MATSEC SEC Accounting flashcards
MATSEC SEC Accounting · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Accounting equation
- Assets equal capital plus liabilities. Every transaction changes at least two elements while preserving this equality, which underpins the double-entry system.
- Dual aspect concept
- Each transaction has two effects of equal value: one debit and one credit. This keeps the ledger balanced and allows a trial balance to be extracted.
- Trial balance purpose
- A list of all ledger balances at a date, split into debit and credit columns. Equal totals show arithmetical accuracy only, not that all entries are correct.
- Error of principle
- A transaction recorded in the wrong class of account, such as revenue expenditure treated as capital. It does not affect trial balance agreement.
- Suspense account
- A temporary account holding the difference when a trial balance does not balance. It is cleared once errors are found and corrected by journal entries.
- Accrued expense
- An expense incurred in the period but not yet invoiced or paid. It is added to the expense and shown as a current liability.
- Prepayment
- An amount paid in one period that relates to a later period. It is deducted from the expense and shown as a current asset.
- Prudence concept
- Accounting should not overstate assets or income. Inventory is valued at the lower of cost and net realisable value, and provisions are made for doubtful debts.
- Reducing balance depreciation
- A fixed percentage is applied to the asset's net book value each year, giving higher depreciation charges early in the asset's life.
- Contribution per unit
- Selling price per unit minus variable cost per unit. It contributes first towards covering fixed costs, then towards profit.
- Break-even point
- The level of activity where total contribution equals fixed costs, giving neither profit nor loss. In units it is fixed costs divided by contribution per unit.
- Margin of safety
- The excess of budgeted or actual sales over break-even sales. It measures how far sales can fall before a loss arises.
- High-low method
- A technique separating fixed and variable costs using the highest and lowest activity levels. Variable cost per unit equals the change in cost divided by the change in activity.
- Absorption costing
- A costing method that charges all production costs, including fixed production overhead, to units produced using a predetermined overhead absorption rate.
- Overhead absorption rate
- Budgeted production overhead divided by the budgeted absorption basis, such as labour hours or machine hours, used to charge overhead to products.
- Marginal costing
- A costing method valuing inventory at variable production cost only. Fixed costs are treated as period costs and written off in full.
- Relevant cost
- A future incremental cash flow that differs between alternatives. Sunk costs and apportioned fixed overheads are irrelevant to the decision.
- Normal loss
- The expected unavoidable loss in a process, valued at scrap value only. Its scrap proceeds reduce the cost of good output.
- Abnormal gain
- Output exceeding the expected normal level. It is valued at full cost per unit and credited to the process account as a gain.
- Imprest system
- A petty cash method where the float is restored to a fixed amount by reimbursing exactly the vouchers spent, so cash plus vouchers equals the imprest.
- Bank reconciliation
- A statement explaining differences between the cash book and bank statement, adjusted for unpresented cheques, uncredited deposits and items not yet in the cash book.
- Control account
- A summary account in the nominal ledger for receivables or payables. Its balance should equal the total of the individual ledger balances.
- Books of prime entry
- The first records of transactions: sales, purchases and returns day books, the cash book, petty cash book and general journal, from which ledger postings are made.
- Segregation of duties
- An internal control principle ensuring no single person authorises, records and safeguards the same transaction, reducing the risk of error and fraud.
- Error of commission
- A correct amount entered in the correct class of account but the wrong individual account, such as the wrong customer's account.
- Compensating error
- Two or more separate errors that cancel each other out, so the trial balance still agrees despite the records being wrong.
- Current ratio
- Current assets divided by current liabilities. It measures short-term liquidity and ability to meet obligations falling due within a year.
- Quick ratio
- Current assets excluding inventory, divided by current liabilities. It tests liquidity where inventory may be slow to convert into cash.
- Return on capital employed
- Operating profit divided by capital employed, expressed as a percentage. It measures how efficiently long-term funds generate profit.
- Gearing ratio
- Non-current liabilities divided by total capital employed, or debt compared with equity. High gearing increases financial risk through fixed interest commitments.
- Inventory turnover period
- Average inventory divided by cost of sales, multiplied by 365. It shows the average number of days inventory is held before being sold.
- Overtrading
- Rapid sales growth without sufficient working capital or long-term finance, causing cash shortages despite reported profits.