CH1 - Intro to Accounting Flashcards
What does accounting consist of?
Recording transactions to provide up-to date information and Summarising transactions over a period to provide information about the company
What is a statement of profit and loss?
Shows business performance by displaying revenue and expenses of a business during an accounting period (12m).
What is a statement of financial position
Reflects the business position at a point of time
What is a sole trader?
Business owned and operated by one person
What is a partnership
Business owned and operated by two or more people
What is a company
Business owned by number of shareholders operated by directors
What are the 4 full set of financial statements according to IAS1
- Statement of financial position
- Statement of profit and loss
- Statement of changes in equity
- Statement of cash flows
What are assets?
Items a business owns or controls e.g. fixtures and fittings
What are liabilities?
Items that the business owes
What is contained in the Assets part of the financial position?
- Non-current assets
- Current Assets
What is contained in the equity and liabilities section of financial position (SFP)
1.Equities and liabilities
2. Non Current liabilities
3. Current Liabilities
What are the sections found in the profit and loss?
- Revenue
- Cost of sales
- Gross Profit
- Operating profit
- Profit before tax
6, Net profit/loss for this period
What is capital expenditure?
- Acquiring of long-term assets (> 12m)
- Improve or enhance the earning capacity of long term assets
Where is capital expenditure found?
Statement of financial position within non-current assets
What is revenue expenditure
Short term expenses used within a year e.g. raw material or items for resale
OR Maintaining existing earning capacity of current assets
Where is revenue expenditure found?
Recorded in the statement of profit and loss
How are financial statements regulated? (5 examples)
- Legislation
- Application of judgement using established accounting concepts
- Accounting and financial reporting standards
- Generally accepted accounting practice (GAAP)
- Need for fair presentation
What does it mean by individual judgement for ethics?
Different way to judge a particular fact e.g. valuation of building in times of changing property prices
What is the The international Ethics Standard Board for Accounting and the principles to adhere to 5. (IESBA)?
Developed an ethical standard for accounting to follow including
1) Integrity 2) Objectivity 3) Professional competence and due care 4) Confidentiality 5) Professional behaviour
According to the IESBA what does integrity mean?
Professional accountants should be straight forward and honest
According to the IESBA what does Objectivity mean?
Professional accountants should not be bias, allow conflict of interest or undue influence of others to override professional judgements
According to the IESBA what does Professional competence and due care mean?
Maintain professional knowledge and skill at level required to ensure that client or employer receives competent professional service
According to the IESBA what does Confidentiality mean?
Not sharing information as a result of professional and business relationships unless there is a legal or professional right or duty to disclose
According to the IESBA what does Professional behaviour mean?
Complying with relevant laws and regulations
What is the ICAEW code of ethics?
Charted accountants should demonstrate highest of standard of professional conduct and take public interest into consideration to maintain image of accounting profession
What is the principles based system and what are the advantages?
IESBA and ICAEW codes are principles and not a set of rules.
Advantages:
1. Onus on the individual to consider the situation and follow guidance
2. Principles encourage compliance, whereas rules can results in individuals finding ways around rules
3. Rules can’t always keep up with rapidly changing environment
4. Principles -based systems can still prohibit where safeguards are not feasible.
