Chapter 1-3 Flashcards

1
Q

Trading business

A

Buys inventory from suppliers and sells goods to customers.
E.g. Electronics, Furniture, Vehicles

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2
Q

Service business

A

Provide services to customers.
E.g. Shipping, Consulting, Medical services

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3
Q

Sole Proprietorship [SP]

A

Owned by 1 person.
Less likely to be granted loans due to lack of personal assets.
Obliged to pay incurred debts or losses with personal assets.
Has absolute control over the business.
Exists as long as owner is alive and desires to continue operation.
Easy to transfer ownership.
Has minimal administrative duties to adhere to.

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4
Q

Limited Liability Partnership [LLP]

A

Owned by 2 partners or more.
More likely to be granted loans as there are more sources of $$.
Partners are not personally liable to debts and losses incurred.
Control over business is shared among partners.
Exists forever until wound up or struck off.
All partners need to agree to acknowledge transfer of ownership.
Has few regulatory duties to comply with.

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5
Q

Private Limited Company [PLC]

A

Owned by 50 or less shareholders who buys shares and contributes capital.
More likely to be granted loans as there are more sources of $$.
Shareholders are not obliged to pay using personal assets (may not receive dividends).
No control over running of business unless part of management team.
Exists forever until wound up or struck off
Can pay a stamp duty to tax authority to give shares to another person or organisation.
Must comply with statutory requirements.

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6
Q

What are shares?

A

Shares are units of business ownership.

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7
Q

What are collaterals?

A

Collaterals are assets that lenders can sell to get their money back if borrower does not repay the loan.

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8
Q

What is a stamp duty?

A

Stamp duty is a tax related to the transfer of property, stocks and shares.

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9
Q

What does statutory mean?

A

Statutory refers to laws passed by the government while regulatory refers to rules issued by an authority appointed by the government.

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10
Q

Internal stakeholders? [3]

A

Owners & Shareholders, Managers, Employees

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11
Q

External stakeholders? [5]

A

Suppliers, Customers, Lenders, Government, Competitors

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12
Q

Owners & Shareholder’s decision with business?

A

Whether to continue to invest in the business or sell it depending on risks and returns related to the business.

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13
Q

Managers decision with the business?

A

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

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14
Q

Employees decision with the business?

A

Whether to continue working at the business.

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15
Q

Suppliers’ decision with the business?

A

Whether to sell to the business on credit, depending on its ability to pay.

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16
Q

Customers decision with the business?

A

Whether to buy from the business, depending on its ability to provide goods/services needed and after-sales service.q

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17
Q

Lenders decision with the business?

A

Whether to grant loans to the business, depending on its ability to repay the loan principal and interest timely.

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18
Q

Government decision with the business?

A

Whether the business complies with the tax regulations and decides the amount of tax to collect from it.

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19
Q

Competitors decision with the business?

A

Whether they are comparable to the business and how to improve their own performance.

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20
Q

What is the role of accounting?

A

To provide accounting information for stakeholders to make informed decisions regarding the management of resources and performance of businesses.

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21
Q

What is the role of accountants?

A

To prepare and provide accounting information for decision-making. To set up an accounting information system.

22
Q

What are an accountant’s professional ethics?

A

One with integrity is straightforward and honest in all professional relationships. One who is objective will not let bias or undue influence override their professional judgement.

23
Q

What are all the accounting theories? [12]

A

Accounting entity
Accounting period
Accrual basis of accounting
Historical cost
Revenue recognition
Materiality
Monetary
Matching
Consistency
Going concern
Prudence
Objectivity

24
Q

Explain what accounting entity is.

A

The activities of a business are separate from the actions of the owner. All transactions are recorded from the point of view of the business.

25
Q

Explain what accounting period is.

A

The life of a business is divided into regular time intervals.

26
Q

Explain what accrual basis of accounting is.

A

Business activities that have occurred, regardless of whether cash is paid or received, should be recorded in the relevant accounting period.

27
Q

Explain what historical cost is.

A

Transactions should be recorded at their original cost.

28
Q

Explain what revenue recognition is.

A

Revenue is earned when goods have been delivered or services have been provided.

29
Q

Explain what materiality means.

A

A transaction is considered material if it makes a difference to the decision-making process.

30
Q

Explain what monetary means.

A

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

31
Q

Explain what matching is.

A

Expenses incurred must be matched against income earned in the same period to determine the profit earned for that period.

31
Q

Explain what consistency means.

A

Once an accounting method is chosen, this method should be applied to all future accounting periods to enable meaningful comparison.

32
Q

Explain what going concern means.

A

A business is assumed to have an indefinite economic life unless there is credible evidence that it may close down.

33
Q

Explain what prudence means.

A

The accounting treatment chosen should be the one that least overstates assets and least understates liabilities and losses.

34
Q

Explain what

A
35
Q

What is the accounting cycle?

A
  1. Identify & record
  2. Adjust
  3. Report
  4. Close
36
Q

List down all source documents. [7]

A

Receipt
Remittance advice
Invoice
Credit note
Debit note
Payment voucher
Bank statement

37
Q

What is the purpose of a receipt?

A

It acknowledges payment received from customers immediately after the business has sold goods or provided services.

38
Q

What is the purpose of a remittance advice?

A

It informs credit supplier that payment by cheque has been made for a specific invoice.

39
Q

What is the purpose of an invoice?

A

It informs credit customers of the amount owed after the business sold goods or provided services on credit.

40
Q

What is the purpose of a credit note?

A

It reduces the amount owed by credit customers:
who were previously overcharged; or
after goods were returned.

41
Q

What is the purpose of a debit note?

A

It increases the amount owed by customers who were previously undercharged.

42
Q

What is the purpose of a payment voucher?

A

It processes payment to credit suppliers:
must be approved by authorised personnel; and
must be supported by original supplier’s invoice.

43
Q

What is the purpose of a bank statement?

A

It checks and tallies against the business records of its cash at bank account.

44
Q

Explain what assets are.

A

They are resources a a business owns or controls that are expected to provide future benefits.

45
Q

Explain what liabilities are.

A

Liabilities are obligations owed by a business to others that are expected to be settled in the future.

46
Q

Explain what equity is.

A

Equity is the claim by the owner(s) on the net assets of a business.

47
Q

Explain what income is.

A

Income is amounts earned from the activities of a business.

48
Q

Explain what expenses are.

A

Expenses are the costs incurred to earn income in the same accounting period.

49
Q

State down what the basic accounting equation is.

A

Assets = Liabilities + Equity

[A=LE] *ALE

50
Q

State down the expanded accounting equation.

A

Assets = Liabilities + Capital + Income - Expenses - Drawings