CHAPTER 1 - introduction to accounting

Question 1

state the types of business

Answer 1

1. trading business
2. service business

Question 2

define trading business

Answer 2

trading business is a business that buys goods from supplier and sells it to customer

Question 3

define service business

Answer 3

service business is a business that provides services to its customer

Question 4

name the characteristics of of sole proprietorship

Answer 4

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

Question 5

define transferability of ownership

Answer 5

easily notify the corporate regulatory authority of transfer of ownership

Question 6

define ownership

Answer 6

• owned by 1 person
• has to contribute full capital to set-up business

Question 7

access to funds

Answer 7

1. limited to personal funds of owner
2. less likely to for money lenders or banks to lend you money

Question 8

RISK

Answer 8

If debts and losses occur owner has to use personal assets to pay

Question 9

level of control of business

Answer 9

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

Question 10

Formalities and procedures

Answer 10

minimal
administrative duties to hire to

Question 11

lifespan of business

Answer 11

1) as long as owner would like to run business
2) as long as owner is alive

Question 12

define Stakeholders

Answer 12

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

Question 13

list all the 8 types of stakeholders

Answer 13

1)owner
2)manager
3)employees
4)supplier
5)customer
6)government
7)lenders
8)competitors

Question 14

define owners decision making

Answer 14

owners decide whether to continue to invest or sell the business

Question 15

what do managers make decision on

Answer 15

mangers decide on how to improve the business

Question 16

what do customers make decisions on

Answer 16

customer make decision on whether to buy the goods or not

Question 17

what do employees make decision on

Answer 17

employees make decision on whether to work for the business or not

Question 18

what do lenders make decision on

Answer 18

lenders decide whether they should grant loans or not

Question 19

what do suppliers make decision on

Answer 19

suppliers make decision on whether to let business take goods on credit

Question 19

what do government make decision on

Answer 19

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

Question 20

what do competitors make decision

Answer 20

1) competitors make decisions on whether the business is comparable enough to their business
2) competitors make decisions on how to improve performance

Question 21

state examples of accounting information used to make decisions

Answer 21

1) cost of inventory
2) amount of trade receivables
3)cost of storage
4)cash discounts and credit terms

Question 22

state the examples of non-accounting information used to make decision on

Answer 22

1)reputation of customers
2)customer preference
3)warranty
4) return policy
5)type of storage
6)economic outlook

Question 23

state the role of accountants

Answer 23

Accountants act as stewards of the business helping to set up the accounting information system to provide accounting information for decision making by stakeholder

Question 24

state the role of accounting

Answer 24

accounting provides accounting information to stakeholders in making informed decisions on management of resources and performance of business

Question 25

state 2 values accountants should have

Answer 25

1)integrity
2)objectivity

Question 26

define the value integrity

Answer 26

being straightforward and honest in all professional business relationship

Question 27

define the value objectivity

Answer 27

be unbiased, not let conflict of interest or undue influence of others to override professional judgements

Question 28

define accounting entity theory

Answer 28

activities of the business are separate from owners actions, all transactions must be recorded from the business point of view

Question 29

define going concern theory

Answer 29

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

Question 30

define accounting period theory

Answer 30

accounting period theory states that life of business is divided into regular time intervals

Question 31

example of accounting period theory

Answer 31

1 may2023 - 30 April 2024

Question 32

define matching theory

Answer 32

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

Question 33

state the equation to calculate profit or loss for the period

Answer 33

profit or loss =
total income - total expenses

Question 34

define the accrual basis of accounting theory

Answer 34

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

Question 35

define revenue recognition theory

Answer 35

revenue recognition theory states that revenue is earned when goods have been delivered or service has been provided

Question 36

define monetary theory

Answer 36

monetary theory states that transactions can only be measured in monetary terms are recorded

Question 37

define objectivity theory

Answer 37

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

Question 38

define historical cost theory

Answer 38

historical cost theory states that transactions must be recorded at their original cost

Question 38

define materiality theory

Answer 38

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

Question 39

define prudence theory

Answer 39

prudence theory states that the accounting treatment chosen must be one that least overstates assets and profits and least understates liability and losses.

Question 40

define consistency theory

Answer 40

consistency theory states that once and accounting system is chosen it should be applied to future accounting periods to enable meaningful comparisons