14: General Theory Flashcards

1
Q

Role of accounting

A

Accounting is an information system that provides accounting information for stakeholders to make informed decisions regarding the management of resources and performance of business.

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2
Q

State the function of the accounting information system

A

The accounting information system is a system that a business uses to collect, store and process accounting data.

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3
Q

State 2 roles of accountants

A

Set up accounting information system and being responsible for managing the resources of the business on behalf on the owner(s).

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4
Q

State professional ethics that accountants need to have.

A

(i) Integrity

(ii) Objectivity

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5
Q

Explain objectivity of the professional ethics.

A

Objectivity – not let bias, conflict of interest or the undue influence of others override the accountant professional judgement.

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6
Q

Explain integrity of the professional ethics.

A

Integrity – to be straightforward and honest in all professional relationships.

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7
Q

State the difference between a trading business and service business and give examples of these 2 businesses.

A

A trading business is a business that buys and sells goods. Examples are supermarket and furniture shop.

A service business is a business that provide services. Examples are hairdressing salons and bus company.

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8
Q

What is the difference between cash transaction and credit transaction?

A

Cash transaction is a transaction where payment is made immediately during a cash sales or purchases while credit transaction is a transaction where payment is postponed during a credit sales or purchases.

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9
Q

What is the purpose of preparing a trial balance?

A

A trial balance is prepared to facilitate the preparation of the financial statements or and ensure arithmetic accuracy in recording of transactions.

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10
Q

Stages of accounting information system

A

Source document - Journal – Ledger – Trial Balance – Statement of financial performance

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11
Q

State the account equation

A

Assets = Equity + liabilities

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12
Q

Define Assets

A

Assets are resource owned by the business to help it the generate income.

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13
Q

Define liabilities

A

Liabilities are obligations owed by a business to others that expected to be settled in the future.

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14
Q

Define equity

A

Equity refer to the claim by the owner(s) on the net assets of a business

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15
Q

What is net asset?

A

Net asset = assets – liabilities.

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16
Q

Define drawings

A

Drawings refer to the withdrawal of business assets by the owner for personal use.

17
Q

Define income

A

It refers to amount earned through the activities of the business.

18
Q

Define expenses

A

It refers to costs incurred in the operation of a business to earn income in the same accounting period.

19
Q

Reasons for goods to be returned.

A

Defective/damaged/faulty goods

Goods are of the wrong specifications (Example: Wrong colour, wrong size, wrong quantity etc.)

20
Q

Differences between trade discount and cash discount.

when it is given?

A

TRADE DISCOUNT:
● Trade discount is given at the point of trade.

CASH DISCOUNT:
● Cash discount is given at the point of payment of debts.

21
Q

Differences between trade discount and cash discount.

It’s purpose?

A

TRADE DISCOUNT:
● Trade discount is given to encourage bulk purchase and to clear inventory.

CASH DISCOUNT:
● Cash discount is given to encourage prompt payment of debts.

22
Q

Differences between trade discount and cash discount.

Definition?

A

TRADE DISCOUNT:
● Trade discount is a reduction off the list price or original price of the product.

CASH DISCOUNT:
● Cash discount is a reduction off the invoice price at the point of receipt of payment from credit customers or at point of payment to credit supplier.

23
Q

Differences between trade discount and cash discount.

It is recorded?

A

TRADE DISCOUNT:
● It is not recorded in the double entries.

CASH DISCOUNT:
● Cash discount is recorded as a discount allowed or discount received.