Accounting

Question 1

Accounting

Answer 1

Accounting is the collection, recording and reporting of financial information to assist businesses in making decisions.

Question 2

Stages of accounting

Answer 2

Stage 1: Documents
Stage 2: Recording
Stage 3: Reporting
Stage 4: Analysis and Advice

Question 3

Internal users of accounting

Answer 3

Owners, managers and employees

Question 4

external users of accounting

Answer 4

banks, shareholders, ATO, Suppliers and regulatory bodies

Question 5

What is the Accounting Equation

Answer 5

Assets = Liabilities + Owner’s equity

Question 6

Assets

Answer 6

assets are a resource, controlled by the business, from which future economic benefits are expected to flow

Question 7

liabilities

Answer 7

Liabilities are present obligations of the business to transfer an economic resource to another entity

Question 8

Current Assets

Answer 8

Are resources controlled by the firm, which are expected to provide an economic benefit when: consumed or sold or converted into cash within 12 months

Question 9

Non-Current Assets

Answer 9

Are resources controlled by the firm, which are expected to provide an economic benefit for a number of years and are not held for resale

Question 10

current liabilities

Answer 10

are present obligations to transfer an economic resource with a settlement expected within the next 12 months

Question 11

Non-Current liabilities

Answer 11

financial obligations of a company that are not expected to be settled within one year.

Question 12

Balance sheet

Answer 12

An accounting report that details a firm’s financial position at a particular point in time by reporting its assets, liabilities and owner’s equity.

Needs to include:

• the name of the company
• the title of the report “balance sheet”
• the date of when the balance sheet is: use “as at”
• All Assets
• All Liabilties
• Owner’s equity

Question 13

Liquidity

Answer 13

the ability of a business to meet its short- term debts as and when they fall due

Question 14

what is working capital ratio

Answer 14

The working capital ratio assesses whether the business has enough current assets to cover its current liabilities.

Working capital ratio = Current Assets/Current Liabilities

If the working capital ratio is 1:1 or above the liquidity is satisfactory and if it is below 1:1 the liquidity is unsatisfactory. be careful for benchmarks though

How Answer a Question:

The WCR is less than / greater than 1:1. This means that the firm has (insert $ value) in current assets to repay every $1 in current liabilities. Therefore, it should be able / may not be able to meet its short- term debts as they fall due. The firm’s liquidity is satisfactory / unsatisfactory.

Question 15

How do you write a balance sheet

Answer 15

1. label name of company and then “as at”
2. Fill in all of the assets, liabilities and Owners Equity
3. calculate total of both - they should equal each other

Question 16

Owner’s equity

Answer 16

Residual (left over) interest in the assets of the firm after liabilities are deducted

Question 17

Stability

Answer 17

the ability of the firm to meet its debts and continue its operations in the long term.

Question 18

Debt Ratio

Answer 18

Assesses the proportion of the firm’s assets that are funded by the external finance

Formula: Total liabilities/Total Assets x 100

How to answer question:

The debt ratio of (insert %) means that (insert %) of the firm’s assets are funded by external finance. This is satisfactory / unsatisfactory as it is lower / higher than (insert benchmark of __%). The firm’s stability is positively / negatively impacted because it should be able / may not be able to meet its debts and continue operations in the long term.

Question 19

Statement of Receipts and Payments

Answer 19

Statement of Reciepts and Payments is a financial report that provides a summary of a firm’s receipts and payments over a stated period of time. This provides the owner with information to check if there is a cash deficit of a surplus at the end of the month.

Question 20

Cash surplus

Answer 20

When the Cash recieved is greater than the cash paid during this period: This increases the business’ bank balance

Question 21

Cash deficit

Answer 21

When cash recieved is less than the cash paid during the period: This decreases the business’ bank balance

Question 22

Budget

Answer 22

A financial plan that sets out the expected transaction for future accounting periods

Question 23

Cash Budget

Answer 23

An accounting apart which predicts future cash receipts and payments, determines the expected cash surplus or deficit and estimates the bank balance at the end of the budgeted period

Question 24

Cash budget variance report

Answer 24

An accounting report which compares actual and budgeted cash flows, highlighting variances so that problems can be identified and corrective action taken.