NCEA Level 2 Accounting flashcards
NCEA Level 2 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 = Liabilities + Equity. Every transaction keeps this equation balanced by affecting at least two elements, so total debits always equal total credits.
- Current ratio
- Current assets divided by current liabilities. It measures an entity's ability to meet short-term obligations; a ratio below 1 signals possible liquidity difficulty.
- Liquidity ratio
- A measure of an entity's ability to convert assets into cash to meet short-term debts, usually expressed as the current ratio or the liquid (quick) ratio.
- Liquid (quick) ratio
- Current assets excluding inventory, divided by current liabilities. It is a stricter liquidity test because inventory may take time to convert into cash.
- Gross profit
- Sales revenue minus cost of goods sold. It represents the profit earned from trading before operating expenses, interest and tax are deducted.
- Cost of goods sold
- Opening inventory plus purchases (adjusted for returns and freight inward) minus closing inventory. It is the cost of the goods actually sold during the period.
- Gross profit percentage
- Gross profit divided by sales revenue, expressed as a percentage. It shows the average margin earned on each sales dollar before operating expenses.
- Mark-up
- Gross profit divided by cost of goods sold, expressed as a percentage. It shows the percentage added to cost to set the selling price.
- Net profit
- Gross profit plus other income minus operating expenses, interest and tax. It is the final profit figure reported in the income statement.
- Accrual basis
- Revenue is recorded when earned and expenses when incurred, regardless of when cash is received or paid. It gives a more accurate view of performance than cash basis.
- Accrued expense
- An expense incurred in the period but not yet paid, such as wages owing. It is recorded as a current liability and an expense in the income statement.
- Prepayment
- An amount paid in advance for goods or services not yet consumed, such as insurance paid for next period. It is a current asset, not an expense.
- Depreciation
- The systematic allocation of a non-current asset's cost less residual value over its useful life. It matches the asset's cost against the revenue it helps generate.
- Straight-line depreciation
- Cost minus residual value, divided by useful life in years. It allocates an equal depreciation amount to each year of the asset's life.
- Diminishing-value depreciation
- A constant percentage applied to the asset's carrying amount each period. Depreciation is higher in early years and falls as the carrying amount declines.
- Carrying amount
- The cost of a non-current asset less accumulated depreciation to date. It is the value reported in the statement of financial position.
- Trial balance
- A list of all ledger account balances at a date, with debits and credits totalling equally. It checks arithmetic accuracy but does not detect every type of error.
- Statement of financial position
- A report of assets, liabilities and equity at a point in time. It shows what the entity owns, owes and the owners' residual interest.
- Statement of cash flows
- A report of cash receipts and payments classified into operating, investing and financing activities for a period. It reconciles opening and closing cash balances.
- Cash budget
- A forecast of expected cash receipts and payments by month, with opening balance, net cash flow and closing balance. It identifies periods of cash shortage or surplus.
- Source document
- Original evidence of a transaction, such as an invoice, receipt, credit note or bank statement. It supports the journal entry and provides an audit trail.
- General journal
- The book of original entry for transactions not recorded in special journals, such as adjustments, credit notes and opening entries. It records debits and credits with narration.
- Ledger account
- A record of increases and decreases in a single asset, liability, equity, income or expense item, with a running balance used to prepare the trial balance.
- Bank reconciliation
- The process of matching the entity's cash journals with the bank statement and explaining differences such as unpresented cheques, deposits in transit and bank errors.
- Authenticity
- The assessor's confirmation that the submitted work is the candidate's own. Evidence includes drafts, signed declarations, source documents and teacher observation.
- Assessment schedule
- The document listing the standard's criteria and the evidence required for Achieved, Merit and Excellence. Judgements are made against these criteria, not against other candidates.
- Interpretation of ratios
- Explaining what a calculated ratio means for the entity, comparing it with a prior period, budget or benchmark, and linking the explanation to a decision.
- Justified recommendation
- A recommendation supported by processed financial information and interpretation, explaining why the action is appropriate and what effect it is expected to have.
- Purpose statement
- A statement at the start of an accounting report identifying the user, the decision to be made and the information the report will provide.
- Net cash flow
- Total cash receipts minus total cash payments for a period. Added to the opening bank balance, it gives the closing bank balance used in the cash budget.
- Owner's equity
- The owner's residual interest in the assets after deducting liabilities. It increases with profit and capital contributions and decreases with drawings and losses.
- Drawings
- Cash or goods withdrawn by the owner for personal use. Drawings reduce equity and are recorded separately from expenses in the equity section.