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Commerce > 4.0 Accounting > Flashcards

4.0 Accounting Flashcards

1
Q

What is accounting?

A

the collecting and recording of financial data to produce and report financial information to assist businesses owners and other users of it with planning and decision making.

Collecting and recording of financial data to assist businesses.

A way to communicate financial health

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2
Q

What is financial data?

A

Raw facts and figures upon which financial information is based.

(source documens)

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3
Q

What is financial information?

A

Financial data that has been sorted, classified and summarised into a more useable and understandable form.

Reports

Financial data that has been produced into reports

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4
Q

What is the purpose of accounting?

A

To provide businesses owners with financial information, assisting with decision making about activities in the firm.

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5
Q

Why is accounting important?

A

So businesses owners can have access to an information service which they can study to assist them in making decisions about the activities in their firm.

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6
Q

What are stakeholders?

A

Parties who are interested in the firm’s financial information.

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7
Q

What are the six stakeholders?

A
  • Accounts receivable and other customers
  • Accounts payable and other suppliers
  • Banks and other financial institutions
  • Employees
  • Prospective owners
  • ATO
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8
Q

What is a stakeholer?

Define

A

A person or organisation that has an interest in the performance of the business and can affect operations or be affected by them

People who are interested in performance of business, can affect or be affected by operations.

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9
Q

Stakeholders:

What are accounts receivable and other customers?

What do they want to know about firm?

A

Stakeholders wishing to know about firm’s continuing ability to provide them with inventory

Can business consistently provide inventory?

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10
Q

Stakeholders:

What are payable and other suppliers?

What do they want to know about firm?

A

Stakeholders wanting to know firm’s ability to repay what it owes them

Can firm pay back?

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11
Q

Stakeholders:

What do banks and other financial institutions want to know?

A

The firm’s current levels of debt, ability to repay before providing firm with additional finance.

Can firm repay debt, able to repay beffore giving more money?

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12
Q

Stakeholders:

What do employees wish to know?

About firm

A

Firm’s long-term viability, own long-term employment prospects, ability to afford improvements in wages and conditions.

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13
Q

Stakeholders:

What do prospective owners want to know about firm?

A

Firm’s financial structure, earning’s performance, assets and liabilities to determine firm’s worth.

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14
Q

What does the ATO want to learn about a firm?

A

Requires financial information for taxation purposes.

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15
Q

What is the nature of business operations?

A

Market and type of goods and services offered by business determines nature of operations.

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16
Q

What are the four types of business operations?

A
  1. Trading (AKA merchandising and retail)
  2. Service
  3. Manufacturing
  4. Mixed business
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17
Q

Business operations:

What do trading businesses sell?

A

Purchases finished goods for sole purpose of retail, sell to customers through retail outlet at marked up selling price.

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18
Q

What do service businesses provide?

A

Perform service for customer, businesses’ time, labour and expertise.

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19
Q

What do manufacturing businesses provide/sell?

A

Provide goods they sell. Uses production process to transform raw materials into product. Can sell directly to market or through trading business.

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20
Q

Define accounting process

A

Process of turning financial data into financial information.

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21
Q

What are the steps of the accouting process?

A
  1. Source documents
  2. Records
  3. Reports
  4. Advice
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22
Q

Accounting process:

What occurs during stage 1: source documents?

A

Business collects source documents, providing evidence that transaction occured, along with details.

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23
Q

Accounting process:

What occurs doing stage 2: recording?

A

Sorting, classifying and summarising information contained in source documents so it is useable.

24
Q

Accounting process:

What occurs during stage 3: reporting?

A

Reporting financial information to owner in form they can understand. Preparation of financial statements that comunicate information to owner, so that decisions can be made.

25
Q

Accounting process:

What occurs durring stage 4: Advice?

A

Accountant gives advice, provides owner with a range of options and a more informed decision.

26
Q

What is a statement of receipt and payment?

A

A summary report of cash receipts and payments over a given period of time, and current cash balance.

27
Q

What is a surplus or deficit (not definition)

A

Overall change in firm’s bank balance

28
Q

What is a cash surplus?

A

Excess of cash receipts over cash payments, leading to an increase in positive bank balance.

Increase in cash, earn more than they pay. (PROFIT)

29
Q

What is a cash deficit?

A

Excess of cash payments over cash receipts, leading to an increase in bank overdraft.

Decrease in cash, loss, pay more than receive.

30
Q

How is the surplus or deficit calculated?

A

Surplus(deficit) = Cash receipts - cash payments

31
Q

Define revenue

A

Inflow of economic benefits in form of increases in assets, resulting in increase in owner’s equity. Have come from ordinary business activities, excluding contributions from owner.

32
Q

Define expenses

A

Outflow of economic benefits in form of decreases in assets, resulting in decrease in owner’s equity. Have come from ordinary business activities, excluding drawings.

33
Q

Examples of revenue

A

Cash/credit fees, sales, interest, revenue, etc.

34
Q

Examples of expenses

A

Wage, interest expense, advertising, electricity, rent, inventory loss, etc.

35
Q

What is an income statement?

A

Accounting report, reporting revenues earned, expenses incurred, overall net profit/loss for a reporting period.

36
Q

What does an income statement include?

A
  • Information about profit or loss
  • Title (who report is prepared for)
  • Type of report (e.g income statement)
  • Period to which it applies.
37
Q

Income statement:

Why is capital contribution and loan not counted as revenue?

A

It does not increase owner’s equity as the owner must pay this money back. Assets increase, but so do liabilities.

38
Q

Why does purchase of equipment not count as an expense?

A

Assets decrease (cash at bank), but increase (items in possession). Nothing is lost or gained, and owner’s equity is effected.

39
Q

What does the statement of receipts and payments allow?

A

Management to monitor sources and amounts of cash being received and paid by the business.

40
Q

What does an income statement determine?

A

Determines amount of revenue earned and expenses incurred for business.

41
Q

What does a balance sheet outline?

A

What a business owes and owns at any given point in time. Lists assets and equities of business at any given date.

42
Q

What are the two categories equities can be divided into?

A
  • Liabilities (external debts)
  • Owner’s equity (debts owed to owner)
43
Q

Define assets.

A

A present economic resource controlled by the business, as a result of past events that have potential to produce future economic benefits.

44
Q

What are the two types of assets?

A

Current and non-current.

45
Q

What is a current asset (CA)?

A

Asset expected to provide inflow of future economic benefits within 12 months.

Converted to cash, sold, consumed

46
Q

What is a non-current asset (NCA)?

A

Asset that is not held for resale, reasonably expected to be used to provide inflow of economic benefits for more than 12 months.

Provide inflow for MORE than 12 months

47
Q

Examples of CA’s

A

Bank, Accounts receivable, inventory

48
Q

Examples of NCA’s

A

Equipment, Vehicles, premises, furniture

Long-term

49
Q

Define liability.

A

A present obligation of a business to transfer an economic resource as a result of past events.

50
Q

What are the two types of liabilities?

A

Current and non-current.

51
Q

What is a current liability (CL)?

A

A liability expected to be settled WITHIN 12 months

52
Q

What is a non-current liability (NCL)?

A

A liability NOT required to be settled within 12 months.

53
Q

Examples of CL’s

A

Bank overdraft, accounts payable.

54
Q

Examples of NCL’s

A

Loan, mortgage

Note: can also be CL.

55
Q

Define owner’s equity (OE).

A

Residual interest in assets of entity after deducing all its liabilities.

Assets - liablities

56
Q

Examples of OE.

A

Capital, drawings (-OE), Net profit.

57
Q
A

Commerce (15 decks)

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