ITC Entrance Exam 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 equity. Every recorded transaction keeps this balance, so total debits always equal total credits in the ledger.

Accrual Basis

Revenue is recognized when the performance obligation is satisfied and expenses when incurred, regardless of when cash is received or paid.

Prepaid Expense Adjustment

A deferral adjustment that moves the expired portion of a prepaid cost from an asset account to an expense account at period end.

Double-Declining Depreciation

An accelerated method applying twice the straight-line rate to the asset's carrying amount each year, ignoring residual value until the final year.

Lower of Cost or NRV

Inventory is written down when net realizable value falls below cost. IFRS permits reversal of the write-down; US GAAP does not.

Contribution Margin

Sales revenue minus all variable costs. It measures the amount available to cover fixed costs and then generate operating profit.

Break-Even Point

The sales volume at which total revenue equals total cost and operating profit is zero, computed as fixed costs divided by contribution margin per unit.

Margin of Safety

Actual or budgeted sales minus break-even sales. It shows how far sales can fall before the entity incurs an operating loss.

High-Low Method

A cost estimation technique dividing the change in total cost between the highest and lowest activity levels by the change in activity.

Predetermined Overhead Rate

Estimated total manufacturing overhead divided by the estimated allocation base. It lets overhead be applied to production before actual costs are known.

Relevant Cost

A future cost that differs between alternatives. Sunk costs and allocated common fixed costs are excluded from the decision analysis.

Materials Price Variance

Actual quantity purchased multiplied by the difference between standard price and actual price. A favorable variance arises when actual price is below standard.

Progressive Tax

A tax structure in which the marginal rate rises as the tax base increases, so higher-income taxpayers face a higher average rate.

Taxable Income

Gross income less allowable deductions and exemptions. Tax liability is computed by applying the rate schedule and then subtracting credits and prepayments.

Temporary Difference

A difference between accounting profit and taxable profit that reverses in later periods, creating a deferred tax asset or deferred tax liability.

Withholding Tax

Tax collected by the payer on payments such as dividends, interest, royalties, or service fees, usually at a flat statutory rate.

Arm's Length Principle

The rule that intra-group transactions should be priced as if between unrelated parties, tested by comparable uncontrolled price, resale price, or cost-plus methods.

Contract Formation

A valid contract requires offer, acceptance, consideration, capacity, legality, and, in commercial dealings, a presumed intention to create legal relations.

Apparent Authority

A principal is bound when a third party reasonably relies on the principal's representation that an agent has authority, even without actual authority.

Fraud Triangle

Three conditions enabling fraud: pressure or incentive, opportunity, and rationalization. Internal controls primarily reduce opportunity.

Independence in Appearance

The objective observer's perception that the auditor is free from influences compromising objectivity, required alongside actual independence in fact.

Audit Risk Model

Audit risk equals inherent risk times control risk times detection risk. Detection risk is the only component the auditor controls through procedure design.

Sufficient Appropriate Evidence

Evidence that is enough in quantity and relevant and reliable in quality to support the auditor's conclusion and opinion on the financial statements.

Performance Materiality

An amount set below overall materiality to reduce to an appropriately low level the probability that undetected misstatements exceed overall materiality.

Adverse Audit Opinion

Issued when misstatements are material and pervasive, meaning the financial statements as a whole are not presented fairly in accordance with the framework.

Material Uncertainty Going Concern

A condition where significant doubt exists about the entity's ability to continue. It is disclosed in the financial statements and highlighted by the auditor.

Net Present Value

The present value of expected cash inflows minus the initial outlay. A positive NPV means the project adds value at the required return.

Weighted Average Cost of Capital

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

Capital Asset Pricing Model

Required return equals the risk-free rate plus beta times the market risk premium; beta captures only systematic, non-diversifiable risk.

Price Elasticity of Demand

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

Gross Domestic Product

Total market value of final goods and services produced domestically, measured as consumption plus investment plus government spending plus net exports.

Monopolistic Competition

A market structure with many firms, low entry barriers, and differentiated products, so each firm faces a downward-sloping demand curve.