are deducted.
Equities claims on the assets of the firm, consisting of both liabilities and owner's equity.
Indicator a measure that expresses profitability, liquidity of stability in terms of the relationship between 2 different elements of performance.
Liquidity the ability of a business to met its short term debts as they fall due.
Stability the ability of a business to meet its debts and continue its operations in the long term.
WCR Working Capital Ratio: liquidity indicator-measures ration of CA/CL.
Debt Ratio measures proportion of the firm's assets that are funded by external sources. TL/TA x100
Internal Control procedures and strategies used to protect the firm's assets from theft, damage and misuse.
Cash Control procedures and strategies used to protect the firm's cash.
Internal Control e.g.s physical safeguards, preventative safeguards, separation of duties, rotation of duties, careful hiring practices, effective employee training.
Cash Control e.g.s All cash transactions verified by source docs, payments made by cheque, petty cash system, BR conducted regularily.
Bank Reconciliation the process of verifying that the entries in a firm's cash journals are the same as those recorded by the firm's bank on the bs.
Bank Statement a record kept by the bank of all transactions affecting a particular bank account.
Direct Credit a deposit of cash directly into a bank account.
Direct Debit a withdrawal of cash directly from a bank account.
Dishonoured Cheque a cheque that cannot be honoured/exchanged for cash because there are insufficient funds in the account of the drawer to allow the payment to be made. Must be recorded as a negative cash receipt.
Deposit Not Yet Credited a cash deposit that is yet to appear on the bank statement (usually due to the timing of its preparation)
Unpresented Cheque a cheque that has not yet been presented for payment by the payee.
BRS report which attempts to explain the difference between the bb determined in the firm's records and the bb reported on the bank statement.
Budgeting process of predicting/estimating the financial consequences of future events.
How does budgeting assist in planning? by predicting what is likely to occur in the future the owner is able to prepare in advance so that possible problems may be managed and possible opportunities taken.
How does budgeting assist in decision making? provides a standard which actual performance can be measured. This allows for the owner to identity areas which performance is unsatisfactory and corrective action be taken.
How is budgeting a process? Budgeting is a continuous process that never ends because it is a cycle. Budgeted reports made, actual reports made, variance reports prepared to highlight differences/problem areas, decisions made to improve business then repeat.
If there is a Budgeted Surplus: purchase more or newer NCA, increase drawings, increase loan repayments, expand operating activities:ads, employing more staff.
If there is a Budgeted Deficit: capital contribution, organise bank overdraft facility, increase cash fees: ads, change prices, offer more services, special offers, decrease expenses: less drawings, defer loan repayment, defer purchase of NCA
advantages of Cash Budgeting over consecutive periods regularly: More frequently than once a year:more accurate, benchmarks more accurate for decision making, allows earlier detection for problems. can aid planning as it allows owner to assess when to undertake particular cash activity and is more accurate.
Revenue an inflow of economic benefit (or saving in an outflow) in the form of an increase in assets (or decreasing in liabilities), as a result of business operations, that increase O.E (except capital contributions).
Expense an outflow or consumption of an economic benefit (or reduction in an inflow) in the form of a decrease of assets (or increase in liabilities) as a result of business operations, that decreases O.E (except drawings).
Created by: 96