KASNEB DCM flashcards

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

Five Cs of credit

Character, capacity, capital, collateral and conditions: the framework lenders use to judge a borrower's willingness and ability to repay.

Days sales outstanding

DSO = (trade receivables ÷ credit sales) × 365; it measures the average number of days taken to collect cash from credit customers.

Credit term 2/10 net 30

The buyer takes a 2% discount by paying within 10 days, otherwise the full invoice is due at day 30; the discount reduces seller margin.

Cost of forgoing discount

Annualised cost = (D ÷ (1 − D)) × (365 ÷ (N − d)); it compares the discount benefit with the cost of short-term borrowing.

Investment in receivables

Average receivables = (credit sales ÷ 365) × average collection period; the figure is used when appraising a change in credit policy.

Factoring

Outright sale of receivables to a factor for immediate cash; it may be with or without recourse, and the factor usually collects.

Aging schedule

A table classifying receivables by age bands such as 0–30, 31–60 and over 90 days, revealing the proportion overdue and collection risk.

Accounting equation

Assets = Liabilities + Equity; every transaction recorded must keep the two sides of the equation equal.

Accrual basis

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

Straight-line depreciation

Annual charge = (cost − residual value) ÷ useful life; it produces an equal depreciation charge in each year of the asset's life.

Reducing balance depreciation

Charge = carrying amount × fixed rate; the annual depreciation falls each year as the asset's book value declines.

Lower of cost and NRV

IAS 2 rule that inventory is carried at the lower of cost and net realisable value, writing down damaged or obsolete items.

IFRS 15 five steps

Identify the contract, identify performance obligations, determine the transaction price, allocate it, then recognise revenue as each obligation is satisfied.

Provision vs contingency

A provision is recognised where a present obligation, probable outflow and reliable estimate exist; a contingent liability is only disclosed in the notes.

Consideration

Something of value given in exchange for a promise; it must be sufficient but need not be adequate, and past consideration is not good consideration.

Invitation to treat

An invitation for others to make an offer, such as a shop display or advertisement; the customer, not the advertiser, makes the offer.

Separate legal personality

The company is a legal person distinct from its members (Salomon v Salomon), so members' liability is limited to amounts unpaid on shares.

Implied terms of sale

The Sale of Goods Act implies terms as to title, description, fitness for purpose and satisfactory quality into contracts for goods.

Negligence elements

The claimant must prove a duty of care, breach of that duty, causation, and damage that is not too remote from the breach.

Bill of exchange parties

The drawer issues the instrument, the drawee accepts and pays it, and the payee receives the sum; it is an unconditional order to pay.

Opportunity cost

The value of the next best alternative forgone when a resource is committed to a chosen use rather than its alternative.

Price elasticity of demand

PED = % change in quantity demanded ÷ % change in price; above 1 is elastic, below 1 inelastic, equal to 1 unit elastic.

Break-even point

Break-even units = fixed costs ÷ (selling price − variable cost per unit); the output at which total contribution covers fixed costs.

Diminishing marginal returns

Adding more of a variable input to fixed inputs eventually reduces the extra output obtained from each additional unit of that input.

Monetary policy

Central bank action on money supply and interest rates to influence inflation, credit growth and aggregate output in the economy.

Contribution margin

Selling price minus variable cost per unit; the amount each sale contributes towards covering fixed costs and then generating profit.

CIA triad

Confidentiality, integrity and availability: the three core objectives that information security controls are designed to achieve.

Data minimisation

Collecting and retaining only the personal data necessary for a stated, lawful purpose, as required by data protection legislation.

Audit trail

A system log recording who accessed or changed data and when, supporting accountability, control testing and forensic investigation.

Encryption

Converting plaintext into ciphertext using a key so that only authorised parties holding the key can read the data.

Phishing

A fraudulent message impersonating a trusted party to trick a user into revealing credentials or clicking a malicious link.

Confidentiality principle

Accountants must not disclose client or employer information acquired professionally without proper authority or a legal or professional duty to do so.