Accounting 1 Flashcards
What is accounting as a process?
The process of identifying, measuring and communicating economic information to permit informed judgements and decisions by the users of the information.
What are some initial questions for accounting?
- Is it worth it/ return on investment
- Will it survive/ risk involved
What is accounting?
- The language of business, collecting analysing and communicating financial information to make informed decisions.
What are three questions that accounting generally answers?
- How well is the business doing? (Score keeping)
- What problems should be looked at? (Attention directing)
- Which is the best alternative for doing a job? (Problem solving)
Who reports accounting information?
Types of businesses: Sole trader, partnership, companies
Sector examples: Manufacturing, trading, services
Describe the features of a sole trader in accounting.
- Individual may enter into business alone, selling goods or providing a service
- May start business with loan from bank
- Personal life and business may be intertwined
- For accounting purposes business regarded as a separate economic entity
- Accounting information needed by: Government (HMRC) for tax collection purposes, The bank for purpose of providing a loan, a person buying the business when the owner decides to retire
- Unlimited liability
What are the features of a Partnership in accounting?
- Formed by agreement but not necessarily in writing
- Sole trader may expand to enter into partnership with one or more people
- Permits pooling of skills or bring money and skill together
- All partners entitled to share in the running of business
- In case of failure, one partnership may have to pay all the obligations if the other partner lacks the financial capabilities.
- For accounting purposes partnership seen as separate economic entity owned by partners
- Accounting info needed by: Partners wishing to receive a fair share of the profits, HMRC, Banks providing finance, people invited to join the business
-Unlimited liability
What are the features of limited liability companies in accounting?
- Companies registered under company act, memorandum and articles of association set out the powers allowed to company
- Shareholders appoint directors to run the business
- The personal liability of the shareholders limited to the amount they agreed to pay for shares
- Companies must make accounting info available to the public through Registrar of Companies Annual Financial Statement
What is a Ltd?
A private limited company, prohibited by law from offering shares to public, can approach private entities to purchase shares of the company, often used for family run companies.
What is a Plc?
Public limited company is permitted to offer its shares to the public, in return it has to satisfy more onerous regulations.
What are the three P’s of accounting?
- Position: of accumulated wealth, What is the state of wealth on a particular date?
- Performance: in creating wealth, how has the business been in creating wealth over a period?
- Prospect: in staying in business, How much cash is available to the business over a period?
How are the 3 P’s of accounting communicated?
Position: Statement of financial position or balance sheet
Performance: Income statement or Profit and loss account
Prospect: Cashflow statement
What goes into different accounting statements?
Statement of financial position = Assets and liabilities
Statements of cash flow = Provision of finance (Equity and liability) and Cash flow
Income statement = Profit, revenue and expenses
Who uses accounting information?
Owners, customers, competitors, Employees and their representatives, governments, community representatives, investment analysts, suppliers, lenders, managers
What makes accounting information useful?
Relevance, faithful representation are fundamental qualitative characteristics
Comparability, verifiability, timeliness, understandability are enhancing qualitative characteristics
