1: Intro to Financial Accounting

Question 1

What is Accounting?

Answer 1

The process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by users of that information.

Question 2

What is Capital?

Answer 2

The total of resources invested and left in a business by its owners

ALways equal to its assets - its liabilities

Question 3

What is Credit?

Answer 3

An agreement where a borrower receives money or goods from a lender with the promise to repay later, usually with interest

Question 4

Financial Accounting Objectives

Answer 4

letting people and entities know

if they are making a profit or a loss

what the entity is worth

what a transaction was worth to them

how much cash they have

how wealthy they are

how much they are owed

how much they owe

enough information so that they can keep a financial check on the things they do

Question 5

Define Financial Accounting?

Answer 5

A branch of accounting that is concerned with
(i) recording business transactions

(ii) preparing financial statements that report on how an entity (a business, charity, club, society, government department, etc.) has performed

(iii) reporting on its financial position

Question 6

Financial accounting is, concerned with:

Answer 6

recording data;

classifying and summarising data;

communicating what has been learnt from the data

Question 7

What is Bookkeeping?

Answer 7

The process of recording data relating to business transactions in the accounting books/records

Question 8

What are Assets?

Answer 8

Resources owned/controlled by a business

Capital = Assets

Question 9

What are Liabilities?

Answer 9

The amounts owed by a business at any particular point in time

Assets = Capital + Liabilities

Question 10

What is a Balance Sheet?

Answer 10

A statement showing the assets, liabilities and capital of a business

Also known as a statement of finanical position

Question 11

What is an Inventory?

Answer 11

Goods in which the business normally deals that are held with the intention of resale

May be finished or partly finished goods, raw materials awaiting conversion into finished goods which will then be sold

Question 12

What is a Debtor/Trade Receivable?

Answer 12

A person/business who owes money to a business for goods or services supplied to them

Question 13

What is a Creditor/Trade Payable?

Answer 13

A person/business to whom money is owed for goods or services supplied

Question 14

What is a Profit?

Answer 14

A profit is the excess of revenue over expenses

Question 15

3 Stages of Accounting Info System

Answer 15

1. Identifying
2. Measuring
3. Communicating

First have to Identify what info u need, before Measuring the values and Communicating it to users

Question 16

What are Non-Current Assets/Fixed Assets?

Answer 16

Assets held for the long-term operations of the business and tend to be high value items

Examples; Motor Vehicles, Buildings, Fixtures and Fittings

Question 17

What are Current Assets?

Answer 17

Assets held for short-term use in the normal course of a business’s operating cycle

Example; Inventory, Trade Receivables and Cash

Question 18

What is Current Liabilities?

Answer 18

Amounts due for settlement within 12 months of the balance sheet date

Examples; Bank overdrafts, Trade Payables abd Accruals ( revenues and expenses that have been earned or incurred but not yet recorded in the accounts)

Question 19

What is Non-Current Liabilities?

Answer 19

Amounts due for settlement beyond 12 months after the balance sheet date

Example; Loans due for payment after 5 years

Question 20

What is an Income Statement Report?

Answer 20

Reports the income and expenses of a particular entity for a period

Total income - total expenses = profit or loss

Question 21

What are Drawings?

Answer 21

Funds/Goods taken out of a business by the owners for their personal use