KASNEB CPA Foundation flashcards

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

Accounting equation

Assets equal liabilities plus capital. Every transaction affects at least two items and keeps the equation balanced after recording.

Double-entry principle

Each transaction is recorded with equal total debits and credits. Debits increase assets and expenses; credits increase liabilities, capital and income.

Opportunity cost

The value of the next best alternative forgone when a choice is made. It is an economic cost even when no cash payment occurs.

Price elasticity of demand

Percentage change in quantity demanded divided by percentage change in price. Absolute values above one indicate elastic demand; below one indicate inelastic demand.

Valid contract essentials

Offer, acceptance, consideration, intention to create legal relations, capacity and legality. Missing an essential element can make an agreement unenforceable.

Invitation to treat

An invitation for others to make offers, not an offer itself. Displays of goods, auctions and tenders are generally treated as invitations to treat.

Business entity concept

The business is treated as separate from its owners for accounting purposes. Owner transactions are recorded as capital or drawings, not as business income or expenses.

Trial balance

A list of ledger account balances at a date. Equal debit and credit totals show arithmetic consistency but do not prove the ledger is free from errors.

Working capital

Current assets minus current liabilities. It measures short-term liquidity and the funds available to finance day-to-day operations.

Break-even point

The sales level where total revenue equals total cost and profit is zero. In units it equals fixed costs divided by contribution per unit.

Capital versus revenue

Capital expenditure acquires or improves non-current assets; revenue expenditure covers day-to-day running costs. The classification affects profit and asset carrying amounts.

IFRS 15 five steps

Identify the contract, identify performance obligations, determine transaction price, allocate price to obligations, and recognise revenue when each obligation is satisfied.

Audit risk model

Audit risk is inherent risk multiplied by control risk multiplied by detection risk. Auditors assess the first two and plan procedures to reduce detection risk.

Materiality in audit

The amount of misstatement that could influence economic decisions of users. It guides planning, procedure design and evaluation of uncorrected misstatements.

Going concern assumption

Financial statements are prepared assuming the entity will continue operating for the foreseeable future. Doubt requires disclosure or, if inappropriate, a different basis.

Deferred tax

Tax arising from temporary differences between an asset or liability's carrying amount and its tax base. It is recognised as a deferred tax asset or liability.

Contribution margin

Sales revenue minus variable costs. It contributes first to covering fixed costs and then to profit; the contribution-to-sales ratio expresses it as a percentage.

Material price variance

Standard price minus actual price, multiplied by actual quantity purchased. A positive result is favourable; a negative result is adverse.

IFRS 16 lessee model

A lessee recognises a right-of-use asset and a lease liability measured at the present value of lease payments, with limited exceptions for short-term and low-value leases.

Internal control components

Control environment, risk assessment, control activities, information and communication, and monitoring. Together they support achievement of operational, reporting and compliance objectives.

Taxable business income

Accounting profit adjusted for non-deductible expenses, non-taxable income and tax allowances. The result is taxed under the applicable income tax rules.

Substantive audit procedures

Tests of details and substantive analytical procedures designed to detect material misstatements at assertion level. They complement tests of controls.

IFRS 10 control

An investor controls an investee when it has power over relevant activities, exposure to variable returns, and ability to use power to affect those returns.

Consolidated goodwill

Consideration transferred plus non-controlling interest plus fair value of previously held interest, less fair value of net identifiable assets acquired.

Basic earnings per share

Profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the period.

Key audit matters

Matters most significant in the audit of current-period financial statements, selected from those communicated with those charged with governance.

Arm's length principle

Related-party transactions should be priced as if independent parties dealt on commercial terms. It underpins transfer pricing rules and documentation requirements.

Amortised cost measurement

A financial asset or liability measured using the effective interest method, adjusted for principal repayments and cumulative impairment for assets.

Corporate governance principles

Accountability, transparency, fairness and responsibility guide how entities are directed and controlled to protect stakeholder interests.

Audit sampling

Application of audit procedures to less than 100 percent of items in a population so each sampling unit has a chance of selection, enabling conclusions about the population.

Capital gains tax

Tax on net gain from transfer of property. In Kenya the rate is 15 percent of the net gain, subject to applicable exemptions and adjustments.

Weighted average shares

Ordinary shares outstanding adjusted for the portion of the period they were outstanding. It is used in earnings per share calculations.