BGCSE Bookkeeping & Accounts flashcards

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

Accounting equation

Assets = Capital + Liabilities. Every transaction affects at least two items and the equation must stay balanced after each entry is recorded.

Going concern

The assumption that the business will continue trading for the foreseeable future, so assets are valued at cost less depreciation rather than break-up value.

Accruals concept

Revenue and expenses are recognised in the period they are earned or incurred, regardless of when cash is received or paid.

Business entity concept

The owner's private affairs are recorded separately from the business, so personal spending is treated as drawings rather than a business expense.

DEAD CLIC

A memory rule for debit and credit: Debits increase Expenses, Assets and Drawings; Credits increase Liabilities, Income and Capital.

Sales day book

A book of original entry listing credit sales invoices in date order; its period total is posted by debiting Trade Receivables and crediting Sales.

General journal

A book of original entry used for non-routine transactions such as correcting errors, opening entries and credit purchases of fixed assets, each with a narration.

Credit note

A document issued by a seller to a customer reducing the amount owed, usually for returned goods; it is recorded in the sales returns book.

Trial balance

A list of all ledger balances at a date, with debits in one column and credits in another, whose totals should agree if postings are arithmetically correct.

Error of principle

An error where a transaction is entered in the wrong class of account, such as capital expenditure recorded as a revenue expense; it does not affect trial balance agreement.

Suspense account

A temporary account opened on the credit or debit side to hold the difference in a trial balance until the errors causing it are located and corrected.

Compensating errors

Two or more separate errors that cancel each other out, so the trial balance still agrees even though the ledger contains mistakes.

Unpresented cheques

Cheques written and entered in the cash book but not yet cleared through the bank; they are deducted from the bank statement balance in a reconciliation.

Trade receivables control account

A summary ledger account of total amounts owed by credit customers, checked against the sum of individual receivables ledger balances.

Contra entry

A set-off where the same business is both customer and supplier of another firm; equal amounts are removed from both receivables and payables.

Straight-line depreciation

An equal annual charge calculated as cost less residual value, divided by the number of years of expected useful life.

Accumulated depreciation

The total depreciation charged on an asset since purchase; it is deducted from cost to give net book value in the statement of financial position.

Prepaid expense

An amount paid in one period that relates to a later period; it is carried forward as a current asset and charged as an expense when used.

Provision for doubtful debts

An estimate of receivables unlikely to be collected, created by an expense and shown as a deduction from trade receivables.

Cost of sales

Opening inventory plus purchases plus carriage inwards, less purchases returns, less closing inventory; it is deducted from sales to give gross profit.

Gross profit margin

Gross profit divided by sales, expressed as a percentage; it shows the proportion of each sales dollar left after the direct cost of goods sold.

Capital account (sole trader)

The owner's equity balance, increased by net profit and new capital introduced, and reduced by drawings and any net loss for the period.

Quick ratio

Current assets excluding inventory, divided by current liabilities; it tests whether short-term debts can be met without selling stock.

Partnership appropriation account

An account showing how net profit is divided: interest on capital, partners' salaries, interest on drawings, then the residual shared in the agreed ratio.

Partners' current accounts

Accounts recording each partner's drawings, salaries, interest on capital and drawings, and share of profit, while capital accounts remain fixed.

Income and expenditure account

The accruals-based statement of a non-profit organisation showing income earned less expenditure incurred, producing a surplus or deficit rather than profit.

Accumulated fund

The equivalent of capital in a non-profit organisation, calculated as total assets minus total liabilities and increased by any surplus.

Share premium

The amount received above the nominal value of shares issued; it is recorded as a capital reserve and is not available for paying dividends.

Debenture

A long-term loan to a company carrying a fixed rate of interest, shown as a non-current liability rather than as part of shareholders' equity.

Rights issue

An offer of new shares to existing shareholders, usually below market price and in proportion to current holdings, raising additional finance for the company.

Return on capital employed

Net profit divided by capital employed, expressed as a percentage; it measures how efficiently the finance invested in the business generates profit.

Gearing ratio

Long-term debt divided by debt plus equity, expressed as a percentage; a high figure indicates greater financial risk from fixed interest commitments.