chapter 8, 9

Question 1

How does the American Accounting Association describe “accounting”?

Answer 1

Process of identifying, measuring, and communicating relevant economic information to allow informed judgements and decisions by users of the information.

Question 2

What is the intention of accounting?

Answer 2

Providing financial and non-financial information to help decision-makers make good decisions.

Question 3

Who are the stakeholders?

Answer 3

People and institutions interested in an enterprise.

Question 4

Why does a sole trader keep accounting records?

Answer 4

Monitor cash availability, check business performance, satisfy tax inspectors.

Question 5

Why does a partnership keep accounting records?

Answer 5

Monitor cash, check performance, ensure fair profit share, avoid disputes and litigation.

Question 6

Why does a limited company need to keep accounting records?

Answer 6

Legal requirement, protection of creditors, protection of shareholders.

Question 7

Who outside the business needs accounting information and why?

Answer 7

Banks, creditors, suppliers for assessing payment ability;
Employees for fair pay and job security;
Government for taxes and regulation;
Public for continuation of goods, services, and investment opportunities.

Question 8

Why do managers need accounting information?

Answer 8

Protect and best utilize business resources, plan business activities, establish targets, control costs, establish strategies, analyze and predict outcomes.

Question 9

What advantage do managers have regarding accounting information?

Answer 9

Access to comprehensive, timely, and relevant accounting information specific to their needs.

Question 10

What is the purpose of management accounting?

Answer 10

Satisfy needs of managers with accounting information.

Question 11

What is the purpose of management accounting vs financial accounting?

Answer 11

Management accounting: satisfy needs of managers with accounting information;
financial accounting: satisfy needs of external groups with accounting information.

Question 12

What is the definition of financial accounting?

Answer 12

Classification, recording of monetary transactions in accordance with established concepts, principles, standards and legal requirements, and their presentation in income statements, balance sheets, and cash flow statements.

Question 13

What key questions does financial accounting answer?

Answer 13

Company’s wealth at a given time (balance sheet), whether the company generated profit/loss (P&L).

Question 14

What is book-keeping and its role in financial accounting?

Answer 14

Mechanical task of collecting and classifying basic financial data, entered in “books of account”

role in financial accounting is crucial, as it provides the foundational data to generate financial reports like balance sheet and P&L.

Question 15

What is management accounting?

Answer 15

Integral part of management involving identification, generation, presentation, interpretation and use of relevant information for strategy, planning, financing, reward strategies, operational decisions, controlling operations, performance reporting, asset safeguarding, corporate governance, risk management, and internal control.

Question 16

What key question does management accounting answer?

Answer 16

Cost of products produced in the company (cost and revenue accounting).

Question 17

sketch the main branches of accounting

Answer 17

(Book-keeping, Financial accounting and reporting, Management accounting, Cost book-keeping, Taxation, Financial Management, Audition, Bankruptcy and liquidation)

Question 18

What is the role of accountants involved in taxation?

Answer 18

Compute the amount of tax payable by business entities and individuals.

Question 19

What is the role of financial management?

Answer 19

effectively and efficiently manage the financial resources of an organization

Setting financial objectives, making plans based on objectives, obtaining finance to achieve plans, and safeguarding all financial resources.

Question 20

What is the purpose of external vs internal accounting?

Answer 20

external: provide insight into the company’s financial position, asset position, and profitability, global calculation for whole company, one-year period, legally regulated, past-oriented.
internal: provide data for planning and control, departmental, shorter periods, not legally regulated, future-oriented

Question 21

How are internal and external accounting linked?

Answer 21

Link: Internal accounting operational data collected is compiled and used for external accounting reports.
Consistency and Integrity maintained across both internal and external financial data.

Question 22

Sketch the the four value levels of accounting

Answer 22

Question 23

What are the two related functions of financial accounting?

Answer 23

Recording of transactions (bookkeeping) and preparation of financial statements.

Question 24

What are examples of financial statements prepared in financial accounting?

Answer 24

Statement of financial position (balance sheet) and Statement of income (P&L).

Question 25

What is the primary fiscal objective of financial statements?

Answer 25

Provide the basis for the full and correct determination of the tax base.

Question 26

What is the legal basis of financial accounting?

Answer 26

Regulated by law, Austrian Commercial Code (AComC), Austrian Federal Tax Code (FTC), income tax act (ITA), and value added tax act (VATA).

Question 27

What are the two systems differentiated in financial accounting?

Answer 27

Double accounting and cash accounting.

Question 28

What is cash accounting, what books are kept for cash accounting?

Answer 28

Records revenue when cash is received and expenses when paid in cash; Cashbook, bankbook, expense account, purchase journal, asset ledger, subledgers.

Question 29

Who can use the simplified record of the cash account?

Answer 29

Taxpayers who are not required by law to keep books and freelancers.

Question 30

How is financing defined?

Answer 30

The provision of financial resources for company operations, sales, and extraordinary measures.

Question 31

What does the financing process cover?

Answer 31

Involves capital procurement and use, financial planning for capital needs, risk management, and handling of payment transactions (capital management).

Question 32

What are the functions of financial management?

Answer 32

A series of capital procurement (financing), capital use (investment), capital release (disinvestment) and capital return (definancing).

Question 33

What does capital refer to in the context of financing?

Answer 33

sum of the funds and other assets left to the enterprise, divided into shareholders’ equity and liability.

Question 34

How are assets defined?

Answer 34

Resources with economic value that a corporation owns or controls, expected to provide future benefit. Assets can generate cash flow, reduce expenses, improve sales. Includes fixed and current assets, and deferred charges and taxes.
Provide information on how the available funds are used (fund use).

Question 35

How are liabilities defined?

Answer 35

A company’s financial debt or obligations. Includes loans, accounts payable, mortgages, deferred revenues and accrued expenses.

Question 36

What does shareholders’ equity represent?

Answer 36

Represents the net value of a company. The amount returned to shareholders if all the company’s assets were liquidated and all its debts repaid.

Question 37

Sketch the Asset-oriented representation of Financing

Answer 37

Question 38

Sketch the Financial Equilibrium

Answer 38

Question 39

Explain:
liquidity in finance,
impact of illiquidity,
optimal liquidity,
implications of low liquidity,
excess liquidity,
types of liquidity,
absolute liquidity.

Answer 39

liquidity in finance:
company’s ability to meet payment obligations punctually and correctly;
impact of illiquidity:
Leads to inability to pay, insolvency;
optimal liquidity:
Profit-maximizing/profitability-maximized ability to pay.
Neither too low nor excess liquidity;
implications of low liquidity:
Limited ability to pay, cannot perform appropriate financing, non-utilization of cash discounts, expansion of credit volume;
excess liquidity:
Company’s financial resources exceed its expected demand;
types of liquidity:
absolute liquidity, static relative liquidity, dynamic relative liquidity;
absolute liquidity:
Nature of assets usable as cash or convertible into cash.
Faster conversion to cash equals higher liquidity;

Question 40

What is profitability?

Answer 40

Interest on the funds used (quotient from profit and capital used to generate it). Important to shareholders.

Question 41

What is security in financial context?

Answer 41

Ensured by liquidity. Best possible exclusion of losses or achievement of predetermined profit targets.

Question 42

What is independence in financial context?

Answer 42

Limited external influence on operational decisions.
Of highest danger are outside creditors.
Ensured by sufficient equity ratio.

Question 43

What is the financing plan? Sketch the production/operations plan as part of the company’s overall planning

Answer 43

Comparison of available financial resources with funding requirements. Coordinates all financial sub-plans.

Question 44

What are components of the integrated company budget?

Answer 44

Plan profit and loss account, financial plan, plan balance sheet.

Question 45

What is Plan Profit and Loss account?

Answer 45

Core of integrated company budget. Profit and loss account based on planned values.

Question 46

What is the calculation procedure for Performance Budget?

Answer 46

Based on planned quantities, planned revenues, planned variable costs, contribution margin, planned fixed costs, operating result, calculative items, non-operating expenses, company result.

Question 47

What is the purpose of a financial plan, what are the components of the financial plan structure?

Answer 47

Compares available and accrued funds with required funds
Determines additional capital requirements or surplus
Components include:
Cash flow from operating activities: expected to provide a cash surplus
Cash flow from investing activities: typically results in cash outflow
Cash flow from financing activities: includes both cash inflow and outflow from external sources

Question 48

Explain the plan balance sheet

Answer 48

Planned asset, financial situation, end of planning period. Results from Plan P&L, financial plan are merged in. Corresponds to “normal” balance sheet.

Question 49

What are the different classifications of financing methods?

Answer 49

By source of capital, legal position of investors, term/duration of capital, financing cause, capital requirements and funds.

Question 50

Define external and internal financing.

Answer 50

External: capital flows from outside. Internal: capital comes from operational sales processes.

Question 51

What are self-financing and debt-financing?

Answer 51

Self-financing: equity-financing, provider as equity provider. Debt-financing: provider as borrower.

Question 52

Define the terms in relation to duration of financing.

Answer 52

Indefinite financing: self-financing. Temporary financing: external financing. Short-term: less 1 year, medium-term: 1-5 years, long-term: >5 years.

Question 53

Differentiate between normal financing, underfinancing, and overfinancing.

Answer 53

Normal financing: volume and time congruent with requirements.
Underfinancing: capital fund insufficient.
Overfinancing: capital fund exceeds requirements.

Question 54

What does “capital fund” refer to?

Answer 54

Total financial resources available at a given time for capital requirements.

Question 55

What is the purpose of the financing matrix? Sketch it

Answer 55

Systematize financing methods regarding legal position of providers, source of capital.

Question 56

What are the different types of self-financing depending on the company’s legal form?

Answer 56

Sole proprietor, general partnership, limited commercial partnership, silent partnership

Question 56

What are the different types of self-financing depending on the company’s legal form?

Answer 56

Sole proprietor, general partnership, limited commercial partnership, silent partnership

Question 57

What are the sources of financing for each type of company’s legal form?

Answer 57

Sole proprietor: owner’s livelihood, reserves.
General partnership: owner’s capital, reserves.
Limited commercial partnership: general partner’s capital, limited partners’ contributions, reserves.
Silent partnership: owner’s capital, reserves, silent partner’s capital.

Question 58

What is the current problem regarding product sales in the market and what is the proposed solution?

Answer 58

Problems with product sale, need more focus on operative marketing. Get to know customers better, address them “correctly”.