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ACCTG - MODULE 04

Terms in this set (38)

Assets=liabilities+equity+income-expenses
expanded accounting equation
increase in equity
income produces
decrease in equity
expenses results in a
added to or subtracted from the opening equity on the balance sheet
Profit or loss is
the accounting return for an entity over a specified time period.
The statement of profit or loss or income statement reflects
Profit= revenue-expenses
Profit equation
income
What is revenue a subset of
Revenue and gains
income encompasses both:
arising in the ordinary course of activities (dividends,fees,sales)
revenue
gains of disposal of non-current assets, and unrealized gains on revaluing assets
gains
Reporting period is the period of time to which the financial statements relates
Reporting period (accounting period)
is a system in which transactions and events are recorded in periods they occur, rather than in the periods the cash is received or paid
accrual accounting
a cash accounting system would determine profit or loss as the difference between the cash received in relation to income items and the cash paid for expenses.
cash accounting
financial statements to be prepared on the basis of accrual accounting
accounting standards require...
revenue will be recognized at the same time as the sale has happened
when will revenue be recognized
you will recognize cash flow when doing cash flow accounting
when will you recognize cash flow
time
horizontal
different accounting periods
vertical line
income is recognized without receipt of cash (accrued income). The income has been earned (service) but hasn't yet been paid for.
under accrual accounting the following may occur for income point one
Cash is received but income is not recognized (income received in advance) Must remain as a liability, until the income is earned
under accrual accounting the following may occur for income point two
expense is recognized without payment of cash (accrued expense) yet to pay for an expense that we have consumed or used
under accrual accounting the following may occur for expenses point one
expense is paid but not recognized as an expense (prepaid expense) paid in advance and only when the expense is consumed or used up, do we record the expense
under accrual accounting the following may occur for expenses point two
the systematic allocation of the cost of a tangible (intangible) asset over its useful life
Depreciation
Represents the total depreciation that has been charged to statement of profit or loss in relation to an asset
accumulated depreciation
Annual depreciation expense = cost of asset - expected residual value/asset's expected useful life
depreciation equation
straight line and reducing balance
types of depreciation
found in annual report
where is the audit report found?
to identify and measure all income and expense items attributable to the reporting periods
why is the measure of profit or loss of an entity necessary?
increases in assets or decrease in liabilities that result in increases in equity
definition of income
by income generating activities, by income types (sales, fees, commissions, interest, royalties, rent)
income classification
expenses decrease equity and either increase liabilities or decreases assets
expenses definition
retained earnings
dividends come under what account?
cost of sales= inventory at beginning of period+purchases - inventory at end of period
expenses equation (cost of sales)
profit or loss
expenses are shown in which statement
means that the income or expense is recorded and appears in the statement of profit or loss
income recognition or expense recognition
increase in asset or decrease in liability
income (revenue) recognition
decrease in asset or increase in liability
expense recognition
revenue, cost of sales, finance costs, share of profit or loss of associates and joint ventures if equity accounted, tax expense, profit or loss
presented in income statement
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