Cameroon GCE O-Level 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 Capital plus Liabilities. The expanded form is Assets = Capital + Profit - Drawings + Liabilities, and it must balance after every transaction.

Going Concern Concept

The assumption that the business will continue in operation for the foreseeable future, so assets are valued on a continuing basis rather than at break-up values.

Accruals (Matching) Concept

Revenue and expenses are recognised in the period they are earned or incurred, regardless of when cash is received or paid, so profit reflects the period's activity.

Prudence Convention

Accounting should not anticipate profits but must provide for all known losses and liabilities. Stock is valued at the lower of cost and net realisable value.

Imprest System

A petty cash system with a fixed float. At the period end, vouchers are totalled and reimbursed so that cash in hand plus vouchers equals the imprest amount.

Journal Proper

The book of original entry for transactions with no other day book, such as opening entries, credit purchase of non-current assets, correction of errors and year-end adjustments.

Credit Note

A document issued by a supplier to reduce the amount owed by a customer, usually for goods returned or overcharged. It records returns inwards or returns outwards.

Sales Day Book

A book of original entry recording credit sales only, analysed by customer. Cash sales are entered directly in the cash book, not in this book.

DEAD CLIC Rule

Debits increase Expenses, Assets and Drawings; Credits increase Liabilities, Income and Capital. This rule guides the double entry for each transaction.

Suspense Account

A temporary account opened for the difference in a trial balance. It is cleared when the underlying errors are found and corrected, and is not a real ledger account.

Error of Principle

A double entry that is arithmetically correct but records the transaction in the wrong class of account, such as debiting a repair to a non-current asset account.

Bank Reconciliation Statement

A statement reconciling the adjusted cash book balance with the bank statement balance by allowing for unpresented cheques, uncredited deposits and bank errors.

Cost of Goods Sold

Opening stock plus purchases plus carriage inwards minus returns outwards minus closing stock. It is deducted from sales to give gross profit in the trading account.

Provision for Doubtful Debts

An estimate of debts likely to prove irrecoverable, deducted from debtors in the balance sheet. An increase is an expense; a decrease reduces the expense.

Prepayment

An expense paid in advance for a period not yet consumed. It is a current asset in the balance sheet and is credited to the expense account.

Accrued Expense

An expense incurred but not yet paid at the year end. It is debited to the expense account and shown as a current liability in the balance sheet.

Straight-Line Depreciation

A method charging an equal annual amount, calculated as cost minus residual value divided by useful life, so the asset is written down to residual value.

Reducing Balance Depreciation

A method charging a fixed percentage on the net book value each year, giving a higher charge in early years and never fully writing off the asset.

Disposal Account

A ledger account debited with cost and credited with accumulated depreciation and sale proceeds. Its balance is the profit or loss on disposal.

Asset Register

A record of each non-current asset showing cost, purchase date, depreciation rate, accumulated depreciation, location and disposal details, supporting the ledger figures.

Sales Ledger Control Account

A summary account of all debtors. It is debited with credit sales and credited with receipts, discounts allowed, returns inwards and bad debts written off.

Statement of Affairs

A list of assets and liabilities used in incomplete records to derive capital at a date, from which profit is found by comparing opening and closing capital.

Mark-up versus Margin

Mark-up is gross profit as a percentage of cost of goods sold; margin is gross profit as a percentage of sales. Margin is always lower than mark-up.

Partnership Appropriation Account

An account starting with net profit, deducting partners' salaries and interest on capital, adding interest on drawings, then sharing the remainder in the profit-sharing ratio.

Partners' Current Accounts

Accounts used with fixed capital to record each partner's share of profit, drawings, interest on capital and salary, without altering the capital account balance.

Goodwill on Admission

When a new partner is admitted, goodwill brought in is credited to the old partners in their old profit-sharing ratio, compensating them for established reputation.

Debenture

A long-term loan to a company carrying a fixed rate of interest, which is charged to the profit and loss account and shown as a non-current liability.

Share Premium

The amount received on issuing shares above their nominal value. It is a capital reserve and cannot be distributed as a dividend.

Prime Cost

Direct materials plus direct labour plus direct expenses. It excludes factory overheads and is the starting point of the manufacturing account.

Overhead Absorption Rate

Budgeted factory overheads divided by the budgeted activity base such as labour hours or machine hours, used to charge overheads to production.

Current Ratio

Current assets divided by current liabilities. It measures short-term liquidity, and a value near 2:1 is often considered satisfactory, though norms vary by industry.

Return on Capital Employed

Operating profit divided by capital employed, expressed as a percentage, where capital employed equals total assets minus current liabilities. It measures profitability of funds used.