Accounting Amd Business Theory Flashcards
What is the purpose of accounting
Useful for ecos decisions
Serves as a way of communication
Who are the users of the financial info generated by accounting
Owners Creditors Management Auditors- establish if the firm is a going concern Academics and analysts - investment opportunity Employees Government Trade unions Environmentalists Asset managers Customers
How is acc knowledge usually made available
Periodic financial statements
Explain the difference between internal and external statements
Internal - prepared for internal users only - management. Used to assist management in achieving their goals and to carry out responsibilities - management accounting - used to make internal bus decisions
External - used by the pther previously mentioned users - they don’t show intimate business details and they aren’t customised - external bus decisions
What is the input of the fin states
Daily monetary transactions recorded on source documents between the entity nd external parties
Objective of the fin states
Useful fin info
Provide information on Corp social responsibility and corporate governance
Portray past events
Specialised journals
GJ GL TV adjustments Annual fin states
What is an accounting for financial entity
Involved in using scarce ecos recourses to achieve a purpose - decrease input and increase output
Has an identity of its own
Of interest to one or more individuals for decision making
Manufacturing concern vs retail conxern
Make products
Buy and sell a product or service
How to classify organisations
Non business organisations - not for profit
Business organisations - for profit
What is a sole trader?
One natural person in charge of business
Advantages of sole trader
Easy to form Finance from owners or bank Tax concessions No perpetual succession Pay as u earn, - register with sars for helpful things
Disadvantages of sole trader
Limited growth
Owner is personally liable for debts
Doesn’t require audit
What is a partnership?
2-20 people
Advantage of partnership
Easy to form
Not subjected to legal requirements with public and private companies
More capital in the form of assets and skills than sole trader
Regulated by legal agreements between partners
Doesn’t require audit
disadvantage of partnership
- limited to 20 natural persons
no perpetual succession ((partnership is dissolved when partner retires, dies and a new
partnership is formed with the remaining partners))
regulated by legal partnership agreement
limited growth
partners can be held jointly and severally liable for debts for the same proportion that they share in profit
what is a closed corporation and how is it treated?
1-10 members
According to the New Companies Act 71 of 2008 no new close corporations can be
registered from 1 May 2011 and existing ones at that date will continue indefinitely. They
will be treated as private companies, and the Close Corporations Act will be brought into line
with legislation on private companies
advantages of a cc
cheap to form (R50 for registering name and R100 for founding document)
limited to 10 natural members
finance from owners or outsiders
Members’ liability for debts of CC is limited to amount originally invested
Perpetual succession
Regulated by Close Corporations Act No. 69 of 1984
Legal Association agreement regulating internal administration and control
Does not require an audit of accounting records
disadvantages of a CC
limited growht
lose their limited liability status - piercing the corporate veil – if fraud or intention to defraud can be proven in the court of law
advantages of a public company
The name of a public company must end with “Limited” or its abbreviation, “Ltd”.
Finance from owners and /or outsiders (banks)
Minimum of 1 shareholder no maximum
Perpetual succession
Shares (ownership) freely transferable
Limited liability - Shareholders’ (owners) liability limited to amount originally invested
Managed by Board of Directors and must have at least 3 directors
The majority of the non-executive directors of the board must be independent (King III
Report)
Board must have a Chairman and Chief Executive Officer who are two separate persons
Requires a full statutory audit of accounting records
Annual financial reports prepared in compliance with full International Financial Reporting
Standards (IFRS)
disadvantages of a public company
complicated and expensive
minority shareholder have no say in affairs
comply with expensive procedures to comply with IFRS
have to prepare and publish their financial statements
public companies are required to be more transparent and disclose more info than other forms of entities
what does Pty Ltd stand for?
propriety limited
advantages of a private company
finance from owners and outside
minimum of one shareholder and no max
perpetual succession
Shareholders’ liability limited to amount originally invested
Managed by Board of Directors and must have at least one director
Does not require a full statutory audit of accounting records
Small and medium enterprises (SME’s) can use International Financial Reporting Standards
(IFRS) for SME’s
Financial information in a private companies is only available to shareholders
Annual financial reports prepared in compliance with International Financial Reporting
Standards (IFRS).
disadvantages of private companies
shares are not freely transferable - cannot offer shares directly to the public
expensive to form