ITAA Tussentijdse Proeven flashcards

33 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 preserves this equality, which is why total debits must always equal total credits in the ledger.

Double-entry principle

Each transaction is recorded in at least two accounts with equal debits and credits, allowing the books to remain in balance and errors to be detected.

Accrual accounting

Revenue and expenses are recognised in the period they are earned or incurred, not when cash moves. Matching links costs to the income they helped generate.

Straight-line depreciation

Annual charge equals acquisition cost minus residual value, divided by the useful life in years. The same amount is booked every full year.

Declining balance depreciation

A fixed percentage is applied to the remaining carrying amount each year, producing higher charges early and lower charges later in the asset's life.

Net realisable value

Estimated selling price in the ordinary course of business minus estimated costs of completion and sale. Inventory is carried at the lower of cost and this value.

Trial balance limitation

A balanced trial balance confirms equal debits and credits only. It does not reveal omitted transactions, compensating errors or postings to the wrong account on the same side.

Accrued expense

A cost incurred in the current period but not yet invoiced or paid. It is booked as an expense with a matching liability at period end.

Prepaid expense

A payment made in advance for goods or services relating to a later period. It is recorded as an asset and released to expense as the benefit is consumed.

Provision recognition

A provision is booked when a present obligation from a past event probably requires an outflow that can be reliably estimated. Uncertain timing is acceptable.

Working capital

Current assets minus current liabilities. It measures short-term liquidity and indicates whether a business can meet obligations falling due within one year.

Current ratio

Current assets divided by current liabilities. A ratio below one signals that short-term obligations exceed the resources available to settle them.

Gross margin

Revenue minus cost of goods sold, expressed as a percentage of revenue. It shows profitability before operating and financing costs are deducted.

Journal entry structure

Each entry states the accounts debited, the accounts credited, the amounts, the date and a description linking the entry to supporting documentation.

General ledger

The master record containing all accounts of the entity. Balances from the ledger feed the trial balance and ultimately the financial statements.

Substance over form

Transactions are accounted for according to their economic reality rather than merely their legal wording, which affects recognition of assets and liabilities.

VAT mechanism

Output VAT charged on sales minus input VAT paid on purchases equals the amount payable to or refundable by the tax authority for the period.

Input VAT deduction

A taxable business may deduct VAT charged on goods and services used for its taxable activity, provided a valid invoice is held and the expense is business-related.

VAT return deadline

The periodic VAT return must be filed and the balance paid by the statutory due date; late filing triggers interest and a percentage-based penalty.

Taxable base corporate tax

Accounting profit adjusted for non-deductible expenses, exempt income, and timing differences, resulting in the taxable profit on which corporate tax is levied.

Non-deductible expenses

Costs that cannot reduce taxable profit, such as certain fines, excess car expenses and non-justified expenses, are added back to accounting profit.

Progressive tax brackets

Taxable income is split into brackets, each taxed at its own rate. Only the income within a bracket faces that bracket's rate, not the whole amount.

Marginal tax rate

The rate applied to the last unit of taxable income. It differs from the average rate, which is total tax divided by total taxable income.

Withholding tax

Tax deducted at source by the payer on dividends, interest or royalties and remitted to the treasury, often at a reduced treaty rate after formalities.

Advance tax payments

Prepayments of corporate tax during the year. They reduce the final liability, and insufficient prepayments lead to a surcharge on the shortfall.

Documentation requirement

An expense is deductible only if supported by adequate proof identifying the parties, the nature and the amount, and if it is booked in the correct period.

Tax residency

Residence determines which state may tax worldwide income. It is usually based on domicile, place of habitual abode or days spent in the country.

Double taxation treaty

A bilateral agreement allocating taxing rights between states, typically allowing the residence state to grant relief for tax already paid in the source state.

Transfer pricing principle

Intra-group transactions must be priced as if concluded between independent parties at arm's length; deviation allows the tax authority to adjust taxable profit.

Tax loss carry-forward

A trading loss may be offset against profits of later years, subject to national time limits and rules on change of ownership or activity.

Dividend withholding rate

The rate applied to distributed dividends at source. It depends on national law and treaty relief, and reduced rates usually require prior notification.

Fiscal year alignment

Income and expenses must be attributed to the financial year to which they economically belong, so timing adjustments are made at period end.

Tax audit trail

Consistent booking, sequential numbering and retention of invoices allow the tax authority to trace declared figures back to underlying transactions.