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28 Cards in this Set
- Front
- Back
The Entity Concept
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the assumption that a business entity is separate and distinct from its owners and from other business entities.
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The Accounting Period Concept
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The assumption that the life of a business entity can be divided into arbitrary equal time intervals for reporting periods.
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The Cost/Historical Costs Principle
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Historical cost - assets are recorded at the amount of cash or equivalent paid or the fair value of the consideration given to acquire them at the time of their acquisition.
Liabilities are recorded at the amount of proceeds received in exchange for the obligation or for the amounts of cash expected to be paid to satisfy liablitiy in normal course of business. The measurement basis most commonly adopted by entities in preparing reports is historical cost. |
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The Matching principle
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The costs of inputs used up to produce outputs that are completed and sold are treated as expenses and subtracted from the proceeds from sales of those outputs
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The Profit Recognition Principle
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Profits should be recognised when the sales and any other revenues or gains relating to the relevant activity are "earned" and can be reliably measured.
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The conservatism (prudence) Approach
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Anticipate no profits, but expect all losses
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The going concern principle
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The assumption that, in the absence of evidency to the contrary, a business will continue in the future and use its assets in operations rather than sell them.
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Assets
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1. a resource controlled by the entity.
2. will provide future economic benefit 3. as a result of a past transaction or event. Are future economic benefits controlled by the entity as a result of past transactions or events |
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Liabilities
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1. a present obligation
2. to make a future economic sacrafice 3. as a result of a past transaction or event. are the future sacrifices of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions or events |
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Equity
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The residual of assets once all liabilities have been met.
Equity=Assets - Liabilities |
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Income
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1. increase in equity
2. results in an increase in assets or decrease in liabilities 3. other than contributions by the owner are increases in economic benefits, in the form of inflows or enhancements of assets or decreases in liabilities, that result in increases in equity (other than owner contributions) |
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Expenses
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1. a decrease in equity
2. results in a decrease in assets or increase in liabilities 3. other that a distribution to owners. are decreases in economic benefits, in the form of outflows of delpetions of assets or increases in liabilites, that result in decreases in equity (other than distributions to owners) |
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Financial report headings
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Income statement - for week/month/year ending
Changes in Equity: for week/month/year ending Balance Sheet: as at .... Trial Balance: as at ... |
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Adjusting entries
(balance day adjustments) |
properly match income and expenses to the period in which they occur using deferrals and accruals
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Deferral
(prepayment) |
the cash transaction occurs first and the recognition of the income or expense comes later.
Example: income received in advance or prepaid expenses |
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Accurals
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the recognition of the income or expense occurs first and the cash transaction comes later.
Example: accrued income or accrued expenses |
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Perptual Inventory system
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involves a continous record of the physical quantites and const of inventory on hand, and physical quantities and cost of inventories sold.
There will be the use of Cost of Sales Account |
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Periodic Inventory System
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a continuous record of the cost of inventory purchased is maintained. The total purchases are added to the cost of opening inventory to determine the cost of goods available for sale.
The cost of goods sold is then determined by deducting the cost of ending inventory from the cost of goods available for sale. Must have a physical stocktake. There will be the use of the purchases account. |
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Cash flows - Accruals
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income statement item + the opening balance sheet item - the closing balance sheet item
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Cash Flows - prepayments
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income statement item - opening balance sheet item + closing balance sheet item
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Cost-Volume-Profit analysis
CVP |
Selling price - variable cost - fied costs = profit
SP? - VC? - fixed cost = profit. Breakeven point = $0 profit |
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Contribution Margin
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Selling price - variable cost
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Contribution Margin Ration
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Contribution Margin / selling price
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Breakeven point in $
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breakeven point in units x sales price
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Units to acheive target profit
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sales rev - variable - fixed = Profit
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Breakeven sales revenue
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fixed cost + profit / cont. margin ratio
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weighted average
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total cont. margin x total sales mix (in units)
sales price per unit less variable cost per unit = contribution margin x sales mix in units = cont. margin |
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Breakeven sales in total units
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fixed cost + profit/weighted average cont. margin
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