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VCE Accounting

Entity principle
The business is assumed to be separate from the owner and other businesses, and its records should be kept on this basis.
Going concern principle
The life of the business is assumed to be continuous, and its records are kept on that basis.
Historical cost principle
The recording of a transaction at its original cost or value, as this value is verifiable by reference to a source document.
Reporting Period
The life of the business must be divided into periods of time to allow reports to be prepared which reflect a business’s transactions through that period.
Consistency
Accounting methods should be applied in a consistent manner to ensure that reports are comparable between periods.
Conservatism
This principle states that losses should be recorded when probable but gains should only be reported when certain, so that liabilities and expenses are not understated and assets and revenues aren’t overstated.
Monetary Unit
All items must be recorded and reported in a common unit of currency measurement such as the Australian Dollar.
Relevance
Accounting reports should include all information that is useful for decision making.
Reliability
Accounting reports should contain information that is accurate and free from bias or error.
Comparability
Accounting reports should be able to be compared over time.
Understandability
Accounting reports should be presented in a manner that makes it easy for them to be understood by the user.
Assets
An asset is defined as something possessed by business which presents future economic benefit for the business which is the result of past transactions.
Current Assets
Assets are something which is controlled or owned by the business which will bring economic benefit within a 12 month period. Non-current assets
Non-Current Assets
Non-Current Assets are expected to be owned for a period greater than 12 months. These are purchased by the business to aid in revenue raising. Liabilities
Liabilities
Liabilities are a present obligation for the business which result in an economic sacrifice through an outflow of profit/cash.
Current Liabilities
These are current liabilities or sacrifices that have to be paid within the next twelve months. Common Current Liabilities include
Non-current liabilities
Obligations of the business that are made present for over a 12 month period
Owners’ Equity
Owners’ Equity is defined as the residual interests in the assets of the entity after liabilities have been paid/deducted. It is the owner’s money that is left over after all debts have been paid.
Revenue
Revenue is an inflow of economic benefit or saving in an outflow. Revenue comes in the form of an increase in asset or decrease in liabilities that increases the owners’ equity value for the business.
Expense
An expense is an outflow or consumption of economic benefits or reduction of the inflows of benefit. Expenses come in the form of a decrease of a decrease in assets or increases in liabilities that reduces the owners’ equity value of the business.
Balancing
Balancing involves ruling off an asset, liability or owners’ equity account to determine its balance at the end of the reporting period in order to transfer it to the balance sheet and the next reporting period general ledger.
GST
The Goods and Services Tax is a 10% tax levied by the Federal Government on most purchases of goods and services.
Purchases Journal The purchases journal is an accounting record that summarises all transactions involving the purchase of stock during a month on credit.
Sales Journal
The sales journal is an accounting report summarising all transactions involving the sale of stock on credit during a month.
Cash Payments Journal
The Cash payments journal is an account record which summarises all cash paid by the entity during a reporting period.
Cash Receipts Journal
The CRJ is an account record that summarises all cash received by the business during a month.
General Journal
The general journal is used to record infrequent, non-cash transactions which cannot be recorded in other special journals.
Commencing Entry
A commencing entry is a general journal entry to establish double-entry accounting records by entering existing assets, liabilities and owners’ equity balances in the ledgers account
Bad Debt
A bad debt is an expense incurred when a debt is written off because it is deemed to be irrecoverable.
Accrual Accounting
Accrual Accounting is the process of matching revenues earned with expenses incurred during a particular reporting period.
Credit Terms
Credit terms provide a timeframe in which money must be paid back, with discounts applying if the debt is repaid in a strict more condensed time frame.
Balance Day Adjustment
A balance day adjustment is a change made to a revenue or expense account on balance day so that revenue accounts, show revenues earned and expenses incurred during the reporting period accurately.
Stock Gain
Stock gain is a revenue earned when the stocktake shows a figure for stock on hand that is more than the balance of stock shown within the stock cards.
Stock Loss
A stock loss is an expense incurred when the stocktake shows a figure for stock on hand that is less than the balance shown on the stock card.
Cost of Non-current Asset
All costs incurred in order to bring the asset into a location and condition ready for use, which will provide a benefit for the life of the asset.
Accrued Expenses
Accrued expenses are expenses which have being recorded within a reporting period but are yet to be paid.
Cash Flow Statement
The cash flow statement is an account report that details all cash inflows and outflows from Operating, investing and financing activities and the overall change in the firms cash balance.
Operating Activities
Operating activities refer to all cash flows related to the firm’s day-to-day trading activities.
Investing Activities
Investing activities are cash flows relating to the purchase or sale of a non-current asset.
Financing Activities
Financing activities are cash flows which relate to changes in the financial structure of the firm
Purchase Return
A purchase return is where stock is returned (by our entity) to a trade creditor.
Sales Return
A sales return is when stock is returned (to our firm) by a trade debtor.
Unit Cost
Unit cost is the cost price of each individual item/unit of stock purchased by a business and inputted to a stock card.
Product Cost
A cost incurred in order to bring stock into a condition and location ready for sale which can be allocated to individual units of stock on a logical basis.
Period Cost
A cost incurred in order to bring stock into a condition and location ready for sale that is not allocated to individual units of stock because there is no logical basis to do so.
Net Realisable Value
Net realisable value is the estimated selling price of stock less any costs involved in its selling marketing or distribution.
Stock Write Down
Stock Write down is the physical process completed once it has being established that Net Realisable value is below unit cost price in stock card.
Depreciation
Depreciation is the allocation of the cost of a non-current asset over its useful life span.
Straight-line depreciation is used for an item which contribute consistency over its lifespan to business making a profit.
Reducing balance depreciation is used for items whose ability to generate profit diminishes as they get old. Reducing balance has moving part assets.
Depreciation expense
The part of the cost of a non-current asset that has been consumed in the current reporting period.
Carrying value
The value of a non-current asset that is yet to be consumed/allocated as an expense, plus any residual value.
Accumulated Depreciation
The value of a non-current asset that has been consumed/incurred over the life of an asset so far.
Loss on disposal of Non-Current Asset
Where the proceeds from the disposal of an asset is less than its carrying value.
Profit on disposal of Non-current Asset
Whereby the proceeds from the disposal of an asset are greater than its carrying value.
Prepaid Revenue
A revenue received but yet to be earnt by a business
Accrued Revenue
A revenue that has been earned but not yet received.
Budgeting
Budgeting is the process of predicting estimating the financial consequences of future events.
Variance Report
A Variance is an accounting report that compares actual and budgeted figures highlighting variances so that problems can be identified and corrective action taken.
Profitability
Profitability refers to the ability of the business to earn profit as compared against a base figures such as sales, assets or owners’ equity.
Analysing
Analysing involves examining the reports in great detail to identifying changes/differences.
Interpreting
Interpreting involves examining the relationship between the items in the reports in order to explain the cause and effect of those changes or differences.
Liquidity
Liquidity refers to the ability of the organisation to meet short term debts as they fall due.
Efficiency
Efficiency is the ability of a business to manage its assets and liabilities effectively to generate profits.
Stability
Stability refers to the ability of the business to meet its debts and continue its operations into the long term.
Return on Owner’s Investment
A profitability indicator that measures how effectively a business has used the owner’s capital to earn profit.
Debt Ratio
A stability indicator that measures the percentage of a firms assets that are financed by liabilities (3rd party finance)
Return on Assets
A profitability indicator that measures how effectively a business has used it assets to earn profit.
Asset Turnover
An efficiency indicator that measures how productively a business has used it assets to earn revenue.
Net Profit Margin
A profitability indicator that measures expense control by calculating the percentage of sales revenue that is retained as Net Profit
Gross Profit Margin
A profitability indicator that measures the average mark-up by calculating the percentage of sales revenue that is retained as Gross Profit.
Working Capital Ratio
A liquidity indicator that measures the ratio of current assets to current liabilities, to assess the firm’s ability to meet is short term debts as they fall due.
Quick Asset Ratio
A liquidity indicator that measures the ratio of quick assets to quick liabilities to access the firm’s ability to meet its immediate debts.
Cash flow cover
A liquidity indicator that measures the number of times Net Cash flows from operating activities is able to cover average current liabilities.
Stock Turnover
The average number of days it takes for a business to convert its stock into sales.
Debtors Turnover
The average number of days it takes for a business to collect cash from its debtors
Creditors Turnover
The average number of days it takes for a business to pay it creditors.
7 Accounting Principles
1. Entity
2. Going Concern
3. Reporting Period
4. Historical Cost
5. Conservatism
6. Consistency
7. Monetary Unit
4 Qualitative Characteristics
1. Relevance
2. Reliability
3. Comparability
4. Understandability
6 Uses of General Journal
1. Commencing Entry
2. Non cash capital
3. bad debts
4. correcting entry
5. stock for advertising
6. closing entries
7. Balance Day Adjustments
Value of depreciation
HC-RV/Useful life
Rate of depreciation
Value of Depreciation/Historical Cost
Forms of depreciation
1. Straight line
2. Reducing balance
6 Measures of profitability
1. debt ratio
2. Net Profit Margin
3. Gross Profit Margin
4. Return on assets
5. Asset Turnover
6. Return on owners investment
3 Levels of liquidity
1. Working Capital Ratio
2. Quick Asset Ratio
3. Cash Flow Cover
3 Speed of liquidity measures
1. Stock Turnover
2. Debtors Turnover
3. Creditors Turnover
5 Forms of Non financial Data
1. Customer satisfaction
2. Hits to online website
3. Sales returns
4. Economic climate
5. Number of sales returns
3 benchmarks for performance
1. Previous Reporting Periods
2. Budgeted results
3. Industry Average

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