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Accounting > 1: Introduction > Flashcards

1: Introduction Flashcards

1
Q

What are the two elements of accounting?

A

Recording: transactions must be recorded as they occur in order to provide up-to-date information for management

Summarising: the transactions for a period are summarised in order to provide information about the company to interested parties

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2
Q

Who are ‘interested parties’, who could want information about a company?

A

Shareholders
Suppliers
Stakeholders
Government
Banks
HMRC
Etc!

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3
Q

What is a full set of financial statements made up of?

A
  1. Statement of Financial Position
  2. Statement of Profit and Loss
  3. Statement of Changes in Equity
  4. Statement of Cash Flows
  5. Notes to the Financial Statements
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4
Q

What does the statement of Profit & Loss reflect?

A

Reflects the performance of a business over a period of time

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5
Q

What does the statement of financial position reflect?

A

Reflects the position of a business at a point in time

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6
Q

What are the three different types of business entities?

A

Sole Trader
Partnership
Company

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7
Q

Describe a sole trader business entity (3 points)

A

The simplest form of business

Owned and managed by one person (although there can be any number of employees)

Fully and personally liable for any losses that the business might make

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8
Q

Describe a partnership (3 points)

A

A business owned jointly by a number of partners

Each partner is jointly and severally liable for any losses that the business might make

Partnerships can also be Limited Liability Partnerships (LLPs)

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9
Q

Describe companies (4 points)

A

Owned by shareholders (there can be any number of shareholders)

Shareholders elect directors to run the business

Almost always have limited liability - shareholders will not be personally liable for any losses the company incurs. Their liability is limited to the nominal value of the shares that they own

The company is a completely separate legal entity to the shareholders

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10
Q

Give 3 kinds of non-for-profit entities that will also need to prepare financial statements etc…

A

Charities

Clubs and societies

Government (or public sector) organisations

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11
Q

Which standard is created to regulate financial statements?

A

IAS1 - Presentation of Financial Statements

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12
Q

Give a very basic definition of assets and liabilities?

A

Assets are items that the business owns (or controls)

Liabilities are items that the business owes

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13
Q

What is the purpose of the financial position?

A

To show the total value of the net assets (assets - liabilities) of the business at the end of each accounting period

(normally at the end of a 12-month period of account set by the business)

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14
Q

Breakdown the order of a SFP

A

Assets
Non-current
Current
Total Assets

Equity/Capital

Non-current Liabilities
Current Liabilities

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15
Q

List some non-current assets (5)

A

Land and Buildings
Plant and machinery
Motorvehicles
Other equipment
Goodwill

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16
Q

List some current assets

A

Inventory
Trade Receivables
Cash and Cash Equivalents
Prepayments
Accrued Income

17
Q

What types of Capital should go in the Capital section of the ‘SFP’ (5)

A

Ordinary Share Capital
Preference Share Capital
Share Premium
Other Reserved
Retained Earnings

18
Q

What are some non-current liabilities (2)

A

Long term loans
Mortgages (if lasting over a year)

19
Q

What are some current liabilities (7)

A

Trade payables
Deferred Income
Accruals
Short term borrowings
Provisions
Tax payable
Overdrafts

20
Q

What is the purpose of a SPL?

A

To show the amount of profit or loss that the business has made during the accounting period

21
Q

Breakdown the order of a SPL

A

Revenue (or Sales)
Cost of Sales
Opening Inventory
Purchases
Closing Inventory
Gross Profit

Other Operating Income
Administrative Expenses
Operating Profit

Investment/finance on income/loans
Profit before Tax

Taxation

Net Profit or loss for the period

22
Q

What is capital expenditure, and where is it stored?

A

Expenditure incurred to either:
- acquire long-term assets
- to improve or enhance the earning capacity of long-term assets

Stored in the SFP

23
Q

What is revenue expenditure and where is it stored

A

Spending for trade purposes, either directly or indirectly, or to maintain the existing earning capacity of long term assets

Stored in the SPL

24
Q

Two examples of very subjective practice in accounting?

A

Valuation of buildings

Whether expenditure is revenue or capital

25
Q

Two Codes of Ethics to follow?

A

ICAEW Code of Ethics

which is based on

International Ethics Standards Board for Accountants (IESBA) Code of Ethics

26
Q

The five fundamental principles of professional ethics in the Codes of Ethics?

A

Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour

27
Q

The five fundamental principles of professional ethics in the Codes of Ethics?

A

Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour

28
Q

Describe the ‘integrity’ ethic

A

Straightforward and honest in all professional and business relationships

29
Q

Describe the ‘objectivity’ principle

A

Not allow bias, conflict of interest or undue influence of others to override professional or business judgements

30
Q

Describe the ‘professional competence and due care’ principle

A

Duty to maintain professional knowledge and skill at the level required

To ensure that a client receives competent professional service based on current developments in practice, legislation and techniques

Act diligently and in accordance with applicable standards

31
Q

Describe the ‘confidentiality’ principle

A

Respect the confidentiality of information acquired

Not to disclose any such information to third parties without authority unless there is a legal or professional right or duty to disclose

Info should not be used for personal advantage

32
Q

Describe the ‘professional behaviour’ principle

A

Comply with relevant laws and regulations

Avoid any action that discredits the profession

33
Q

What are the advantages of the principles-based codes?

A

The onus is on the individual to consider the situation and follow the spirit of the guidance

Encourages compliance, as rules can results in individuals finding loopholes

More adaptable for a multitude of situations

Rules cannot keep up with a rapidly-changing environment

Prohibits certain situations where safeguards are not feasible

Accounting (16 decks)

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