Chapter 1- Intro to accounting Flashcards
statement of profit or loss reflects…
performance of a business over a period of time. (revenue + expenses)
Statement of financial position reflects…
position of a business at a point in time. (assets + liabilities)
Sole trader is a business owned…
and operated by one person. Fully and personally liable (unlimited liability)
Partnership is a business owned…
and operated by two or more people. Each partner is jointly and severally liable for losses (unlimited liability)
Limited liability partnership (LLP)
only person who makes mistake is liable (cap on amount they can lose). Separate legal identity from owners.
In a LLP shareholders liability is limited to…
the nominal value of the shares they own
Company is a business owned…
by any number of shareholders and operated by directors. (directors can also be shareholders)
Characteristics of a company:
- owned by shareholders
- shareholders elect directors to run business
- nearly always have limited liability
- shareholders are not personally liable for losses company incurs
- shareholders maximum loss is the nominal value of their shares
- company is a completely separate legal identity from owners
A full set of financial statements is made up of…
statement of P+L statement of FP statement of changes in equity statement of cash flow notes to financial statement
Assets…
items the business owns
Liabilities…
items the business owes
net assets
assets - liabilities
Revenue - cost of sales =
gross profit
Gross profit - expenses =
net profit
Capital is…
total amount business owes owner
Which of the following should be accounted for as capital expenditure?
- The annual cost of painting a factory floor
- The repair of a window in a building
- The purchase of a vehicle by a garage for re-sale
- Legal fees incurred on the purchase of a building
Legal fees incurred on the purchase of a building
The others are revenue expenditure
capital expenditure is incurred either:
- to acquire LT assets (includes laptop)
- to improve earning capacity of LT assets
Capital expenditure is recorded…
in statement of FP within non-current assets
revenue expenditure is incurred either:
- for trade purposes (raw materials, items for resale, wages, distribution + selling expenses, finance + admin costs)
- to maintain existing earning capacity of LT assets
revenue expenditure is recorded…
in statement of P+L
Companies that are most closely regulated are…
Limited liability companies
judgement may vary when:
- Valuating a building when property prices are changing
- determining if expenditure is revenue or capital
IESBA code of ethics:
- Confidentiality
- Objectivity
- Professional behaviour
- Professional competence + due care
- Integrity
Ethical guidance is a…
framework containing a combination of rules and principles, the application of which is dependent on the professional judgement of the accountant based on the specific circumstances
