KASNEB ATD 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. It underlies the double-entry system because every transaction changes at least two elements while keeping the equation in balance.

Dual aspect concept

Every transaction has two effects, a debit and a credit of equal amount, which is the basis of double-entry bookkeeping and of the trial balance.

Trial balance

A statement listing all ledger balances at a given date, debits in one column and credits in another; the two column totals must agree.

Error of principle

A transaction recorded in the wrong class of account, such as revenue expenditure treated as capital; it does not disturb the agreement of the trial balance.

Capital expenditure

Spending to acquire, construct or improve a non-current asset, or to extend its useful life; it is capitalised and depreciated instead of being charged to profit or loss.

Straight-line depreciation

The annual charge equals cost less estimated residual value, divided by useful life; an equal amount is charged in each year of the asset's life.

Bank reconciliation statement

A schedule reconciling the adjusted cash book balance with the bank statement balance by allowing for unpresented cheques, uncredited deposits, bank charges, standing orders and direct credits.

Offer and acceptance

Two essential elements of a valid contract: a definite promise by the offeror and unqualified agreement by the offeree, both communicated, which together form the agreement.

Consideration

Something of value given by each party in exchange for the other's promise; it must be sufficient but need not be adequate, and past consideration is not valid.

Business plan

A written document describing a business idea, its market, operations, management and financial projections, used to raise finance and guide the start-up.

Application software

Programs built to perform user tasks such as word processing, spreadsheets, databases and accounting packages, as distinct from the system software that runs the computer.

Profit-sharing ratio

The agreed proportion in which partnership profits and losses are divided; where the partnership deed is silent, the default is equal sharing among the partners.

Interest on drawings

Interest charged to a partner on amounts withdrawn; it reduces that partner's share of profit and is credited to the profit and loss appropriation account.

Prime cost

Direct materials plus direct labour plus direct expenses; it is the first total computed in a manufacturing account, before factory overheads are added.

Net realisable value

Estimated selling price in the ordinary course of business less estimated costs of completion and costs of sale; inventory is valued at the lower of cost and this figure.

Weighted average cost

An inventory costing method in which the cost per unit is recalculated after each purchase as total cost of goods available divided by total units available.

Receivables control account

A summary ledger account of all trade receivables; its balance should equal the total of the individual customer balances held in the sales ledger.

Suspense account

A temporary account opened to hold the difference when a trial balance does not agree; it is cleared once the errors are located and corrected.

Share premium

The excess of the issue price of shares over their nominal value; it is a capital reserve credited to equity and is not available for distribution as dividend.

Simple interest

Interest calculated only on the original principal for the whole period, using I = P × R × T, where R is the annual rate and T the time in years.

Standard deviation

The square root of the average of the squared deviations from the mean; it measures the spread or dispersion of a set of values about the mean.

Mutually exclusive events

Events that cannot occur at the same time; for such events the probability that either one occurs is the sum of their individual probabilities.

IAS 16 cost model

Property, plant and equipment is carried at cost less accumulated depreciation and accumulated impairment losses, with no revaluation recognised in the financial statements.

Revaluation model

An IAS 16 option under which property, plant and equipment is carried at fair value at the revaluation date less subsequent depreciation and impairment; upward adjustments go to other comprehensive income.

Five-step revenue model

The IFRS 15 process: identify the contract, identify performance obligations, determine the transaction price, allocate it to the obligations, and recognise revenue when each obligation is satisfied.

Overhead absorption rate

Budgeted production overhead divided by the budgeted level of activity, such as direct labour hours or machine hours, used to charge overhead to units produced.

Contribution per unit

Selling price per unit less variable cost per unit; it contributes first towards covering fixed costs and thereafter towards generating profit.

Break-even point

The level of sales at which total revenue equals total cost, so profit is zero; in units it equals fixed costs divided by contribution per unit.

Margin of safety

The excess of budgeted or actual sales over break-even sales, expressed in units, in revenue or as a percentage of budgeted sales.

Absorption costing

A costing method that includes both variable and fixed production costs in product cost, so fixed overhead remains in inventory until the finished goods are sold.

Modified audit opinion

An auditor's opinion that is qualified, adverse or a disclaimer, issued where the financial statements are materially misstated or sufficient appropriate evidence cannot be obtained.

VAT zero-rated supplies

Taxable supplies charged at 0%, so no output tax arises but input tax on related purchases remains recoverable, unlike exempt supplies where input tax is not recoverable.