Chapter 1 Flashcards
What is accounting
the process identifying, measuring and communicating information to allow informed judgements and decisions by users of the information.
What is finance
the study of how businesses raise funds and select appropriate investments
Why would a customer use accounting information
to figure out how the business may meet customer needs
Why would a competitor use accounting information
to learn how best to compete with that business and make comparisons with their own performance
Why would an employee use accounting information
- to know if they should keeping working for the business
- know the future plans , profits and financial strength of business
Why would the government use accounting information
to make sure the business is paying the correct tax
Why would community representatives use accounting information
- to provide economic support of the business
- the business’s ability to provide employment for community
- use of community resources
- the business’s willingness to fund environmental improvements
Why would investment analysts use accounting information
whether to advise clients to invest in the business
Why would suppliers use accounting information
whether to continue to supply to the business, can they afford goods on credit
Why would lenders use accounting information
assess businesses affordability, should they lend money
Why would managers use accounting information
assess whether the performance of the business needs to be improved
Why would owners (shareholders) use accounting information
whether to invest more into the business or sell shares
What are the two fundamental qualities of financial information
relevance and faithful representation
What is relevance
the ability of accounting information to influence decisions
What is faithful representation
the ability of information to be relied on to represent what it is meant to represent
What three qualities does an account need to be faithfully represented
- to be complete, incorporate everything
- neutrality, without bias
- free from error
What is materiality
quality of accounting info meaning that misrepresentation will alter decisions made by users
What is comparability
quality that helps users to identify similarities and differences between items of info
What is verifiability
quality that provides assurance to users that the info is faithfully represented
What is timeliness
provison that accounting info should be made available in time for users to make their decisions
What is understandability
quality that allows info to be understood by those who the info is for
What is the accounting information system
the system used to identify, record, analyse and reports accounting info
What is management accounting
seeks to meet the accounting needs of managers
What is financial accounting
seeks to meet the needs of owners, lenders and other external users
What is the nature of financial reports
they tend to be general purpose
What is the nature of management reports
they tend to be specific purpose reports
What is the level of detail in a financial report
they tend to be less detailed and provide a broad overview of performance
What is the level of detail in a management report
provide managers with considerable detail to help with operational decisions
Do financial report follow regulations
they are subject to accounting regulations imposed by law and accounting rule makers
Do management reports follow regulations
no, only to meet needs of managers
When are financial reports produced
annual basis, sometimes half yearly
When are management reports produced
as frequently as needed by managers
What time period does financial reporting look at
reflect position and performance for past period (can occasionally concern future performance)
What time period does management reporting look at
provides information concerning future performance and past performance
What is a sole proprietorship
a form of business unit where an individual is operating the business on their own account
What are the qualities of a sole proprietorship
- small
- easy to set up, no formal procedures
- owner has say over decision making
- owner has unlimited liability
What is a partnership
business unit where at least two individuals, no more than twenty, operate a business with the intention of making profit
What are the qualities of a partnership
- small
- easy to set up, no formal procedures
- parternships not recognised as separate entities from business
- partners have unlimited liability
What is a limited company
business unit that is granted separate legal existence from the owners
What are the qualities of a limited company
- range from small to large
- number of owners can be unlimited
- owners have limited liability, will not use private assets to pay debts
- only liable for the amount they have invested in the business
- limits risk
- lengthy process to set up
What does the board of directors do (3)
- set overall direction and strategy for business
- monitor and control activities
- communicate with shareholders and others
What is the role of a CEO
responsible for running the business on a day to day basis
What is the role of the chair
responsible for running the business in an efficient manner
What is strategic management
setting a course to achieve long term goals such as objectives and ensuring they are implemented effectively
Three examples of unethical behaviour
- lying
- stealing
-fraudulent behaviour
Three examples of not for profit organisiations
- charities
- churches
- trade unions
