QCAA Accounting flashcards

31 cards. Read the term and the definition here. The deck at the top of this page is optional.

Accounting equation

Assets equal liabilities plus equity. Every transaction changes at least two elements while keeping the equation balanced, which underpins double-entry recording.

Accrual accounting

Revenue is recorded when earned and expenses when incurred, not when cash changes hands. It matches expenses against the revenue they helped generate.

Prepaid expense adjustment

A deferral where cash is paid before the expense is incurred. The adjusting entry debits the expense and credits the prepaid asset for the portion consumed.

Straight-line depreciation

Annual depreciation equals cost minus residual value, divided by useful life. It spreads the depreciable amount evenly across the asset's expected service period.

Reducing balance depreciation

Depreciation equals the opening carrying amount multiplied by a fixed rate. Charges are higher in early years and decline as the carrying amount falls.

Closing entries

Entries that transfer revenue, expense and drawings balances to equity via the income summary, resetting temporary accounts to zero for the next period.

Trial balance limitation

A trial balance only confirms total debits equal total credits. It cannot reveal omitted transactions, compensating errors, or postings to wrong accounts on the same side.

Current asset definition

An asset expected to be realised, sold or consumed within twelve months or the operating cycle, such as cash, receivables and inventory.

Contribution margin

Sales revenue minus variable costs. It is the amount available to cover fixed costs and then contribute to profit, and is central to cost-volume-profit analysis.

Break-even point

The sales volume at which total revenue equals total cost and profit is zero. In units it equals fixed costs divided by contribution per unit.

High-low method

Splits mixed cost into fixed and variable components using the highest and lowest activity levels. Variable rate equals cost difference divided by activity difference.

Margin of safety

Actual or budgeted sales minus break-even sales. It measures how far sales can fall before the business makes a loss.

Absorption costing

Product cost includes direct materials, direct labour and both variable and fixed manufacturing overhead. Fixed overhead is allocated to units produced and carried in inventory.

Variable costing

Only variable manufacturing costs are product costs; fixed overhead is expensed as a period cost. Profit differs from absorption costing by inventory change times the overhead rate.

Predetermined overhead rate

Budgeted manufacturing overhead divided by the budgeted allocation base. It allows overhead to be applied to products as they are produced rather than at period end.

Sunk cost

A cost already incurred that cannot be recovered by any future decision. It is irrelevant to decision-making and must be excluded from relevant cost analysis.

Relevant cost criteria

A cost is relevant only if it is a future cost and differs between the alternatives being compared. Past costs and unchanged costs are excluded.

Segregation of duties

Separating custody of assets, authorisation of transactions and record keeping so no single person can both commit and conceal an error or fraud.

Bank reconciliation purpose

Reconciles the ledger cash balance with the bank statement, explaining timing differences and errors, and acting as an independent check against fraud.

Deposits in transit

Cash receipts recorded in the business ledger but not yet processed by the bank. They are added to the bank statement balance in the reconciliation.

Unpresented cheques

Cheques written and recorded by the business but not yet cleared by the bank. They are deducted from the bank statement balance in the reconciliation.

Control account

A general ledger summary of a subsidiary ledger such as accounts receivable. Its balance must equal the sum of individual subsidiary ledger balances.

GST net settlement

A business collects GST on sales and claims credits on purchases. The net amount, GST collected minus GST paid, is remitted to the tax authority.

Internal control components

Control environment, risk assessment, control activities, information and communication, and monitoring. Together they form the framework for preventing and detecting misstatement.

Pre-numbered documents

Sequentially numbered source documents allow missing or duplicated transactions to be detected, providing an audit trail and deterring unauthorised recording.

Payback period

The time for cumulative net cash inflows to equal the initial investment. Shorter payback is preferred, but the method ignores cash flows after payback.

Net present value

Present value of cash inflows minus the initial outlay, discounted at the required rate. A positive NPV means the project adds value and should be accepted.

Internal rate of return

The discount rate at which a project's net present value equals zero. Accept a project when the IRR exceeds the required rate of return.

Special order decision

Accept only if incremental revenue exceeds incremental costs and spare capacity exists. Existing fixed costs unchanged by the order are irrelevant.

Opportunity cost

The contribution forgone from the best alternative use of a resource. It is relevant whenever a decision uses scarce capacity that could earn income elsewhere.

Accounting rate of return

Average annual accounting profit divided by average investment, expressed as a percentage. It uses profit rather than cash flow and ignores the time value of money.