KASNEB CIFA Foundation flashcards

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

Accounting equation

Assets equal liabilities plus owner's equity; every transaction preserves this balance because it affects at least two elements.

Double-entry system

Every transaction is recorded in at least two accounts with equal debits and credits, keeping the accounting equation in balance.

Trial balance

A list of ledger account balances at a date, used to check that total debits equal total credits before financial statements are prepared.

Accrual concept

Revenue is recognised when earned and expenses when incurred, regardless of when cash is received or paid.

Straight-line depreciation

Annual depreciation equals cost less residual value divided by useful life; the expense is constant each year.

Reducing-balance depreciation

Depreciation is a fixed percentage of the asset's carrying amount each year, giving higher expense early and lower expense later.

FIFO inventory method

First-in, first-out assumes the earliest purchased units are sold first, so closing inventory reflects the most recent purchase costs.

Bank reconciliation

A statement reconciling the cash book balance with the bank statement balance by adjusting for unpresented cheques, uncredited deposits and bank charges.

Prepaid expense

An expense paid in advance and not yet consumed; it is an asset at the reporting date and is later charged to profit or loss.

Capital expenditure

Spending that acquires or improves a non-current asset, such as buying machinery, and is capitalised rather than charged to profit or loss immediately.

Going concern assumption

The assumption that the entity will continue operating for the foreseeable future, so assets are not valued at break-up amounts.

Opportunity cost

The value of the next best alternative forgone when a choice is made; it is the true economic cost of a decision.

Law of demand

Other things equal, quantity demanded falls as price rises and rises as price falls, giving a downward-sloping demand curve.

Price elasticity of demand

Percentage change in quantity demanded divided by percentage change in price; an absolute value above one means elastic demand.

Income elasticity of demand

Percentage change in quantity demanded divided by percentage change in income; positive for normal goods and negative for inferior goods.

Equilibrium price

The price at which quantity demanded equals quantity supplied, leaving neither a shortage nor a surplus in the market.

Fixed cost

A cost that does not change with output in the short run, such as rent, and is incurred even when output is zero.

Perfect competition

A market with many price-taking firms selling identical products, free entry and exit, and perfect information.

Gross domestic product

The market value of all final goods and services produced within a country's borders in a period, usually a year.

Inflation

A sustained rise in the general price level, reducing purchasing power and commonly measured by the consumer price index.

Multiplier

The change in national income divided by the change in autonomous spending; it equals one divided by one minus the marginal propensity to consume.

Simple interest

Interest computed only on the original principal: I = P × r × t, where r is the annual rate and t is time in years.

Compound interest

Interest charged on principal plus accumulated interest; amount A = P(1 + r)^n and interest is A minus P.

Present value

The current worth of a future cash flow, calculated as future value divided by (1 + r)^n for n periods.

Arithmetic mean

The arithmetic average, found by adding all observations and dividing by the number of observations in the data set.

Median

The middle value of an ordered data set; for an even number of observations it is the average of the two middle values.

Mode

The observation that occurs most frequently in a data set; a distribution may have one mode, several, or none.

Standard deviation

The square root of the variance, measuring the average spread of observations around the mean in the original units.

Probability addition rule

For mutually exclusive events, the probability that A or B occurs equals P(A) plus P(B), since they cannot occur together.

Coefficient of variation

Standard deviation divided by the mean, usually expressed as a percentage; it compares relative variability across data sets.

Permutation

An ordered arrangement of r items chosen from n items, given by nPr = n! divided by (n − r)!.

Index number

A statistic expressing a value relative to a base period, usually calculated as current value divided by base value times 100.

Correlation coefficient

A number between minus one and plus one measuring the strength and direction of linear association between two variables.