KASNEB CS21 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 changes at least two elements while keeping this equality intact, forming the basis of double-entry bookkeeping.

Accrual concept

Revenue is recognised when earned and expenses when incurred, not when cash changes hands. The matching principle pairs expenses with the income they helped generate.

Straight-line depreciation

Annual charge equals cost less residual value, divided by useful life. It spreads the depreciable amount evenly across the asset's expected period of use.

Trial balance limitation

A trial balance proves debits equal credits but cannot detect errors of omission, principle, commission or compensating errors that cancel each other out.

Lower of cost and NRV

IAS 2 requires inventory to be measured at the lower of cost and net realisable value, ensuring assets are not carried above amounts expected to be recovered.

Net present value

The sum of discounted future cash flows minus the initial investment. A positive NPV means the project adds value at the given cost of capital.

Weighted average cost of capital

The blended required return on a firm's equity and debt, weighted by market values, with interest on debt adjusted for the tax shield.

Capital asset pricing model

Required equity return equals the risk-free rate plus beta multiplied by the market risk premium. Only systematic risk is rewarded because unsystematic risk is diversifiable.

Internal rate of return

The discount rate at which a project's NPV equals zero. A project is acceptable when its IRR exceeds the firm's required rate of return.

Cash operating cycle

Inventory days plus receivable days minus payable days. It measures how long cash is tied up before returning from trading operations.

Profitability index

Present value of cash inflows divided by the initial investment. An index above one indicates positive NPV and is useful when capital is rationed.

Five Cs of credit

Character, capacity, capital, collateral and conditions are the standard criteria for assessing a borrower's willingness and ability to repay.

Expected credit loss

Probability of default multiplied by loss given default multiplied by exposure at default. It estimates the average loss on a credit portfolio.

Credit scoring

A statistical model assigning weighted points to borrower characteristics. Applicants above a cut-off score are accepted; the model needs regular validation.

Receivables aging schedule

A report grouping debtors by how long balances have been outstanding. Growing proportions in older brackets signal deteriorating collection and credit quality.

Floating charge

Security over a changing pool of assets such as inventory. The lender's claim crystallises on default or on the occurrence of a specified event.

Agency problem

The conflict arising when managers, as agents, pursue their own interests rather than those of shareholders. Monitoring, incentives and disclosure mitigate it.

Audit committee role

An independent board committee that oversees financial reporting, external and internal audit, and internal control, reporting its findings to the board.

Separation of duties

No single person should authorise, record and custody the same asset. Splitting these functions reduces the opportunity for fraud and undetected error.

Span of control

The number of subordinates reporting to one manager. Narrow spans suit complex or high-risk work; wide spans depend on standardisation and staff competence.

Risk treatment options

Identified risks may be avoided, reduced, transferred to a third party such as an insurer, or accepted with monitoring, depending on likelihood and impact.

CIA triad

Confidentiality, integrity and availability are the three core objectives of information security and the basis for classifying security controls.

Least privilege

Users receive only the access rights needed for their duties, and only for as long as required, limiting the damage from error or compromised accounts.

Symmetric encryption

A single shared key both encrypts and decrypts data. It is fast and suits bulk data, but key distribution and management are the main weaknesses.

Recovery time objective

The maximum acceptable downtime after a disruption before business operations must be restored. It drives the design of continuity arrangements.

Recovery point objective

The maximum tolerable volume of data, measured in time, that may be lost in a disruption. It determines backup frequency requirements.

Input validation controls

Checks applied as data is captured, such as range, format, existence and check-digit tests, preventing invalid data from entering the processing cycle.

Contract essentials

A valid contract requires offer, acceptance, consideration, intention to create legal relations and capacity. A counter-offer terminates the original offer.

Price elasticity of demand

Percentage change in quantity demanded divided by percentage change in price. Demand is elastic when the absolute value of the result exceeds one.

Break-even point

Fixed costs divided by contribution per unit. It is the sales volume at which total contribution exactly covers fixed costs and profit is zero.

Limited liability company

A registered entity with separate legal personality whose members' liability is limited to their unpaid share capital, protecting personal assets from business debts.

Standard deviation

The square root of variance, expressing the typical distance of observations from the mean in the original units of the data.