Chapter 1 - Introduction to Accounting

Question 0

What are business transactions?

Answer 0

Are occurrences that affect the assets, liabilities and equity items in an entity and must be recognised

Question 1

What is accounting?

Answer 1

The process of identifying, measuring and communicating economic information about an entity to a variety of users for decision-making purposes

Question 2

What is relevant information?

Answer 2

Information that makes a differences in decision making

Question 3

What is bookkeeping?

Answer 3

The recording and summarising of financial transactions and the preparation of basic reports

Question 4

What is the process of accounting?

Answer 4

Identifying, measuring, communicating and decision making

Question 5

What is internal users?

Answer 5

Managers of the entity who use the information to assist in various management functions

Question 6

What are external users?

Answer 6

Parties outside the entity who use the information to make decisions about the entity

Question 7

What is financial accounting?

Answer 7

The preparation and presentation of financial information for users to enable them to make economic decisions regarding the entity

Question 8

What is historical cost?

Answer 8

The original amount paid to be received for an item

Question 9

What are financial statements?

Answer 9

A set of statements directed towards the common information needs if a wide range of users

Question 10

What is a statement of cash flows?

Answer 10

A statement that reports on the entity’s cash inflows and cash outflows for a specified period

Question 11

What is an income statement?

Answer 11

Statement that reports on the income and expenses of an entity for a period, and the resulting profit or loss

Question 12

What is a balance sheet?

Answer 12

Statement that reports on the assets, liabilities and equity of an entity at a particular point in time

Question 13

What is management accounting?

Answer 13

A field of accounting that provides economic information for use by management in internal planning and decision making

Question 14

What are the differences between financial accounting and management accounting?

Answer 14

1. Regulations
2. Timeliness
3. Level of detail
4. Main users

Question 15

Discuss the globalisation of financial reporting

Answer 15

• countries adopting the IFRS

- this will meet the needs of all users as entities are becoming larger, more diversified and multinational

Question 16

What is a disclosing entity?

Answer 16

An entity that issues securities that are quoted on a stock market or made available to the public via a prospectus

Question 17

What are general purpose financial statements?

Answer 17

Financial statements prepared to meet the information needs common to external users

Question 18

What are special purpose financial statements?

Answer 18

Financial statements prepared to suit a specific purpose

Question 19

What are the fundamental characteristics?

Answer 19

Relevance and faithful representation

Question 20

What are the enhancing qualitative characteristics?

Answer 20

Comparability, verifiability, timeliness and understandability

Question 21

What is profit?

Answer 21

Income less expenses

Question 22

What is an asset?

Answer 22

A resource controlled by the entity as a result of a past event and from which future economic benefits are expected to flow to the entity

Question 23

What is a liability?

Answer 23

A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits

Question 24

What is equity?

Answer 24

The residual interest in the assets of te entity after all it’s liabilities have been deducted

Question 25

What is income?

Answer 25

Increases in economic benefits during the accounting period in the form of inflows, or decreases of liabilities that result in increases in equity

Question 26

What is an expense?

Answer 26

Decrease in economic benefit

Question 27

What are the limitations of accounting information?

Answer 27

Time lag, historical information and subjectivity of information