AOS 1

Question 1

Period

Answer 1

Accounting Assumptions- financial activities are reported and recorded on for a particular period of time. Done to measure performance.

Question 2

Accural basis

Answer 2

Accounting Assumptions- recording revenue when its earned and expenses when they’re incurred as a method of determining profit

Question 3

Going concern

Answer 3

Accounting Assumptions- a business will continue to operate, and isn’t expected to be wound up in the near future

Question 4

entity

Answer 4

Accounting Assumptions- requires that a business has its own financial status and a seperate position from that of its owners or other entities.

Question 5

timeliness

Answer 5

Accounting Characteristics- providing information to users as quickly as possible so that it remains useful for decision making

Question 6

understandability

Answer 6

Accounting Characteristics- financial information should be presented clearly and concisely so that users can easily understand it.

Question 7

relevance

Answer 7

Accounting Characteristics- usefulness of financial information in helping users make decisions

Question 8

faithful representation

Answer 8

Accounting Characteristics- the requirement that financial information must accurately reflect economic events.

Question 9

comparability

Answer 9

Accounting Characteristics- the ability to compare similar types of financial information effectively with other entities or over different reporting periods

Question 10

verifiability

Answer 10

Accounting Characteristics- the premise that financial information is supported by evidence that can be used to check its accuracy.

Question 11

Assets

Answer 11

are present economic resources controlled by an entity. An economic resource has the potential to produce economic benefits in the future.

Question 12

liabilities

Answer 12

are present obligations of the business entity to transfer economic resources due to an economic sacrifice made by the business

Question 13

owners equity

Answer 13

the residual interest an owner has after liabilities are deducted from assets

Question 14

revenue

Answer 14

an increase in assets, or decrease in liabilities that results in an increase in owners equity

Question 15

expenses

Answer 15

a decrease in assets, or increase in liabilities that result in a decrease in owners equity

Question 16

Current Assets

Answer 16

the classification includes cash and other economic resources that are usually help for the purpose of sale or trading. They are expected to be turned into cash, sold or consumed with 12 months from the end of the accounting period.

Question 17

non current assets

Answer 17

usually acquired with the intentions of using them for many years and are held not for resale

Question 18

Current liabilities

Answer 18

Classification includes all liabilities that are expected to be settled within 12 months from the end of the recording period.

Question 19

non current liabilities

Answer 19

these are longer obligations of the business, which don’t need to be settled in 12 months.

Question 20

working capital

Answer 20

the value of the business entities current assets minus the current liabilities.

Question 21

Characteristics of T-form and narrative form balance sheets

Answer 21

T-form has two columns one for assets another for liabilities and owners equity. The total of each column is at the bottom of each side to easily check if it balances

Narrative form- Is a straight line. Goes from assets to liabilities to owners equity. Has the total equities and assets at the bottom.

Question 22

The accounting system

Answer 22

1. Collection of raw data/ source documents
   Recorded on business documents, copies are often made by business documents and can include: receipts, cheques, invoices, EFT receipts
2. Recording data
   Is recorded on business documents, which are known as source documents, as they are the source of financial data. They are recorded in General Journals which is used to record the daily transactions of a business. This is then transferred to ledger accounts which sorts all the transactions
3. Reporting of results
   The three main ones are: Income statement, balance sheets and cash flow statements.

Question 23

Interest only loans adv/disadv

Answer 23

Loans that only require a payment of interest during its lifetime with the amount borrowed in one lump sum at the end. Classified as NCL e.g construction businesses
Adv- paying less on a regular basis
Disadvantage- having to pay lump sum

Question 24

Instalment loans adv and disadv

Answer 24

A loan that requires scheduled payments of both principal and interest throughout its lifetime.
Adv- avoids paying lump sum
Disadv- requires larger dollar amount upfront to be paid on a regular basis.

Question 25

Computerised accounting system only adv and disadvantage

Answer 25

Adv- More accurate than humans, more efficient than manual processors, able to store large amounts of data disadvantage- significantly more expensive than manual, must have skills to use software