Accounting Concepts

Question 1

What is financial accounting?

Answer 1

For external stakeholders, annual report, balance sheet/income statement

Question 2

What is management accouting?

Answer 2

For internal stakeholders, monitors performance, done monthly

Question 3

What is GAAP?

Answer 3

UK law requires meeting standards, overseen by FRC, E.G Full disclosure, all quantifiable data, generates confidence, allows comparison, legal requirement

Question 4

What is the principle of consistency?

Answer 4

All accounts produced in the same way

Question 5

What is the principle of going concern?

Answer 5

Assumes business is operating as normal, no reason for it not to be

Question 6

What is the principle of matching, accruals?

Answer 6

Timing of transaction recorded rather than the date of payment

Question 7

Whar is the principle of materiality?

Answer 7

Only assets of value being included

Question 8

What is the principle of objectivity?

Answer 8

Must be realistic, factual, bias avoided

Question 9

What is the principle of prudence (conservatism)?

Answer 9

Must understate rather than overstate

Question 10

What is the principle of realisation?

Answer 10

Recording the date when ownership changes rather than the date of payment