Day 1 - chapter 1

Question 1

What is accounting?

Answer 1

the recording and summarising of transactions

Question 2

What is the accounting process?

Answer 2

1. Transaction occurs
   Eg. Owner invests £ in business
2. Record the transaction
3. Record all transaction over an accounting period (AP)
4. Balance off all of the accounts at the end of the AP
5. Extract a TB = summary of balances in all accounts
6. Adjust the TB
7. Prepare our FS

Question 3

What are the three financial statements?

Answer 3

1. statement of profit and loss
2. statement of financial position
3. statement of cash flow

Question 4

What does the statement of profit or loss show?

Answer 4

profit for a period

performance = profit

Question 5

What does the statement of financial position show?

Answer 5

wealth of a business at a point in time

position = net assets

Question 6

What is the equation for statement of profit and loss?

Answer 6

income (money earned by a business) – expenses (costs incurred by business)

Question 7

What is income?

Answer 7

• Sales revenue
• Bank interest income
• Rental income

Question 8

What are examples of expenses?

Answer 8

• Wages/salaries
• Rent expense
• Gas/electricity
• Marketing
• Insurance etc
• Repairs and maintaince

Question 9

What is the equation for statement of financial position?

Answer 9

Assets = liabilities + equity/capital

Question 10

What is an asset?

Answer 10

• Resources that business owns
• Eg. Land, buildings, equipment, inventory

Question 11

What is a liability?

Answer 11

• Obligations
• Money owed to other parties
• Eg. Loans, bank overdrafts, trade payables

Question 12

What is capital?

Answer 12

money owed to owners

Question 13

What are the 5 elements of the FS?

Answer 13

• Income
• Expenses
• Assets
• Liabilities
• Capital

Question 14

What is a company?

Answer 14

A business owned by any number of shareholders and operated by directors – who may or may not be shareholders

Question 15

Why are the 5 elements of accounting important?

Answer 15

We need to know which element the transaction falls into to do accounting

Question 16

Shareholders

Answer 16

Owners and not personally liable for the debts for the company

Question 17

A Company

Answer 17

separate legal entity = liable for its own debt

Company must prepare in accordance with the accounting standards and legislation e. UK: Companies Act 2006

Must also be filed with companies house every year – strict deadline

Question 18

What is PPE?

Answer 18

• Land and buildings
• Plant and machinery
• Compute equipment
• Office equipment
• Motor vehicles
• Furniture
• Fixtures and fittings

Question 19

Receivable

Answer 19

• Money owed to the business
• Credit customers

Question 20

Payable

Answer 20

We owe them money

Question 21

What is the accounting equation?

Answer 21

Assets = liabilities + equity (capital)

Question 22

What is gross profit?

Answer 22

revenue - cost of goods sold

Question 23

What is operating profit?

Answer 23

gross profit + other operating income - distribution costs - admin costs = operating profit

Question 24

What is a example of other operating income?

Answer 24

rental income

Question 25

What are examples of distribution costs?

Answer 25

selling costs eg. Cost of delivering goods to customers = carriage outwards eg. Salespersons salary

Question 26

What is examples of administrative costs?

Answer 26

Everything eg. Salaries, admin, stationary, staff salaries

Question 27

What is profit before tax?

Answer 27

operating proft + finance income/investment income/bank interest income - finance costs

Question 28

What is the net profit/loss for the period?

Answer 28

profit before tax - tax

Question 29

What is Capital Expenditure?

Answer 29

- Acquire long term asset ei. NCA - To improve or enhance the earning capacity of long term assets

Question 30

What is Revenue Expenditure?

Answer 30

- For the day to day running costs of business – expense on P/L - For trade purposes of raw materials or items for resales, expenditure on wages and salaries selling and distribution expenses, administrate expense and finance costs or - To maintain the existing earning capacity of long-term asset - Eg. Salries, rental expenses, wages salaries

Question 31

Time period for capital expenditure?

Answer 31

more than a year

Question 32

Time period for revenue expenditure?

Answer 32

less than a year

Question 33

What are the two produced codes of ethics that state the fundamental ethical principles that all professional accountants should adhere to?

Answer 33

ICAEW Ethics Standards Board of Accountants (IESBA)

Question 34

What is the ICAEW Code of Ethics based on?

Answer 34

International Ethics Standards Board of Accountants (IESBA) Code of Ethics for Professional Accountants

Question 35

What does the IESBA develop?

Answer 35

ethical standards to be applied across accounting profession ensures the global accountancy profession is valued in the development of strong and sustainable organisations

Question 36

What is the SHORT HAND for principles of ethics?

Answer 36

PIPCO

Question 37

P

Answer 37

professional behaviour - compliance with relevent laws and regulations - avoid action that discredits the profession

Question 38

I

Answer 38

integrity - honest and straightforward

Question 39

P

Answer 39

professional competence and due care - need relevant skills to do the job

Question 40

C

Answer 40

confidentiality - cannot disclose info without permission - legal requirements trumps ethical requirements

Question 41

O

Answer 41

objectivity - not to be biased