Financial Accounting

Question 1

Accounting Definition

Answer 1

Accounting is the process of identifying, measuring and communicating economic information about an entity to a variety of users for decision making purposes.

Question 2

Financial Accounting

Answer 2

Preparation and presentation of financial statements mainly for external users in annual report.

Question 3

Management Accounting

Answer 3

Decision making based on accounting information.

Information mainly for internal users.

Question 4

Accounting Equation

Answer 4

A - L = OE

OE = Net Assets

Question 5

Assets

Answer 5

Assets arise as a result of a past event.
They are a resource controlled by the entity,
from which future economic benefits are expected to flow to the entity.

Question 6

Current Assets

Answer 6

Held for no more than one accounting period.

Question 7

Non-current Assets

Answer 7

Held for longer than the normal operating cycle.

Question 8

Liabilities

Answer 8

They arise from past events.
A present obligation of the entity.
The settlement of which is expected to result in an outflow from the entity of economic benefits.

Question 9

Current Liabilities

Answer 9

Expected to be settled in the entity’s normal operating cycle. Held for the purpose of trading.

Question 10

Non-current liabilities

Answer 10

Not expected to be met within the next accounting period.

Question 11

Contingent Liabilities

Answer 11

This is a maybe liability, doesn’t recognise all of liabilities definition.
Not recorded on BS but disclosed in the notes.

Question 12

Equity

Answer 12

The residual interest in the assets of the entity after deducting all its liabilities.

Made up of:

• Contributed capital: total amount invested by the owner.
• Retained Earnings: Cumulative net profit of the entity that has been retained.
• Reserves

Question 13

Income

Answer 13

Income must be inflows and enhancements of economic benefits that increase assets or reduce liabilities, resulting in increases in equity, other than those relating to contributions from holders of equity claims.

Question 14

Expenses

Answer 14

Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases of equity, other than those relating to distributions to equity participants.

Question 15

Materiality

Answer 15

The impact of a mistake in a companies financial statements on the users and their decision making.

Question 16

Big 4

Answer 16

KPMG, PWC, EY, Deloittes

Question 17

Accrual Accounting

Answer 17

Recording the transactions in the period they occur, regardless of whether cash has been received or paid.

Question 18

Cash Accounting

Answer 18

The transaction is recorded when the cash changes hands, regardless of the period the transaction occurred.

Question 19

Depreciation

Answer 19

Represents how much of the asset we have used during the accounting year and over the assets lifetime.

Question 20

Accumulated Depreciation

Answer 20

Reflects all of the depreciation that has ever been expensed against the asset.

Question 21

Straight Line Depreciation

Answer 21

( Cost - Residual Value) / Useful life