SPM Accounting (3756) flashcards
SPM Accounting (3756) · Build recall with a focused review session.
33 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Accounting equation
- Assets = Capital + Liabilities. It states that everything a business owns is financed either by the owner's funds or by amounts owed to third parties.
- Owner's drawings
- Withdrawals of cash or goods by the owner for personal use. Drawings reduce capital and are not an expense in the profit or loss account.
- Going concern assumption
- The assumption that the business will continue trading for the foreseeable future, so assets are valued on a cost basis rather than at break-up value.
- Accruals concept
- Revenue and expenses are recognised in the period they are earned or incurred, regardless of when cash changes hands. Also called the matching concept.
- Prudence concept
- Accounting treatment that avoids overstating income or assets and understating liabilities or expenses. Losses are recognised as soon as they are probable.
- Materiality
- Information is material if omitting or misstating it could influence the economic decisions of users taken on the basis of the financial statements.
- Credit note
- A document issued by a seller to reduce the amount owed by a customer, usually for goods returned or an overcharge. It supports the returns inwards book.
- Debit note
- A document issued by a buyer to a supplier requesting a reduction in the amount owed, often for goods returned or a pricing error.
- Bank statement
- A document from the bank listing all transactions on the business's account. It is used to reconcile the cash book with the bank's records.
- General journal
- The book of original entry for transactions that do not fit the day books, such as corrections, opening entries, depreciation and non-current asset purchases.
- Sales day book
- A book of original entry that lists credit sales invoices only. Its total is posted to the debit of receivables control and the credit of sales.
- Trade discount
- A reduction on the list price given to a customer, usually for bulk purchase. It is deducted on the invoice and never recorded separately in the ledger.
- Receivables ledger
- A subsidiary ledger containing an individual account for each customer. The sum of its balances should equal the receivables control account balance.
- Contra entry
- A transfer between the receivables and payables ledgers of the same business, recording the same amount on the debit of one account and the credit of the other.
- Balancing an account
- Entering the difference between the debit and credit sides on the smaller side as the balance carried down, so that both sides of the account are equal.
- Trial balance
- A list of all ledger balances at a date. Total debits must equal total credits if the double entry is complete and no arithmetic errors exist.
- Error of principle
- Posting a transaction to the wrong class of account, such as recording a revenue expense as a non-current asset. The trial balance still balances.
- Suspense account
- A temporary account opened for the difference in a trial balance that does not agree. It is cleared when the errors causing the difference are found and corrected.
- Unpresented cheques
- Cheques issued by the business and entered in the cash book but not yet presented to and paid by the bank. They reduce the bank statement balance.
- Dishonoured cheque
- A cheque returned unpaid by the bank. The original receipt is reversed by crediting the cash book and debiting the customer's account again.
- Imprest system
- A petty cash system where the float is restored at the end of each period to a fixed amount equal to the cash spent during the period.
- Error of omission
- A transaction is completely left out of the accounting records. The trial balance still balances because both sides of the entry are missing.
- Compensating errors
- Two or more errors that cancel each other out, so the trial balance still agrees even though individual account balances are wrong.
- Accrued expense
- An expense incurred in the period but not yet paid or invoiced. It is recorded by debiting the expense and crediting accruals.
- Allowance for doubtful debts
- An estimate of receivables that may not be collected. It is a credit balance deducted from trade receivables in the statement of financial position.
- Bad debt written off
- A receivable confirmed as irrecoverable. The entry is debit bad debts expense and credit the customer's account, removing the balance.
- Straight-line depreciation
- Depreciation calculated as (Cost − Residual value) ÷ Useful life. The same amount is charged as an expense each year of the asset's life.
- Reducing balance depreciation
- Depreciation calculated as a fixed percentage of the asset's net book value each year, giving a higher charge in early years.
- Carrying amount
- The value of a non-current asset in the statement of financial position, calculated as cost less accumulated depreciation to date.
- Cost of sales
- Opening inventory plus purchases plus carriage inwards less returns outwards less closing inventory. It is deducted from revenue to give gross profit.
- Gross profit margin
- Gross profit divided by revenue, expressed as a percentage. It measures profitability after deducting the direct cost of goods sold.
- Partnership appropriation account
- An account showing how profit is distributed among partners: interest on capital, salaries, interest on drawings, then the residual share in the profit-sharing ratio.
- Share premium
- The amount received for shares above their nominal value. It is a capital reserve and cannot normally be distributed as a dividend.