Definitions

Question 1

Sole Trader

Answer 1

An individual in business

Question 2

Partnership

Answer 2

A group of individuals working together as partners in business

Question 3

Incorporated

Answer 3

A business formed into a legal corporation

Question 4

Limited liability partnership (LLP)

Answer 4

An incorporated form of partnership, with a separate legal entity, where members are able to limit their personal liability for the debts of the business.

Question 5

Limited company

Answer 5

An incorporated business, with a separate legal entity, owned by shareholders and run by directors

Question 6

Charity

Answer 6

An organisation, run by trustees, which uses its resources to fund charitable activities under its control

Question 7

Business entity principle

Answer 7

Financial statements record and report on the activities on one particular business

Question 8

Materiality principle

Answer 8

Items with a low value are not worthwhile recording in the accounts separately

Question 9

Going concern principle

Answer 9

The presumption that the business to which the financial statements relate will continue to trade in the foreseeable future

Question 10

Accruals principle

Answer 10

Income and expenses are matched so that they relate to the same goods or services and the same accounting period

Question 11

Relevance

Answer 11

Fundamental qualitative accounting characteristic that requires financial to be useful to users of the financial statements

Question 12

Faithful representation

Answer 12

Fundamental qualitative accounting characteristic that requires financial information to correspond to the effect of financial statements

Question 13

Comparability

Answer 13

Financial statements can be compared with those from previous years and with similar businesses

Question 14

Verifiability

Answer 14

Users of financial statements are assured that the information given is faithfully represented

Question 15

Timeliness

Answer 15

Users of financial statements receive information in time to enable decisions to be made

Question 16

Understandability

Answer 16

Financial statements is presented clearly and concisely so that the users can understand the information given

Question 17

Material misstatement

Answer 17

Information contained in the financial statements is untrue - whether accidentally or intentionally

Question 18

Integrity

Answer 18

Ethical principle of being straightforward and honest in all professional and business relationships

Question 19

Objectivity

Answer 19

Ethical principle of being aware of conflicts or interest

Question 20

Professional competence and due care

Answer 20

Ethical principle of maintaining professional knowledge and skill at the level required to provide a competent service to an employer or client

Question 21

Confidentiality

Answer 21

Ethical principle that information should not be disclosed to third parties (unless permission is given or there is a legal duty), and should be maintained securely

Question 22

Professional behaviour

Answer 22

Ethical principle of ensuring behaviour complies with relevant laws and regulations and does not bring the accountancy profession into disrepute

Question 23

Conventional format

Answer 23

The form of financial statements used by accountants

Question 24

Gross profit

Answer 24

Sales revenue minus cost of sales, ie the profit made before expenses are deducted

Question 25

Profit for the year

Answer 25

Gross profit minus expenses, ie the profit which belongs to the owner/owners of the business

Question 26

Assets

Answer 26

Items owned by the business, split between non-current assets and current assets

Question 27

Liabilities

Answer 27

Items owed by the business, split between current liabilities and non-current liabiliaties

Question 28

Capital/equity

Answer 28

The investment of the owner/owners in the business

Question 29

Service sector business

Answer 29

A business which supplies services, eg secretarial agency, solicitor, estate agent

Question 30

Adjusted trial balance

Answer 30

Trial balance which incorporates the accounting adjustments and form which financial statements can be prepared

Question 31

Companies Act 2006

Answer 31

Source of regulation governing company financial statements

Question 32

FRS

Answer 32

Financial Reporting Standard - the UK domestic accounting standards

Question 33

IFRS

Answer 33

International Financial Reporting Standard - international accounting standards widely used by larger companies

Question 34

IAS 1, Presentation of financial statements

Answer 34

IFRS which sets out information to be shown on a company's statement of profit or loss and statement of financial position

Question 35

IAS 2, Inventories

Answer 35

IFRS which sets out the accounting techniques to be used when valuing inventory

Question 36

ISA 16, Property, plant and equipment

Answer 36

IFRS which sets out the accounting treatment for non-current assets

Question 37

Incomplete records

Answer 37

Financial records where some aspect o the accounting system is missing

Question 38

Gross profit mark-up

Answer 38

Profit percentage or fraction added to the buying price

Question 39

Gross profit margin

Answer 39

Profit percentage or fraction based on selling price

Question 40

Inventory loss

Answer 40

Loss of inventory caused by fire, flood or theft

Question 41

Professional scepticism

Answer 41

Part of the assessment of the reasonableness of given figures within a particular context

Question 42

Partnership Act 1890

Answer 42

Legislation which includes the accounting rules of partnerships

Question 43

Partnership Agreement

Answer 43

An agreement - which may be informal - between the partners which, amongst other things, often varies the accounting rules of the Partnership Act 1890

Question 44

Partnership appropriation account

Answer 44

Part of the statement of profit or loss which shows how the profit is shared amongst the partners

Question 45

Capital account

Answer 45

Account which records the amount of capital contributed by a partner; usually for a fixed amount, which only alters where a permanent increase or decrease takes place

Question 46

Current account

Answer 46

A fluctuating account to which is credited: profit share, salary, interest on capital, and to which is debited: loss share, interest on drawings, and drawings

Question 47

Goodwill

Answer 47

The difference between the value of a business as a whole, and the net value of its separate assets and liabilities.

Question 48

Goodwill account

Answer 48

An account to which goodwill, an intangible non-current asset, is debited

Question 49

Premium for goodwill

Answer 49

Amount charged to a new partner who wins an existing partnership

Question 50

Companies House

Answer 50

An online platform when financial statements amongst other things are filed to allow for public viewing