Chp 1_ Intro to Accounting Flashcards
Explain the differences between trading and service businesses
A trading business buys from suppliers and sells goods to customers
A service business provides services to its customers.
State the role of accounting
Accounting is an information system (What)
that provides accounting information for stakeholders (For who)
to make informed decisions (For what)
about the management of resources and performance of businesses
What do accountants do to help stakeholders to make better decisions?
Accountants are STEWARDS of the business
They prepare and provide accounting information for decision making,
by setting up an accounting information system
Explain does having integrity mean?
Having integrity means being
straightforward and honest in all professional relationships.
What does having being objective mean?
An accountant who is objective
will not let bias, conflict of interest or undue influence of others override his or her professional judgement.
Why it is important for accountants to behave ethically?
If not ethical, the reports may mislead _____________into making poor decisions.
Eg: Lenders may think that the business is profitable and able to repay loan, and RISK being unable to collect back the loan and interest.
Eg: Employees may think that business is profitable and continue working there and RISK NOT GETTING their salary.
List the main characteristics of a sole proprietorship
(1) Owned by ONE person who contributes capital to set up the business.
(2) It is less likely for banks to give loan to SP as owner may not have PERSONAL ASSETS to use as collaterals.
(3) Owner needs to pay business debts using PERSONAL ASSETS
(4) Owner usually runs the business and has FULL CONTROL
State two stakeholders who are interested in the affairs of the business and the reason for their interest
Owner (whether to continue to invest or sell the business
Manager (to think of ways to improve the business)
Employee (whether to continue working in the business.
Lender (whether to give loan, depending on business’ ability to repay)
Supplier (whether to sell to business on credit, depending on business’ ability to pay)
Customer ( whether to buy from business, depending on the after sale service)
Government ( to check whether business comply with law and the amount of tax)
State two features of a sole proprietorship, limited liability partnership and private limited company. (need to know some features to answer SBQ question- decision to set up SP or partnership..)
