ch 1

Question 1

Accounting entity theory

Answer 1

activities of the business are separate from the actions of the owner.
Transactions are recorded from the point of view of the business

Question 2

Accounting period theory

Answer 2

The life of a business is divided into regular intervals

Question 3

Going concern theory

Answer 3

A business has indefinite economic life unless there is credible evidence that it may close down

Question 4

Historical cost theory

Answer 4

Transactions should be recorded at their original cost

Question 5

Monetary theory

Answer 5

Only business transactions that can be measured in monetary terms are recorded

Question 6

Trading business

Answer 6

buys from suppliers and sells goods to customers

Question 7

Service business

Answer 7

Provide services to customers ie pet shop

Question 8

Role of accounting

Answer 8

Accounting is an
- information system that
- provides financial information
- for stakeholders to
- make informed decisions regarding the
- management of resources and
- performance of the business

Question 9

Sole proprietorship

Answer 9

Owned by one person who contributes capital to business
Less likely for banks and lenders to lend money
Debts and losses must be paid by the owners personalt assets
Owner has absolute control over business
Exists as long as owner is alive and desires to continue operation
Less administrative duties

Question 10

Private limited company

Answer 10

Owned by 50 or less shareholders
- buys shares and capital
More likely for banks to lend money as more business assets of high value
Company can issue shares to raise funds
Shareholders not obliged to pay losses using their personal assets
Shareholders no control over running business
Company exists forever until wound up or struck off
Must comply with statutory requirements and file annual financial reports

Question 11

State the role of an accountant.

Answer 11

Accountants prepare and provide accounting information for decision making.
- set up an accounting information system and become stewards
of businesses.

Stewards are responsible for managing the resources of a business

Question 12

Limited liability partnership

Answer 12

Owned by two or more partners
where each partner
contributes capital to set up the business.
• More likely for banks to lend money to the business as there are more sources of personal assets from partners to serve as collaterals.
• Partners are not personally liable
for debts and losses of the
business.
• Control of business is shared among partners with at least one partner heavily involved in running the business.
• The partnership exists forever until wound up or struck off.
• The limited liability partnership has few regulatory duties to comply with.

Question 13

Owners and shareholders

Answer 13

Whether to continue to invest in the business or sell the business,

Question 14

Managers

Answer 14

Whether to consider ways to improve the performance of the business.

Question 15

Employees

Answer 15

Whether to continue working at the business.

Question 16

Why is it important for accountants to have professional ethics?

Answer 16

As accountants provide information to stakeholders for decision-making, the information needs to be truthful and accurate.
- Accountants who do not have integrity and are not objective may provide information that mislead users to make poor decisions. Thus, it is important for accountants to have integrity and be objective.

i. Integrity
An accountant with integrity is straightforward and honest in all professional relationships.

ii. Objectivity
An accountant who is objective will not let bias, conflict of interest or undue influence of others override his
profesional judgement.

Question 17

Professional ethics that accountants should have

Answer 17

Integrity and objectivity
Integrity : straightforward and honest in professional relationships
Objectivity: not let bias, conflict of interest or undue influence of others override his personal judgement.