Accounting concepts

Question 1

What are the categories of accounting ?

Answer 1

Financial

Managerial

Question 2

What is financial accounting ?

Answer 2

Looks at profits , assets and cash that the business has / tells shareholders and stakeholders on the state of company finances

Question 3

What is management accounting ?

Answer 3

Internal accounting finding out what areas are performing well or not

Question 4

What are the accounting principles ?

Answer 4

Consistency
Going concern
Matching ( accruals )
Materiality
Objectivity
Prudence
Realisation

Question 5

What is consistency ?

Answer 5

All accounts are made in the same way

Question 6

What is going concern ?

Answer 6

Assumes business is operating correctly ( different rules apply if in liquidation )

Question 7

What is matching ( accruals ) ?

Answer 7

Transactions recorded when they take place and when the payment is made . Details must be put in if there is a sale etc …

Question 8

What is objectivity ?

Answer 8

Accounts must be made on facts and not opinions - must give real value of assets

Question 9

What is prudence ?

Answer 9

Better to understate the amount of assets and overstate losses ( be pessimistic )

Question 10

What is realisation ?

Answer 10

Based when legal title is passed from seller to buyer ( when someone buys a company )

Question 11

What is GAAP ?

Answer 11

The body of accountancy standards published by the UK’s financial reporting council