Chapter 1: Introduction to accounting Flashcards
What is accounting? (Two elements)
1) Recording- Bookkeeping
2) Summarising- Summarise transaction through financial statements.
What is a sole trader?
A business owned and operated by one person. It. is simple to set up, but owner is personally liable.
What is a partnership?
A business jointly owned by a number of partners. Could be limited or unlimited liability.
What is a Company? (business entities)
A more complicated business entity. Is owned by share holders and have limited liability.
According to IAS 1, what is a full set of financial statements made up off?
1) Statement of financial position
2) Statement of profit and loss
3) Statement of changes in equity
4) Statement of cashflows
5) Notes to the financial statements
What does the statement of financial position show?
A list of assets and liabilities of the business, shows the total value of net assets. Its a snapshot of the business at a particular point.
What is a statement of profit or loss?
Shows the revenue and expenses of a business. Shows the amount of profit or loss that a business has made in an accounting period. Shows a businesses financial performance.
Capital Vs Revenue expenditure?
Capital expenditure: Long-term assets that improve or enhance the earning capacity.
Revenue expenditure: Purchases for trade purposes. e.g. raw materials, wages, repairs.
What are the 5 fundamental principles of professional ethics?
1) Integrity - Straightforward and honest.
2) Objectivity - No bias/ conflict of interest
3) Professional competence and due care- Continuing duty to maintain professional knowledge and skill/ act diligently.
4) Confidentiality- Information should not be disclosed to third parties or used for personal advantages.
5) Professional behaviour- Comply with relevant laws and regulations.
Who does the ICAEW code of conduct apply to?
ICAEW members, students, affiliates, employees of member firms and member firms themselves.
Are the ICESBA and ICAEW codes rules-based or principle-based?
Principle-based system- Not a set of rules, rather guidance.
Is showing the results of management’s stewardship of the resources entrusted to it a purpose of releasing FS’s?
Yes
