CHAPTER 1 - introduction to accounting Flashcards
state the types of business
- trading business
- service business
define trading business
trading business is a business that buys goods from supplier and sells it to customer
define service business
service business is a business that provides services to its customer
name the characteristics of of sole proprietorship
1) access to funds
2) ease of transferability of ownership
3) level of control over business
4)minimal formalities and regulations
5) lifespan of business
6) ownership
7) risk
define transferability of ownership
easily notify the corporate regulatory authority of transfer of ownership
define ownership
- owned by 1 person
- has to contribute full capital to set-up business
access to funds
- limited to personal funds of owner
- less likely to for money lenders or banks to lend you money
RISK
If debts and losses occur owner has to use personal assets to pay
level of control of business
1) owner runs business all by himself
2) owner has full control over the business
3) owner may hire professionals to help run the business
Formalities and procedures
minimal
administrative duties to hire to
lifespan of business
1) as long as owner would like to run business
2) as long as owner is alive
define Stakeholders
1) stakeholders are a group of people that use business information to make decisions
2)stakeholders rely on both accounting and non-accounting information for decision making
list all the 8 types of stakeholders
1)owner
2)manager
3)employees
4)supplier
5)customer
6)government
7)lenders
8)competitors
define owners decision making
owners decide whether to continue to invest or sell the business
what do managers make decision on
mangers decide on how to improve the business
what do customers make decisions on
customer make decision on whether to buy the goods or not
what do employees make decision on
employees make decision on whether to work for the business or not
what do lenders make decision on
lenders decide whether they should grant loans or not
what do suppliers make decision on
suppliers make decision on whether to let business take goods on credit
what do government make decision on
1)government decides on how much tax they should collect from the business
2)government makes decision on whether the business complies with tax regulations
what do competitors make decision
1) competitors make decisions on whether the business is comparable enough to their business
2) competitors make decisions on how to improve performance
state examples of accounting information used to make decisions
1) cost of inventory
2) amount of trade receivables
3)cost of storage
4)cash discounts and credit terms
state the examples of non-accounting information used to make decision on
1)reputation of customers
2)customer preference
3)warranty
4) return policy
5)type of storage
6)economic outlook
state the role of accountants
Accountants act as stewards of the business helping to set up the accounting information system to provide accounting information for decision making by stakeholder
state the role of accounting
accounting provides accounting information to stakeholders in making informed decisions on management of resources and performance of business
state 2 values accountants should have
1)integrity
2)objectivity
define the value integrity
being straightforward and honest in all professional business relationship
define the value objectivity
be unbiased, not let conflict of interest or undue influence of others to override professional judgements
define accounting entity theory
activities of the business are separate from owners actions, all transactions must be recorded from the business point of view
define going concern theory
going concern theory stats that economic of business is assumed to have an infinite life unless there are credible evidence that the business may close down
define accounting period theory
accounting period theory states that life of business is divided into regular time intervals
example of accounting period theory
1 may2023 - 30 April 2024
define matching theory
matching theory states that expenses occurred must be matched with income occurred in the same period to determine the profit or loss for that period
state the equation to calculate profit or loss for the period
profit or loss =
total income - total expenses
define the accrual basis of accounting theory
accrual basis of accounting theory states that business activities that have occurred whether cash is paid or received , should be recorded in relevant accounting period
define revenue recognition theory
revenue recognition theory states that revenue is earned when goods have been delivered or service has been provided
define monetary theory
monetary theory states that transactions can only be measured in monetary terms are recorded
define objectivity theory
objectivity theory states that accounting information recorded must be supported by reliable and verifiable evidence so that financial statements are free from opinions and biasness
define historical cost theory
historical cost theory states that transactions must be recorded at their original cost
define materiality theory
materiality theory states that relevant information must be reported in the financial statements if it is likely to make a difference in decision-making process
define prudence theory
prudence theory states that the accounting treatment chosen must be one that least overstates assets and profits and least understates liability and losses.
define consistency theory
consistency theory states that once and accounting system is chosen it should be applied to future accounting periods to enable meaningful comparisons
