Chapter 1 (Intro)

Question 1

Difference between a trading and service business

Answer 1

A trading business buys goods from suppliers and sells goods to customers

A service business provides services to its customers

Question 2

1st difference of sole proprietorship and limited liability partnership

Answer 2

1) Sole proprietorship is owned by one person who contributes capital to set up the sole proprietorship.

2) However, in a limited liability partnership, there are two or more partners who contributes capital to set up the limited liability partnership.

Question 3

2nd difference of sole proprietorship and limited liability partnership

Answer 3

1) When the sole proprietorship incurs debts and losses, the sole owner is obliged to pay them using his or her personal assets.

2) However, when a limited liability partnership incurs debts and losses, the partners are not personally liable for them unless one of the partners commit a wrongful action and incurs debts and losses. In which, only that partner is liable for the debts and losses incurred.

Question 4

1st difference between sole proprietorship and private limited company

Answer 4

1) Sole proprietorship is owned by one person who contributes capital to set up the sole proprietorship.

2)Private limited company is owned by 50 or less shareholders where they buy shares and contribute capital

Question 5

2nd difference between sole proprietorship and private limited company

Answer 5

1) When the sole proprietor incurs debts and losses, the sole owner is obliged to pay them using his or her personal assets

2)When the private limited company incurs debts and losses, shareholders are not obligated to pay for them and may not receive dividends

Question 6

Stakeholders

Answer 6

Groups of people who will make use of information about the business to make decisions

Question 7

Stewards

Answer 7

Responsible for managing the resources of the business on behalf of the owner(s)

E.g. Managers/CEO(Chief Executive Officer)/CFO(Chief Financial Officer)

Question 8

Role of accounting

Answer 8

Accounting is an information system that provides accounting information for stakeholders to make informed decisions regarding management of resources and performance of a business

Question 9

What does an accountant do to help stakeholders make better decisions?

Answer 9

Accountants adapt, solve problems, think critically and provide accounting and non-accounting information for decision making and provide timely, relevant and credible information based on accounting theory, which are easily and appropriately understood by stakeholders.

Question 10

Professional ethics

Answer 10

An ethical accountant has integrity and is objective. He or she will not mislead users into making poor decisions

An accountant with integrity is straight forward and honest in all professional relationships

An accountant who is objective will not let bias, conflict of interest or the undue influence of others override his or her professional judgement

Question 11

Accounting theories

Answer 11

When accountants rely on sound accounting theories, the accounting information produced will present a true and fair view of business activities and allow stake holders to make reliable and informed decisions

Question 12

What is accounting and bookkeeping

Answer 12

Accounting is the process of recording, summarising, analysing, interpreting, and reporting financial information

Bookkeeping is merely the recording process of accounting