BCS Written Accounting flashcards

32 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 keeps this equality intact, so total debits always equal total credits in amount.

Accrual Concept

Revenue is recorded when the performance obligation is satisfied and expenses when incurred, regardless of cash timing. Period-end adjustments align the accounts with this principle.

Lower of Cost and NRV

Inventory is measured at the lower of cost and net realisable value, where NRV is estimated selling price less costs to complete and sell. This prevents assets being overstated.

Contribution per Unit

Selling price minus variable cost per unit. It measures how much each unit sold contributes towards covering fixed costs and then generating profit.

Break-Even Point

The activity level at which total contribution equals fixed costs and profit is zero. In units it equals fixed costs divided by contribution per unit.

Overhead Absorption Rate

Budgeted overhead divided by the budgeted activity base, such as labour hours or machine hours. It allocates indirect costs to products for costing and pricing decisions.

Material Price Variance

Standard price minus actual price, multiplied by actual quantity purchased or used. A positive figure is favourable because materials cost less than standard.

Relevant Cost

A future incremental cash flow that differs between alternatives. Sunk costs and apportioned fixed overheads are excluded because they do not change with the decision.

Audit Risk Model

Audit risk equals inherent risk times control risk times detection risk. The auditor manages detection risk by varying the nature, timing and extent of substantive procedures.

Performance Materiality

An amount set below overall materiality to reduce to an appropriately low level the probability that uncorrected and undetected misstatements exceed materiality for the financial statements.

Modified Audit Opinion

Issued as qualified, adverse or a disclaimer of opinion. Qualification arises from material but not pervasive misstatement or insufficient evidence; adverse or disclaimer arise when pervasive.

Segregation of Duties

No single person should authorise, record and custody the same asset. Splitting these functions reduces the risk of error and fraud going undetected.

Taxable Income

Accounting profit adjusted for disallowed expenses such as accounting depreciation and for allowable deductions such as capital allowances, giving the base on which tax is charged.

Withholding Tax

Tax deducted at source by the payer on specified payments such as dividends, interest and royalties. It is credited against the recipient's final tax liability.

Capital Allowance

A tax deduction for capital expenditure on qualifying assets, replacing accounting depreciation. Initial allowance applies on acquisition and annual allowance on the reducing balance.

Tax Avoidance versus Evasion

Avoidance arranges affairs within the letter of the law to reduce tax; evasion uses concealment or false statements and attracts penalties and criminal liability.

Valid Contract Elements

Offer, acceptance, consideration, intention to create legal relations and capacity. If any element is missing the agreement may be void, voidable or unenforceable.

Director's Fiduciary Duty

Directors must act in good faith in the company's interest, exercise reasonable care and skill, avoid conflicts of interest and not misuse company property or information.

Separate Legal Personality

A company is a legal person distinct from its members and directors. Courts pierce the veil only exceptionally, such as where the company is a facade for fraud.

Net Present Value

The sum of future cash flows discounted at the cost of capital, less the initial investment. Positive NPV projects add value and should be accepted.

Weighted Average Cost of Capital

The blended required return on a firm's equity and debt, weighted by market values, with debt cost adjusted for tax relief on interest payments.

Capital Asset Pricing Model

Required return on equity equals the risk-free rate plus beta multiplied by the market risk premium. Beta measures the sensitivity of returns to systematic risk.

Working Capital Cycle

Inventory days plus receivable days minus payable days. It measures how long cash is tied up in operations before collection from customers.

Consolidated Fund

The main government account into which general revenues are paid. Withdrawals generally require legislative appropriation through an annual budget act.

Value for Money Audit

Examines economy in acquiring inputs, efficiency in converting inputs to outputs, and effectiveness in achieving intended outcomes of public programmes.

IPSAS

International Public Sector Accounting Standards, issued for public sector entities. They follow accrual accounting and converge with IFRS for comparable transactions.

Commitment Accounting

Records obligations when orders are placed, before cash payment. It prevents departments from overspending an appropriation during the year.

Input Controls

Checks applied at data entry such as batch totals, hash totals, validity checks and format checks. They detect errors before transactions enter processing.

General IT Controls

Controls over access security, change management, backup and disaster recovery that support the reliable operation of all application systems.

Audit Trail

A logged record enabling each transaction to be traced from source document to ledger and back, including time stamps and user identification.

Test Data Technique

The auditor submits valid and invalid transactions to a client system to see whether programmed controls accept and reject them as expected.

Digital Signature

A cryptographic mechanism that authenticates the sender and confirms the message was not altered, providing non-repudiation for electronic transactions.