ICAM Technician flashcards

33 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 keeps this balance, so total debits always equal total credits in the ledger.

Double-entry principle

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

Trial balance purpose

A list of ledger balances at a date, used to check that total debits equal total credits before financial statements are prepared.

Error of principle

A transaction recorded in the wrong class of account, such as capital expenditure treated as revenue. It does not disturb the trial balance totals.

Suspense account

A temporary account holding the difference on a trial balance. It is cleared once the underlying errors are located and corrected.

Accrual concept

Revenue is recognised when earned and expenses when incurred, not when cash is received or paid, so each period bears its own costs.

Prepayment adjustment

An expense paid in advance for a future period. The unused portion is removed from the expense account and shown as a current asset.

Accrued expense

A cost incurred but not yet invoiced or paid at the period end. It is added to the expense and shown as a current liability.

Straight-line depreciation

Annual charge equals cost less residual value, divided by useful life. The same amount is charged to profit or loss each year.

Reducing-balance depreciation

Annual charge equals the carrying amount multiplied by a fixed percentage. Charges are higher in early years and fall over the asset's life.

Cost of sales formula

Opening inventory plus purchases less closing inventory. It is deducted from sales revenue to give gross profit for the period.

Gross profit margin

Gross profit divided by sales revenue, expressed as a percentage. It measures profitability before operating expenses are deducted.

Current ratio

Current assets divided by current liabilities. It indicates whether short-term assets cover obligations falling due within one year.

Quick ratio

Current assets less inventory, divided by current liabilities. It tests liquidity without relying on selling stock quickly.

Bank reconciliation

A statement explaining differences between the cash book and the bank statement, covering unpresented cheques, uncredited deposits, bank charges and errors.

Receivables control account

A summary ledger account of total amounts owed by customers. Its balance should equal the sum of all individual sales ledger balances.

Books of prime entry

The first records of transactions: sales, purchases, returns day books, cash book and journal. Entries are later posted to the ledgers.

Journal entry purpose

A dated narrative record of a transaction showing debits and credits, used for corrections, adjustments and items not entered in other day books.

Capital versus revenue

Capital expenditure buys or improves a non-current asset and is spread over its life. Revenue expenditure is charged to profit or loss immediately.

Statement of financial position

A snapshot at a date showing assets, liabilities and capital. Non-current assets plus net current assets equal capital plus non-current liabilities.

Statement of profit or loss

A period statement showing revenue less cost of sales to give gross profit, then less expenses to give net profit.

Statement of cash flows

A period statement classifying cash movements into operating, investing and financing activities, reconciling opening and closing cash balances.

Working capital cycle

The period between paying suppliers for inventory and collecting cash from customers. Shorter cycles reduce the financing needed for operations.

Partnership profit sharing

Without a partnership agreement, profits and losses are shared equally, with no interest on capital and no partner salaries allowed.

Goodwill on admission

The value of a firm's reputation and customer base. On a new partner's admission it is often raised and then written off among old partners.

Trial balance difference rules

A difference divisible by two suggests a one-sided entry. A difference divisible by nine often indicates transposed digits in a posting.

Provision for doubtful debts

An estimate of receivables unlikely to be collected, charged to profit or loss. It is a contra-asset, not a liability, in the statement of financial position.

Petty cash imprest system

A fixed float is topped up periodically by the amount spent. Total vouchers plus remaining cash should equal the imprest amount.

Return on capital employed

Operating profit divided by capital employed, shown as a percentage. It measures how efficiently capital generates profit.

Inventory valuation rule

Inventory is measured at the lower of cost and net realisable value. Cost includes purchase price and costs of bringing stock to saleable condition.

Bank overdraft treatment

A repayable-on-demand negative bank balance is a current liability, not a negative asset, and appears under current liabilities in the statement of financial position.

Capital and drawings

Capital is the owner's investment in the business. Drawings are withdrawals by the owner that reduce capital and are not an expense.

Net book value

The cost of a non-current asset less accumulated depreciation to date. It is the amount shown in the statement of financial position.