1. Introduction To Accounting Flashcards
define accounting
Accounting is a way of recording, analysing and summarising transactions of an entity
What are the three main types of profit making business entity
Sole trader
Partnership
Limited liability company (LLC)
What is a sole trader
Owns their own business by themselves
What’s a partnership
Two or more people going into business together sharing risks & rewards
What is a LLC
Companies owned by its shareholders and manager by directors
Who needs an entity’s financial information
Managers
Shareholders
HMRC
Employees
Trade contacts
Government
Why do users need an entity’s financial information
In order to make decisions relating to providing resources to an entity
What would users need to assess within a company?
Resources
Efficiency & effectiveness
Sustainability
What are the 7 influences upon financial accounting?
National law
Accounting standards
Sustainability standards
Ethical standards
Accounting concepts & individual judgement
GAAP
Other international issues
What are the 4 international influences on financial accounting?
EU
UN
IESBA (international ethics standards board for accountants)
OECD (the organisation for economic cooperation and development)
What are the four elements of accounting standards?
IFRS standards (international financial reporting standards)
IAS (international accounting standards)
IFRIC Interpretations (international financial reporting interpretations committee)
SIC Interpretations (standard interpretations committee)
What is the statement of financial position
AKA Balance sheet
Shows a list of assets controlled by the entity and liabilities owed by the entity on a particular date
Total assets = total liabilities + equity
What is equity?
Amount invested by owner
AKA capital
What is the purpose of the statement of financial position
To show the entity’s financial position at a point in time
What is the statement of profit or loss?
A record of income generated and expenditure incurred over a given period
AKA income statement
What is the purpose of the statement of profit or loss
Shows the entity’s financial performance over a period of time
What are the two fundamental qualitative characteristics defined by the conceptual frameworks?
Relevance (predictive or confirmatory value)
Faithful representation (complete, neutral, free from error)
What 4 things enhance relevant and faithfully represented information?
Timelessness
Understandability
Verifiability
Comparability
What is ‘going concern’
An underlying assumption to the financial statements
What are the 6 IFRS standards?
Going concern
Accruals
Business entity (business is separate from its assets)
Consistency
Materiality
Historical cost
What are the 5 IESBA Code of ethics for professional accountants?
Integrity
Objectivity
Professional competency and due date
Confidentiality
Professional behaviour
Define capital expenditure
Results in the acquisition of non-current assets, or an increase in their earning capacity
(E.g. property purchase, vehicle purchases, plant & machinery purchases)
Define Revenue expenditure
Incurred for the purpose of trade or to maintain the existing earning capacity of the non-current assets
(E.g. property repairs, depreciation of assets, travel costs)
What does IFRS stand for
International financial reporting standards
