Notesale: Turn your study into money

Document Preview

Extracts from the notes are below, to see the PDF you'll receive please use the links above

---

CONCEPTS:
Accrual Concept:
The concept that profit is the difference between revenue and the expenses incurred in generating that
revenue
...

Consistency Concept:
This concept aims to ensure that business stick with the same techniques over a long period of time
...

Money measurement Concept:
The concept that accounting is concerned only with facts measurable in monetary terms
...

Prudence Concept:
The concept that the financial statements are neutral
...

Business Entity Concept:
The concept states that the business and the owner are two different entity
...
For a gain
to be realised it must be possible to be reasonably certain that it exists and it can be measured with sufficient
reliability
...

Indirect Cost/ Factory overhead expenses:
Costs related to manufacturing that cannot be economically traced to item being manufactured
...

Variable Cost:
Cost that varies with the level of activity
...
Costs are fixed for a set level of production
or consumption, becoming variable after the level is exceeded
...


ERRORS
Error of omission:
Where a transaction is completely omitted from the books
...

Error of principle:
Where an item is entered in the wrong type of account
...
g: a fixed asset in expense account
...

Absorption Costing:
A managerial accounting cost method of expensing all costs associated with manufacturing a particular
product
...

Allocation of overheads:
Allocation of overheads is assigning a whole item of cost directly to a cost centre
...

Absorption of overheads
Absorption of overheads is charging of overheads from cost centres to products or services by means of
absorption rates for each cost center
...
i
...

Stocks should always be valued at the lowest of cost or net realisable value
...
g
...
This means that we can value stock at current market rates, but only if the selling price is lower than
the cost
...

Perpetual Inventory:
An accounting method of maintaining up-to-date property records that accurately reflect the level of goods
on hand
...
This accounting method for inventory valuation only keeps track of the
inventory at the beginning of a period, the purchases made and the sales during the same period and is
recorded under the asset section of the balance sheet
...
It helps to check if there is
any arithmetical errors
...
We can know what the balance on is
on every account so that you can enter the appropriate figures into the profit and loss account and
balance sheet
• Sometimes errors made in the entries to the accounts will not be shown up by the trial balance
...

The uses of the trial balance as follows:
It provides a check on the accuracy of the ledger account balances - ensuring that entries have been
made correctly
...

Certain errors will be highlighted or avoided
...

Liquidity:
The ratios relate to cash position in an organization and hence its ability to pay liabilities when due
...

Can easily set up the business as little capital is required and there are little legal formalities
• Disadvantages of Sole Trader:
Has to bear the risk/loss alone
Has limited capital, which makes it difficult to expand
Suffers from lack of continuity
...

• Advantages of Partnership:
More capital may be available
Partners can consult with each other
There is greater continuity compared to with sole trader
Risk/loss is shared among the partners
• Disadvantages of Partnership:
There could be disagreement between partners
...
A wrong decision made by a partner will affect all
the partners
Decisions are made more slowly as they need to consult with each other

---