14: General Theory Flashcards
Why it is important for accountants to follow professional ethics?
As accountants provide information to stakeholders for decision-making purposes, the information needs to be truthful and accurate so that users relying on the information are not mislead into make poor decisions.
Role of accounting
Accounting is an information system that provides accounting information for stakeholders to make informed decisions regarding the management of resources and performance of business.
State the function of the accounting information system
The accounting information system is a system that a business uses to collect, store and process accounting data.
Define Trial balance
It is a list of all the ledger accounts and their ending balances at a point in time.
State 2 roles of accountants
Set up accounting information system and being responsible for managing the resources of the business on behalf on the owner(s).
State professional ethics that accountants need to have.
(i) Integrity
(ii) Objectivity
Explain objectivity of the professional ethics.
Objectivity – not let bias, conflict of interest or the undue influence of others override the accountant professional judgement.
Explain integrity of the professional ethics.
Integrity – to be straightforward and honest in all professional relationships.
State the difference between a trading business and service business and give examples of these 2 businesses.
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.
What is the difference between cash transaction and credit transaction?
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.
What is the purpose of preparing a trial balance?
A trial balance is prepared to facilitate the preparation of the financial statements or and ensure arithmetic accuracy in recording of transactions.
Stages of accounting information system
Source document - Journal – Ledger – Trial Balance – Statement of financial performance
Stages of the accounting cycle
Identifying and recording – adjusting – reporting - Closing
State the account equation
Assets = Equity + liabilities
Define Assets
Assets are resource owned by the business to help it the generate income.
Define liabilities
Liabilities are obligations owed by a business to others that expected to be settled in the future.
Define equity
Equity refer to the claim by the owner(s) on the net assets of a business
What is net asset?
Net asset = assets – liabilities.
Define drawings
Drawings refer to the withdrawal of business assets by the owner for personal use.
Define income
It refers to amount earned through the activities of the business.
Define expenses
It refers to costs incurred in the operation of a business to earn income in the same accounting period.
Reasons for goods to be returned.
Defective/damaged/faulty goods
Goods are of the wrong specifications (Example: Wrong colour, wrong size, wrong quantity etc.)
Differences between trade discount and cash discount.
(when it is given?)
TRADE DISCOUNT:
● Trade discount is given at the point of trade.
CASH DISCOUNT:
● Cash discount is given at the point of payment of debts.
Differences between trade discount and cash discount.
(It’s purpose?)
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.
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