Chapter 1

Question 1

Accounting

Answer 1

The collection, recording and reporting of financial information to assist business owners in decision making.

Question 2

Financial data

Answer 2

Raw facts and figures upon which financial information is based

Question 3

Financial information

Answer 3

Financial data which has been sorted, classified and summarised into a more usable and understandable form

Question 4

Transaction

Answer 4

An agreement between two parties to exchange goods or services for payment

Question 5

THE ACCOUNTING PROCESS

Answer 5

Source documents-> recording-> Reporting-> Advice

Question 6

Source documents(Accounting principle)

Answer 6

A piece of paper that provides both the evidence that a transaction has occurred and the details about the transaction itself.

Question 7

Recording(in the accounting process)

Answer 7

Sorting, classifying and summarising the information contained in the source documents so that it is more usable

Question 8

Reporting(Accounting process)

Answer 8

The preparation of financial statements that communicate financial information to the owner.

Question 9

Advice(Accounting Process)

Answer 9

The provision to the owner of the range of options appropriate to the their aims, and recommendations as to their sustainability

Question 10

Accounting principle

Answer 10

The generally accepted rules which govern the way accounting information is recorded

Question 11

Entity(AP)

Answer 11

States that the business is seperate entity from the owner, and its records should be kept on this basis

Question 12

Going concern(AP)

Answer 12

The life of the business is assumed to be continuous and it’s records are kept on this basis

Question 13

Reporting period(AP)

Answer 13

The life of the business must be divided into ‘periods’ of time to allow reports to be prepared, and the accounting records should reflect the reporting period in which a transaction occurs

Question 14

Historical cost(AP)

Answer 14

Transactions should be recorded at their original purchase price, as this is verifiable by a source document evidence

Question 15

Consistency(AP)

Answer 15

the business should use the same accounting methods to allow for the comparison of reports from one period to the next.

Question 16

Conservatism(AP)

Answer 16

Losses should be recorded when probable, but gains should only be probable when certain so that liabilities and expenses are not understated and assets and revenue are not overstated.

Question 17

Monetary unit(AP)

Answer 17

All items must be recorded and reported in the currency of the country of location where reports are being prepared

Question 18

Qualitative Characteristics

Answer 18

The qualities and information in the accounting reports

Question 19

Relevance(QC)

Answer 19

Reports should include all information useful for decision-making

Question 20

Reliability(QC)

Answer 20

Reports should contain information verifiable by source document evidence so that it is free from bias

Question 21

Comparability(QC)

Answer 21

Reports should be able to be comparable over time through the use of consistent accounting procedures

Question 22

Understandability(QC)

Answer 22

Reports should be presented in a manner that makes it easy for the user to comprehend their meaning