BGCSE Accounting 1442 flashcards

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

Going concern assumption

The assumption that a business will continue operating in the foreseeable future, so assets are not valued at forced-sale prices.

Accruals concept

Revenue is recognised when earned and expenses when incurred, regardless of when cash is received or paid, matching costs with related income.

Prudence convention

Accounting caution that avoids overstating assets or income and avoids understating liabilities or expenses when conditions are uncertain.

Business entity concept

The business is treated as separate from its owner for accounting purposes, so personal transactions are excluded from the business records.

Sales day book

A book of original entry listing credit sales invoices issued to customers, whose total is posted to sales and receivables control.

Petty cash imprest

A fixed cash float restored by reimbursing exactly the amount spent, so the balance returns to the original imprest amount.

General journal

A book of original entry used for non-routine transactions, corrections, opening entries and adjustments that cannot be recorded in specialised day books.

Discount received

A reduction granted by a supplier when a payable is settled; it is credited to discount received and debited to the payables control account.

Suspense account

A temporary account holding the difference between trial balance totals until errors causing the imbalance are found and corrected.

Error of principle

An error where a transaction is recorded in the wrong class of account, such as treating a machine purchase as an expense.

Compensating errors

Two or more independent errors that cancel each other in amount, so the trial balance still balances despite incorrect ledger balances.

Error of omission

A transaction is completely left out of the accounting records, so both debit and credit are missing and the trial balance still balances.

Sales ledger control

A summary account for credit customers; it records opening balances, credit sales, receipts, discounts allowed and sales returns to give the closing receivable balance.

Unpresented cheque

A payment recorded in the cash book but not yet debited by the bank; it is deducted from the bank statement balance in a reconciliation.

Bank reconciliation

A statement explaining differences between the cash book and bank statement by adjusting for unpresented cheques, uncredited deposits, bank charges and errors.

Contra set-off

An entry debiting the payables control account and crediting the receivables control account when the same party is both customer and supplier.

Gross profit

Revenue minus cost of sales; cost of sales equals opening inventory plus purchases and carriage inwards minus returns outwards and closing inventory.

Capital employed

For a sole trader, capital plus non-current liabilities, or total assets minus current liabilities; the long-term funds financing the business.

Accrued expense

An expense incurred but not yet paid; it is added to the expense in the income statement and shown as a current liability.

Prepaid expense

An expense paid in advance but not yet incurred; it is deducted from the expense and shown as a current asset.

Profit-sharing ratio

The agreed proportion in which residual partnership profits or losses are divided among partners after salaries, interest on capital and interest on drawings.

Partnership current account

A ledger account recording a partner's drawings, interest on drawings, interest on capital, salary and share of profit; it is not fixed capital.

Interest on drawings

A charge debited to each partner's current account and credited to the appropriation account, reducing that partner's share of residual profit.

Goodwill on admission

The new partner pays for a share of existing goodwill; the credit is shared among old partners in their old profit-sharing ratio.

Receipts and payments account

A cash-based summary of all money received and paid by a non-profit organisation during a period, regardless of when income was earned.

Income and expenditure account

An accrual-based account showing income earned and expenses incurred by a non-profit organisation; its balance is a surplus or deficit.

Accumulated fund

The non-profit organisation's equivalent of capital; it equals total assets minus total liabilities and increases by a surplus or decreases by a deficit.

Subscriptions in arrears

Amounts owed by members for past subscription periods; they are current assets in the statement of financial position and income in the period earned.

Gross profit margin

Gross profit divided by revenue, expressed as a percentage; it shows the proportion of sales remaining after cost of sales.

Quick ratio

Current assets excluding inventory and prepayments divided by current liabilities; a stricter liquidity measure than the current ratio.

Return on capital employed

Operating profit divided by capital employed, expressed as a percentage; it measures profit generated from long-term funds invested in the business.

Gearing ratio

Debt divided by debt plus equity, often expressed as a percentage; it indicates financial risk from borrowing.