Flashcards
bu1002
Cards in this deck (39)
- 1business transactionsoccurrences that affect the assets, liabilities , and equity items in an entity
-recorded when they are reliably measured
and occur at arms length
NOT RECORDED UNTIL EXCHANGE OF GOODS OCCURS - 2personal transactionsof the owners, partners or shareholders unrelated to business
- 3Accounting equationA= L + E (I -E)
- 4Balance sheetfinancial statement detailing A L Was at a particular point at time usually at the end of the reporting period
- 5Assets1.must be controlled by the entity
2. future economic benefits are expected to flow to entity
3. result of past event
-probable and reliable measurement - 6current assetsexpected to be converted to cash or used within one year or one operating cycle
- 7non-current assetsassets not expected to be converted to cash within one year
- 8Liabilities1. present obligation
2. outflow of resources to pay for the obligation
3. result of past event - 9Equity1. dependent on the definition of assets and liabilities
2. measured by accounting equation
-historical cost, current cost, market value, present values - 10cash accountingtransactions are recorded in the periods the entity receives or pays
income, balance sheet - 11Accrual accountingtransactions are recorded in the period they occur
ex statement of cash flows - 12prepaid expensesamounts paid in cash and recorded as asset until economic benefits are used or consumed
- 13incomeincrease in economic benefits during accounting period
ex sales, interest received - 14expensesdecrease in assets, increase in liabilities, n drawings
wages, rent, cost - 15statement of cash flowsbased on cash accounting
- 16operating activitiesrelate to provision of goods/services that are neither investing in everyday operation
ex/ cash receipts, interest, dividends, tax, payments - 17investing activitiesrelate to a acquisition/disposal of NCA as week as investments not falling under definition of cash
ex. sale of property, collection of loans, purchase of property, lending of money to other shares - 18Financing activitiesactivities that change the size or composition of the entity related to non-current liabilities and equity
ex cash received from shares, from borrowings, dividends to pay shareholders, loan repaid, drawings (distributions) - 19horizontal analysisi
- 20trend analysisi
- 21vertical analysisrevenue as % of sales, revenue,
A,L,E, as % of total assets - 22profitibilityinforminform users to the profit associated with investment
ROE, ROA, Gross profit margin, profit margin, cash flow to sales, dividend payout ratio - 23asset efficiencymeasure the effectiveness in managing the assets of the entity.
asset turnover ratio, days inventory, times inventory, days debtors, times debtors turnover - 24liquidityindicate the entity’s ability to meet its short term commitments.
Current ratio, quick ratio, cash flow ratio - 25Capital structure analysisindicate the long term stability &
financing decisions, how assets are financed
debt to equity ratio, debt ratio, interest servicing ratios, debt coverage ratio - 26ROEprofitability
-The amount of net income returned as a % of shareholders equity.
-upward trend = good but sustained high ROE attracts new competitors to industry - 27ROA-Profitability
ability to to turn sales revenue into profit, generate income from its asset investment - 28Gross Profit margin-Profitability
proportion of sales revenue that results in gross profit, related w volume
-entities w high turnover =smaller gross margins - 29Profit Margin-Profitability
- what % of sales revenue dollars results in earnings before interest/tax - 30Dividend payout ratio-Profitability
- % of profit distributed in the form of dividends
want steady payout ratio, but if not may be holding funds in reserves - 31Asset turnover ratioAE
-overall efficiency in generating income/$ of investments in assets - 32Days inventory days debtorsAE
indicates the average period it takes to sell inventory
reflects activity cycle/operating cycle
needs to be low as possible
days it takes to collect money from accounts receivables
in times = per annum - 33cash cycleelapses between an entity paying for the inventory, selling the inventory, and receiving cash for the inventory
- 34Current ratioliquidity
-$ of current assets per $ current liabilities
-1.5 is ideal - 35Quick asset ratio$ current assets to service each $ of current liabilities
- 36cash flow ratioentity's abilitiy to cover current obligations from operating activity cash flows
the higher the better - 37debt to equity ratiocapital structure/gearing
$ of debt per $ equity - 38debt ratiohow many $ liabilities per $ assets
50> relying on equity for asset funding
50< relying on debt - 39—
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- Flashcards on bu1002, created by Megan Mackie on 14/11/2015.
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- Megan Mackie
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