CSEC POA 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. Every transaction keeps the equation in balance because each is recorded with equal debits and credits in the ledger.

Dual aspect concept

Every transaction has two effects of equal value: one account is debited and another credited, which is the basis of the double-entry system.

DEAD CLIC

A memory rule for normal balances: Debits increase Expenses, Assets and Drawings; Credits increase Liabilities, Income and Capital accounts.

Closing capital formula

Closing capital equals opening capital plus net profit minus drawings. A net loss is subtracted instead of added when computing the closing figure.

Carriage inwards versus outwards

Carriage inwards is the cost of bringing goods into the business and is added to purchases. Carriage outwards is a selling expense charged to the profit and loss account.

Sales journal purpose

Records only credit sales of goods in the trading business. Cash sales and sales of non-current assets go to the cash book or general journal instead.

Purchases returns journal

Records goods returned to suppliers on credit. Its total is debited to the payables control account and credited to the purchases returns account.

Imprest petty cash system

The petty cashier holds a fixed float. At intervals the amount spent is reimbursed from the main cash book, restoring the float to its original level.

Contra entry

A transfer between cash and bank columns of the cash book, such as cash banked or cash withdrawn for office use, recorded on both sides.

General journal use

Records non-routine entries: opening entries, corrections of errors, purchase and sale of non-current assets on credit, and year-end adjustments with narrations.

Trial balance purpose

A list of ledger balances at a date, showing debit and credit columns that must agree in total, used to check arithmetical accuracy before statements are prepared.

Error of omission

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

Error of principle

A transaction is entered in the wrong class of account, such as capital expenditure recorded as repairs, and the trial balance still balances.

Suspense account

An account opened for the difference between trial balance totals. One-sided errors are corrected by posting the missing amount to suspense until it clears.

Transposition error

Digits of an amount are reversed, such as 540 written as 450. The resulting trial balance difference is always divisible by nine.

Sales ledger control account

A summary account of trade receivables: debits for credit sales, dishonoured cheques and interest; credits for cash received, discounts, returns and bad debts.

Purchases ledger control account

A summary account of trade payables: credits for credit purchases; debits for payments, discounts received, purchases returns and set-offs, with the closing balance carried down.

Compensating errors

Two or more independent errors of equal amount on opposite sides of the ledger cancel each other, so the trial balance totals still agree.

Complete reversal of entries

The debit and credit of a transaction are entered on the wrong sides. Correction requires posting double the amount to reverse and repost correctly.

Bad debts recovered

A debt previously written off is later paid. Debit cash and credit bad debts recovered, which is other income, not a reduction of the debtor's account.

Cost of sales formula

Opening stock plus purchases plus carriage inwards minus purchases returns equals goods available; subtract closing stock to obtain the cost of goods sold.

Accrued expense

An expense incurred in the period but unpaid at year end. It is added to the expense in the profit and loss account and shown as a current liability.

Prepaid expense

An amount paid in advance for a future period. It is deducted from the expense charged and shown as a current asset in the statement of financial position.

Provision for doubtful debts

An estimate of receivables unlikely to be collected. It is charged to profit and loss and deducted from trade receivables in the statement of financial position.

Reducing balance depreciation

Annual depreciation equals a fixed percentage of the asset's net book value, giving a larger charge in early years and a smaller charge later.

Partnership appropriation account

Shows how net profit is distributed: interest on capital, partners' salaries, interest on drawings added back, and residual profit in the agreed sharing ratio.

Fixed capital account

A partner's capital account that changes only when capital is introduced or permanently withdrawn; profits, drawings and interest are recorded in the current account.

Partnership Act default rules

Without an agreement, profits and losses are shared equally, no interest on capital or salaries is allowed, and partners receive five percent interest on loans.

Goodwill on admission

A new partner pays for a share of existing goodwill; the amount is credited to the old partners' capital accounts in their old profit-sharing ratio.

Income and expenditure account

A non-profit organisation's equivalent of the profit and loss account, prepared on an accruals basis to show surplus or deficit for the period.

Receipts and payments account

A summary of actual cash and bank receipts and payments during a period, including capital items; it is not an income and expenditure account.

Accumulated fund

The equivalent of capital in a non-profit organisation: total assets less total liabilities, increased by a surplus and reduced by a deficit.