Chapter 1 (Week 1) Flashcards

1
Q

What is Accounting

A

Identifying, Recording and Communicating economic events

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2
Q

What is Bookkeeping

A

It is the part of Recording in the Accounting process

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3
Q

Internal users of accounting data

A

Managers who plan, organise and run the business
They perform managerial accounting

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4
Q

External users of accounting data

A

Investors (owners) and creditors (suppliers and bankers)
They perform financial accounting

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5
Q

Managerial accounting

A

Provides internal reports to help users make decisions about their companies

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6
Q

Financial accounting

A

Provides economic and financial information for external users use

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7
Q

Historical cost principle

A

Dictates companies record assets at their cost, including over the time the asset is held

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8
Q

Fair value principle

A

States that assets and liabilities should be reported at the price received to sell an asset or settle a liability

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9
Q

Monetary unit assumption

A

Requires that companies only record the transactions which can be expressed in money terms

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10
Q

Economic entity assumption

A

Requires that companies keep owner and entity activity separate

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11
Q

Entity

A

Any organisation or unit in society

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12
Q

Proprietorship

A

1 sole owner
Personally liable

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13
Q

Partnership

A

2/more owners
Personally liable

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14
Q

Corporation

A

Separate entity under jurisdiction corporation law
Ownership divided into transferable shares - shareholders enjoy limited liability

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15
Q

Basic accounting equation

A

Assets = Liabilities + Equity

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16
Q

Assets

A

Resources a business owns –> normal debit balances
The capacity to provide future services or benefits
Example: cash, machinery

17
Q

Liabilities

A

Claims by third parties –> normal credit balances
This means that for every asset the business owns, the business owes a claim to someone –> debt or obligation
Example: accounts payable, loans

18
Q

Equity

A

Ownership claim on a company’s total assets
- What the company owes to the owners
Example: share capital, retained earnings

19
Q

Expanded accounting Equation

A

Asset = Liabilities + Equity

WHERE EQUITY = Share Capital Ordinary and Retained Earnings

WHERE RETAINED EARNINGS = Revenue - Expenses - Dividends

20
Q

Share Capital Ordinary

A

The amounts paid in by shareholders for the ordinary shares they buy

21
Q

Retained earnings

A

Revenue - Expenses - Dividends
Cumulative amount of net income a company has earned and kept in the business over time, rather than distributing it to shareholders as dividends

22
Q

Revenue

A

Gross increases in equity resulting from business activities which have taken place in the purpose of earning income
Normal credit balances
Result in an increase in an asset + decrease liabilities

23
Q

Expenses

A

Cost of assets consumed or services used in the process of earning income
Normal debit balances
Decreases in equity, increases in liabilities

24
Q

Dividends

A

Distribution of cash or other assets to shareholders
Decrease retained earnings
NOT AN EXPENSE

25
Transactions
Business’s economic events recorded by accountants
26
Internal transactions
Economic events that occur entirely within one company
27
External transaction
Involve economic events between the company and some outside enterprise
28
Income statement
Presents the revenues and expenses and resulting net income or net loss for a specific period of time "End of"
29
Retained earnings Statement
Summarises the changes in retained earnings for a specific period of time "For period ending" The ending balance will flow over to the balance sheet
30
Balance sheet or Statement of financial position
Reports assets, liabilities and equity of a company "As of DATE" Includes retained earnings
31
Statement of cash flows
Summarises information about the cash inflows (receipts) and outflows (payments) for a specific period of time "For period ending" Operating cash flows are the most important indicator