Chapter 1 Flashcards
What are the two elements of accounting?
recording and summarising
The significance of recording
transactions must be recorded as they occur to provide up to date information for management
The significance of summarising
The transactions for a period are summarised in order to provide information about the company to interested parties
What goes under summarising?
financial statements
What are the two components of financial statements?
statement of profit or loss
statement of financial position
Statement of Profit or Loss
reflects the performance of a business over a period of time
Statement of Financial Position
reflects the position of a business at a point of time
Who needs to record and summarise their transactions?
any organisation, business or individual which needs to keep track of its income, expenses, assets and liabilities
What are the three types of profit-making business entities?
sole trader
partnership
company
What is a sole trader?
a business owned and operated by one person
What is a partnership?
a business owned and operated by 2 or more people
What is a company?
a business owned by any number of shareholders and operated by directors - who may or may not be shareholders
Characteristic of a sole trader
simplest form of business
Who owns a sole trader?
owned and managed by one person - although there might be number of employees
Who is liable for losses in a sole trader?
the sole trader - fully and personally
What is a partnership?
a business owned jointly by a number of partners
each partner is jointly and severely liable for any losses that business might make
Who are companies owned by?
shareholders or members
In companies, who elect the directors?
shareholders to run the business
What is the liability status of a company?
almost always limited liability
What does a limited liability mean?
this means that the shareholders will not personally be liable for the losses the company incurs
their liability is limited to the nominal value of the shares that they own - their shares may become worthless, but they will not be forced to make goods losses
What is the relationship between the owners and shareholders in a company?
the company is completely separate legal entity from its owners, the shareholders
What are non-profit entities that require accounting info and prepare financial statements?
charties
clubs and societies
government (or public sector) organisations
According to IAS 1 Presentation of Financial Statements, what are the full set of financial statements made up of? (5)
s of financial position
s of profit or loss
s of changes in equity
s of cash flows
notes of financial statements
What is a statement of financial position?
It’s a list of assets or liabilities of the business
its a snapshot of the business at a particular point in time