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Accounting Exam > Examination Revision Lecture > Flashcards

Examination Revision Lecture Flashcards

1
Q

Management accounting

A

Management accounting provides detailed economic info for internal users (managers/shareholders) about their entity that is then reflected in financial accounting statements.

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2
Q

Characteristics of MA

A
  • Purpose is to provide info for managers
  • Based on future events
  • Formulating plans and budgets
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3
Q

Financial accounting

A

FA is the preparation and presentation of financial statements to allow mainly external users (stakeholders) economic decisions about the entity.

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4
Q

FA consists of:

A
  • Statement of cash flows
  • Balance sheets
  • Income statements
  • Statement of changes in equity
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5
Q

Examples of Stakeholders

A
  • Community
  • Customers
  • Government agencies
  • Suppliers
  • Lenders
  • Interest groups
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6
Q

Characteristics of FA

A
  • Based on past events

- Complies w/ company law and accounting rules

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7
Q

Auditor

A

Ensures that financial records are accurate and that taxes are paid properly and on time.

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8
Q

What might happen if the accounting profession didn’t have to follow accounting standards when preparing financial statements?

A
  • Inaccurate records to make the company look better off.
  • Financial statements may not be objective and factual.
  • Conceptual framework: Is the info relevant? Not faithfully representing information. Comparability, timeliness, understandability.
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9
Q

Key drivers of Sustainability

A
  • Competition for resources
  • Climate change
  • Economic Globalisation = all connected now
  • Connectivity and communication
    (remember Coca Cola India story)
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10
Q

Sustainability reporting (SR)

A
  • Voluntary reporting
  • GRI reporting framework which comprised of SR guidelines, technical reporting and sector supplements.
  • Growth area for accounting
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11
Q

What are the costs for entities in reporting their carbon ‘greenhouse gas’ emissions?

A 
Costs:
Cost in creating the report,
Time (opportunity cost)
People (wages)
Report could show that the entity isn't doing so well.
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12
Q

What are the benefits for entities in reporting their carbon ‘greenhouse gas’ emissions?

A 
Benefits:
Seen as a sustainable business
Faithful representation
Increase their market share
Good reputation
Short term cost to bring long term benefits
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13
Q

Should corporations be socially and environmentally responsible? Why?

A

Yes they should - Info gets around quickly, therefore if a company isn’t socially and environmentally responsible then that could ruin their brand / name.

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14
Q

What are liquid assets?

A

Current assets that can be quickly converted to cash (e.g. inventory). The most liquid asset is Cash.

To make money quickly when needed next month = have a SALE

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15
Q

Why are liquid assets vital for business survival?

A

To pay our expenses and debts as they fall due.

If you can’t pay them off then you can try renegotiating.

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16
Q

How can a profitable business have cash flow problems and become insolvent?

A

By not being able to sell off assets - therefore they liquidate to pay off their expenses and debts.

In that circumstance, the shareholders get paid out last.

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17
Q

What management accounting process can help prevent insolvency (unable to pay debts)?

A

Change their approach - employ new managers or use different strategies to keep the business going. Planning then budgeting.

18
Q

Budgets

A

Is a quantitative expression of an entity’s plans.

19
Q

List how budgeting can assist in decision making.

A
  • Setting targets for managers.
  • Identifying how resources can be more efficiently used
  • Identifying how cash can be utilised
  • Assisting in short-term planning (e.g. capacity utilisation) = using up all the floor space
  • help determine inventory levels
20
Q

How often can an entity create budgets?

A

As regularly as they like, it really depends on their decision and how they operate as a business. They can make budgets daily, weekly, monthly, quarterly or yearly.

21
Q

What are some of the different budgets that you can make?

A
  • Production
  • Inventory
  • Debtors schedule
  • Supplier schedule
  • Employee
  • Sale
22
Q

What is the big budget that combines all the budgets into one?

A

Master budget - not perfect = just a prediction

23
Q

What is the budgeting process?

A
  1. Consider past performance.
  2. Assessment of expected trading and operating conditions.
  3. Preparation of initial budget estimates.
  4. Adjustment to estimates based on feedback from managers.
  5. Preparation of budgeted reports and sub-budgets
  6. Monitoring of actual performance against the budget over the budget period.
  7. Make any necessary adjustments to the budget over the budget period.
24
Q

Purpose of a Cash flow budget

A

A cash budget details a company’s cash inflow and outflow during a specified budget period.

  • Primary focus = to provide the status of the company’s position at any point of time.
  • Helps the company to make critical decisions.
  • Helps to prioritise payments in the budget period.
  • Helps analysing budget-VS-actual variances in cash inflow and outflow.
25
Q

Cash inflows could be increased by…

A

[Sometime you gotta loose a bit of money to make a bit of money]

  • Renegotiate credit terms, for example giving discounts that will encourage customers to pay what they owe.
  • Improve sale = by having specials
  • Reducing unnecessary stock = buy 1 get 1 free
  • Arrange external finance - selling more shares - loan, keep it afloat by putting it on the stock exchange.
  • Selling off non-current assets - such as property
26
Q

Cash outflows could be reduced by…

A
  • Capitol investment
  • Cut expenses by identifying areas of waste
  • Keeping stock to minimum levels - only to what is required.
  • Making use of credit terms - or - renegotiating credit terms.
  • Loyalty cards/deals?
27
Q

What could a business do if they expect to have a cash shortage in the next quarter?

A

Increase cash inflows
Decease cash outflows
Injecting capitol

28
Q

What is Cost-Volume-Profit (CVP) analysis concerned with?

A

CVP analysis in concerned with the change in profits in response to changes in sales volumes, costs and prices.

29
Q

CVP Formula for Total costs =

A

Fixed costs + Variable costs

30
Q

CVP Formula for Profit =

A

Revenue - Total costs

31
Q

CVP Formula for Contribution Margin =

A

Revenue - Total Variable costs
OR
Selling price - variable cost

32
Q

CVP Formula for Contribution Margin Ratio =

A

Contribution Margin / Sales

33
Q

CVP analysis characteristics

A

In short run a firm’s output is fixed - its freedom of action is limited by in this respect. = CVP is important in short-run planning by providing insight into relationship b/w costs, volume of output, revenue and profit.
- CVP shows distinction b/w fixed and variable cost and behaviour of these two types of cost through changes in the volume of output.

34
Q

CVP Formula for Break-even-point (BEP) =

A

Fixed cost / Contribution margin

35
Q

Cost is…

A

Cost is a resource - measured in monetary terms and is used to achieve a particular objective.

36
Q

Cost object is…

A

Anything for which a separate measurement of cost is desired. Eg products, services, customers, business units.

37
Q

List the cost types:

A

Direct costs - directly related

Indirect costs - not obviously related

38
Q

Characteristics if Direct costs…

A

Traced directly to the product or service in an economically feasible way.

Example:

  • Direct Materials = cost of materials that can be directly traced to the finished product.
  • Direct Labour = Wages paid to staff members which can be directly traced to the finished product.
39
Q

Characteristic of Indirect costs…

A

Are related to the product or service but cannot be traced in economically feasible way and therefore need to allocated.

Example:
- Factory Overhead cost = All factory cost except direct materials and labour required in the production process - rent, insurance ..etc

40
Q

Nature and scope of investment decisions:

A
  • Involve large amounts of resources, risk and uncertainty,.
  • Span over long periods of time
  • Require a large cash outlay
  • Difficult to reverse
  • Made on best available data
41
Q

Salvage value is…

A

Salvage value is the estimated resale value of an asset at the end of its useful life.

42
Q

Process of decision making is…

A
  1. Identify available investment alternatives
  2. Select a decision support tool (e.g. payback period) and set a decision rule (e.g not accept a project that will not payback within 5 years).
  3. Collect data necessary to make decisions
  4. Analyse the data
  5. Interpret the results
  6. Make a decision

Accounting Exam (2 decks)

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