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Yr 11 Accounting Unit 1 Definitions

sole proprietorshipa business owned by a single individual, operating their business in their own right under their own name or a registered business name
partnershipa business owned by two or more persons in business together with a view to make a profit
companya business that exists as a separate legal entity that is entitled to do business in its own right
unlimited liabilitythe legal status of sole proprietorship and partnerships that are not recognised as separate legal entities, so the owner(s) is(are) personally liable for the debts of the business
limited liabilitythe legal status of a company, which exists as a separate legal entity, so the owners have no further responisbility for liabilities incurred by the business
internal financefunds generated by and within the firm
capital contributionan internal source of finance consisting of cash (or other assets) contributed to the business from the personal assets of the owner
retained earningsan internal source of finance consisting of funds generated from business profits that are not taken as drawings by the owner
external financefunds generated from sources outside the business
trade credita form of external finance offered by some suppliers which allows customers to purchase goods/services and pay at a later date
bank overdraftan external source of finance provided by a bank that allows the account holder to withdraw more than their current account balance
term loana form of external finance provided by banks and other lenders for a specific purpose and repaid over time
leasea written agreement which grants to the lessee the right to use a particular asset for a specified period of time in return for periodic payments to the lessor
accountingthe collection, recording and reporting of financial information to assist business owners in decision-making
transactionan agreement between two parties to exchange goods or services for payment
recordingsorting, classifying and summarising the information contained in the the source documents so that it is more usable
reportingthe preparation of financial statements that communicate financial information to the owner
advicethe provision to the owner of a range of options appropriate to their aims/objectives, and recommendations as to their suitability
accounting principlesthe generally accepted rules which govern the way accounting information is recorded
entity principlethe business is separate from the owner and other entities, and its records should be kept on this basis
going concern principlethe life of the business is assumed to be continuous, and its records are kept on that basis
reporting period principlethe life of the business must be divided into "periods" of time to allow reports to be prepared, and the accounting records should reflect the reporting period in which a transaction occurs
historical cost principletransactions should be recorded at their original purchase price, as this value is verifiable by source document evidence
consistency principlethe business should use the smae accounting methods to allow for the comparison of reports from one period to the next
conservatism principlelosses should be recorded when probably, but gains only when certain so that liabilities and expenses are not understated and assets and revenues are not overstated
monetary unit principleall items must be recorded and reported in the currency of the country of location where the reports are being prepared
qualitative characteristicsthe qualities of the information inaccounting reports
relevancereports should include all information which is useful for decision making
reliabilityreports should contain information verified by source document evidence so that it is free from bias
comparabilityreports should be able to be compared over time through the use of consistent accounting principles
understandabilityreports should be presented in a manner that makes it easy for the user to comprehend their meaning
assetsa resource controlled by the entity (as a result of past events), from which future economic benefits are expected
liabilitya present obligation (as a result of past events), the settlement of which is expected to result in an outflow of economic benefits
owners equitythe residual interest in the assets of the entity after the liabilities are deducted, the owners claim on the firms assets
balance sheetan accountin report that details a firm's financial position at a particular point in time by reporting its assets, liabilities and owner's equity
classificationgrouping together items that have some common characteristic
source documentsthe pieces of paper that provide bohe the evidence that a transaction has occurred, and the details of the transaction itself
GSTGoods and Services Tax: a 10% tax levied by the federal government on sales of goods and services
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cheque butta source document used to verify cahs payments
invoicea source document used to verify a credit transaction
journalan accountin record which classifies and summarises transactions during a particular reporting period
Statement of Receipts and Paymentsan accounting report which lists cash receipts and payments during a reporting period, the change in the bank balance, and the opening and closing bank balance
cash receipts journalan accounting record which summarises all cash received from other entities during a particular reporting period
cash payments journalan accounting record which summarises all cash paid to other entities during a particular reporting period
cash surplusan excess of cash receipts over cash payments, leading to an increse in the bank balance
cash deficitan excess of cash payments over cash receipts, leading to a decrease in the bank balance
GST payableGST owed by the business to the ATO when the amount of GST the business has received on its fees is greater than the GST it has paid to its suppliers
GST settlementa payment made to the ATO by a small business to settle GST payable
GST receivableGST owed to the business by the ATO when the amount of GST the business has paid to its suppliers is greater than the GST it has received on its fees
internal controlthe procedures and strategies used to protecht the firm's assets from theft, damage and misuse
cash controlthe procedures and strategies used to protect the firms cash
bank statementa record kept by the bank of all transactions affecting a particular bank account
bank reconciliationthe process of verifying that the entries in a firm's cash journals are the same as those recorded by the firm's bank on the Bank Statement
direct credita deposit of cash directly into a bank account
direct debita withdrawal of cash directly from a bank account
dishonoured chequea cheque that cannot be honoured/exchanged for cash because there are insufficient funds in the account of the drawer to allow the payment to be made
deposit not yet crediteda cash deposit that is yet to appear on the Bank Statement (usually due to the timing of its preparation)
unpresented chequea cheque that has not yet been presented for payment by the payee
revenuean inflow of an economic benefit in the form of an increse in assets that increases owner's equity (except for capital contributions)
expensean outflow or consumption of an economic benefit in the form of a decrease in assets that reduces owner's equity (except for drawings)
Profit and Loss Statementan accounting report which details the revenues earned and expenses incurred during the reporting period
Tax File Numbera number allocated by the ATO to entities that are required to submit a tax return
progressive taxa form of taxation that charges a higher tax rate as income rises
tax free thresholdthe level at which income ceases to be tax free
tax bracketan income range within which tax is levied at a certain rate
taxable incomethe net income on twhich the ATO will determine the firm's tax liability
assessable incomeany income earned by a business that is deemed to be taxable by the ATO
allowable deductionsan expense incurred by a business that can be deducted from assessable income to reduce taxable income
Australian Business Numbera number allocated by the ATO to all businesses that wish to be registered for certain forms of taxation
tax invoicea source document issued by a business that is registered for GST
Business Activity Statementa statement used to reort business tax entitlements and opligations, including GST, PAYG and Fringe Benefit Tax
PAYG taxPay As You Go: a form of taxation which requires employers to withould an amount from the amounts paid to employees equivalent to their expected tax liability for that period
Capital Gains Taxa form of taxation that is charged when a gain is made on the sale of an asset (that has not been depreciated)
Recommended Retail Pricea selling price that is recommended by the manufacturer or wholesaler
competitor's pricesprices charged by businesses competing in the same market
market reationthe response of customers in a particular marketplace to price levels for a particular good or service
quotea method of determining a selling price by estimating the costs involved with a particular job, and then adding on a certain amount to provide profit
mark-updetermining selling prices by adding to the cost price a predetermined profit margin
break-even analysisananalysis tool that llows a business to determine a selling price or volume of sales that will let them achieve a specific profit goal
break even pointthe level of sales where total revenue equals total expenses and the business makes neither a profit nor a loss
variable costscosts that vary directly with the level of activity
fixed costscosts that do not vary with the level of activity
contribution marginthe gross profit from each sale that goes towards covering fixed expenses and contributing to net profit; calculated by deducting variable costs from selling price

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