Free SACE Year 11 Accounting Flashcard Review
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What are the three stages of accounting practice?
Identifying economic events that are transactions, measuring them in money, and communicating the information to stakeholders.
What three things does accounting enable?
Accountability for the use of resources, control of the entity's activities, and effective decision-making.
Give one internal and one external user of a café's accounting information.
Internal: the owner or manager. External: a bank considering a loan, a supplier offering credit, or the ATO.
State the accounting entity concept.
The entity is treated as separate from its owners, so only the entity's own transactions are recorded.
Which of these is a legal entity: sole trader, partnership, company?
Only the company. Sole traders and partnerships are accounting entities but not separate legal entities.
What does the accounting period concept require?
The life of the entity is split into equal periods, such as a year, so performance can be measured and compared.
What is duality?
Each transaction has at least two effects, so the accounting equation always stays balanced.
Why does consistency matter?
Using the same methods each period lets users compare reports over time without changes in method distorting the results.
When is an item material?
When leaving it out or getting it wrong could change a user's decision.
How do relevance and faithful representation differ?
Relevance asks whether information can affect the decision; faithful representation asks whether it is complete, neutral and free from error.
What is the effect of the owner withdrawing $500 cash?
Assets (cash) decrease by $500 and owner's equity (drawings) decreases by $500; it is not an expense.
How are the three reports linked?
Profit from the income statement goes to the statement of changes in equity; closing capital from that statement appears as owner's equity in the balance sheet.
What does financial sustainability mean for a business?
It can keep operating into the future by earning profit, paying debts when due and having suitable finance.
What is the structure of a sole trader's statement of changes in equity?
Opening capital + capital contributions + profit (or − loss) − drawings = closing capital.
Name the three expense classifications often used in a classified income statement.
Selling expenses, administrative expenses and finance expenses.
How is gross profit calculated?
Sales minus cost of sales.
Classify: inventory, vehicle, accounts payable, five-year bank loan (portion not due this year).
Current asset; non-current asset; current liability; non-current liability.
Give three reasons profit can differ from cash.
Credit sales not yet collected; drawings; purchases of inventory or equipment; loan principal repayments; loans or contributions received.
State the formula for the net profit margin.
Profit ÷ sales × 100.
What does a current ratio of 0.8 : 1 suggest?
Current liabilities exceed current assets, so the business may struggle to pay short-term debts; a supplier or bank would be cautious.