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ENEL301 - Accounting > Financial Accounting > Flashcards

Financial Accounting Flashcards

1
Q

What are the four stages of the accounting system?

A
  1. information identification
  2. information recording
  3. information analysis
  4. information reporting
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2
Q

What is accounting concerned with?

A

The collection, analysis and communication of economic information

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3
Q

What are the fundamental qualities of accounting?

A
  • Comparability
  • Reliability
  • Understandability
  • Relevance
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4
Q

What is financial account concerned with?

A

Providing useful info about business entities for primary users.

Standardised format for auditing purposes

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5
Q

Which user groups are relevant to financial accounting?

A
  1. customers
  2. competitors
  3. employees and their representatives
  4. gov.
  5. community representatives
  6. investment analysts
  7. suppliers
  8. lenders
  9. mangers
  10. owners
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6
Q

Which user groups are relevant to management accounting?

A
  1. owners

2. managers

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7
Q

What is management accounting concerned with?

A

Providing useful information related to the deployment of resources and the exploitation of opportunities for management

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8
Q

Compare financial and management accountings’ report nature

A

FA -> general purpose

MA -> special purpose e.g. project

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9
Q

Compare financial and management accountings’ level of detail

A

FA -> aggregated

MA -> dissected

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10
Q

Compare financial and management accountings’ restrictions

A

FA -> standardised or regulated

MA -> minimum restrictions

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11
Q

Compare financial and management accountings’ reporting interval

A

FA -> less frequently

MA -> more frequently

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12
Q

Compare financial and management accountings’ time horizon

A

FA -> backward-looking

MA -> forward-looking

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13
Q

Compare financial and management accountings’ range of info

A

FA -> primarily monetary and objective

MA -> often non-monetary with less objective constraints

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14
Q

What types of financial decision are there of an entity?

A
  1. capital budgeting decisions
    - > what to buy
  2. financial decision
    - > how to fund the buying
  3. working capital management decisions
    - > how to run the business
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15
Q

Why do companies care about the Generally Accepted Accounting Principles (GAAP)?

A

These are accounting rules and standards that companies need to adhere to when they prepare financial statements and reports

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16
Q

Who promulgates the accounting principles and reporting practices for NZ and Australian companies?

A

Accounting Standards Board and the Australian Accounting Standards Board.

NZASB, AASB -> government agencies

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17
Q

What are the 4 Fundamental Accounting Principles called?

A
  1. The Assumption of Arm’s Length Transaction
  2. The Cost Principle
  3. The Revenue Recognition Principle
  4. The Going Concern Assumption
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18
Q

Explain ‘The Assumption of Arm’s Length Transaction’ of GAAP

A

Two parties involved in an economic transaction arrive at a decision independently and rationally

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19
Q

Explain ‘The Cost Principle’ of GAAP

A

–Generally the value of an asset is recorded at its historical cost.

–Book value using historical cost approach records the past performance so it doesn’t change over time

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20
Q

Explain ‘The Revenue Recognition Principle’ of GAAP

A

Revenue is recognised when transaction is completed, while cash may not be collected until a later time

revenue -> expected cash in future

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21
Q

Explain ‘Going Concern Assumption’ of GAAP

A

It is assumed that a company will continue to operate for the predictable future

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22
Q

What are the 3 core financial statements?

A

-> income statement -> cash flow statement -> balance sheet -> …

(cycle)

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23
Q

What is another name for income statement?

A

Profile & Loss

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24
Q

What is the structure of an income statement

A
  1. Revenues
  2. Expenses
  3. Profits
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25
Q

What is revenue?

A

What is earned by the business

Note that money does not have to be received to be recognised as revenue. Credit sales are recognised as revenue at the point of sale

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26
Q

Revenue

Revenue ‐ cost of sales = ?

A

gross profit (loss)

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27
Q

Revenue

Gross profit - expenses = ?

A

net profit (loss)

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28
Q

What is an expense?

A

a cost incurred (not necessarily paid) in the process of earning revenue

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29
Q

What are types of costs of sales in manufacturing?

A
  1. direct costs (DC)

2. indirect costs (ID) (aka overhead, burden)

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30
Q

What are direct costs?

A

Materials and labour that can be charged directly eg production cost of a product

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31
Q

What are indirect costs?

A

manufacturing overhead and administrative overhead

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32
Q

What is manufacturing overhead?

A

materials, labour costs and other costs that cannot be charged directly eg supervisors, janitors

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33
Q

What is administrative overhead?

A

head office costs, rent (or rates), distribution costs, selling and marketing costs

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34
Q

How do you calculate cost of goods sold (or manufactured)?

A

<strong>Cost of Goods Sold (or manufactured) = direct costs plus manufacturing overhead</strong>

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35
Q

What do the measures EBIT and EBITDA focus on?

A

a company’s ability to earn profit through its operations

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36
Q

What is excluded from EBIT and EBITDA?

A

Non‐operating revenues and expenses

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37
Q

What does EBITDA stand for?

A

Earnings before interest, taxes, depreciation, and amortization

38
Q

What does EBIT stand for?

A

Earnings before interest and taxes (EBIT)

39
Q

What do EBIT and EBITDA separate out?

A

profitability from what you do from effects of how you are funded and how you account for your assets

40
Q

On an income statement, what is EBIT, EBITDA called? Why?

A

Operating income, as 0 depreciation & amortization

41
Q

Give the structure of a cash flow statement

A
  1. Operating Activities
  2. Investing Activities
  3. Financial Activities
42
Q

What is a cash flow also know as?

A

Total Change in Cash

43
Q

Explain the “understanding project cost elements” diagram

A

Slide 19, set 1

44
Q

What does the Statement of Financial Performance show?

A

revenue <strong>earned</strong> and expenses <strong>incurred</strong>

45
Q

What does Statement of Cash Flows show?

A

revenue <strong>received </strong> and expenses <strong>paid</strong>, as well as any other receipts and payments

46
Q

What should cash flow statements show separately?

A

should show separately cash flows from operating activities, investing activities and operating activities

47
Q

What are the types of cash flow statements?

A
  1. statement of financial performance
  2. statement of cash flows

(?)

48
Q

What is a balance sheet a statement of?

A

statement of financial position

49
Q

what is the income statement a statement of?

A

statement of financial performance

50
Q

Is equity capital from owners money flowing in or out i.t.o. cash flow statements?

A

IN

51
Q

Is debt capital from lenders money flowing in or out i.t.o. cash flow statements?

A

IN

52
Q

Is revenue from customers money flowing in or out i.t.o. cash flow statements?

A

IN

53
Q

Is interest earned from financial institutions money flowing in or out i.t.o. cash flow statements?

A

IN

54
Q

Is dividends/drawings to owners money flowing in or out i.t.o. cash flow statements?

A

OUT

55
Q

Is repayments and interest money flowing in or out i.t.o. cash flow statements?

A

OUT -> to lenders

56
Q

Is purchases of assets and interest to lenders money flowing in or out i.t.o. cash flow statements?

A

OUT -> to supplies

57
Q

Is taxes/charges money flowing in or out i.t.o. cash flow statements?

A

OUT -> to gov.

58
Q

What does cash from operating activities account for?

A

net income

59
Q

What does cash from operating activities exlcude?

A

cash taxes paid and cash interest paid as already accounted for in net income

60
Q

What are the three sections in a balance sheet?

A
  1. total assets
  2. total liabilities
  3. total shareholders’ equity
61
Q

What does total assets consist of?

A

current assets + non-current assests

62
Q

What does total liabilities consist of?

A

current liabilities + non-current liabilities

63
Q

What does total shareholders’ equity consist of?

A

share capital and retained earnings

64
Q

What is another name for non-current assets?

A

long-term assets

65
Q

What are assets?

A

stuff owned by entity -> Anything of value owned by the business or owed to it

66
Q

What is a current asset?

A
  • cash, or can be easily converted into cash within one year

- includes inventory, accounts receivable, short term investments

67
Q

What is a non-current (long term) asset?

A
  • fixed (capital) assets eg buildings, plant, equipment (tangible)
  • investments eg govt. stock, shares, long term deposits (tangible)
  • intangible assets eg good will, patents, brands, franchises
68
Q

What is the period that a current asset can be converted to cash?

A

1 year

69
Q

What is inventory comprised of?

A
  1. raw materials
  2. work-in-progress
  3. finished goods
70
Q

What is inventory size determined by?

A
  1. level of demand for finished goods
  2. type of production process and duration
  3. nature of finished goods
  4. supply chain management issue (.e.g just-in-time)
71
Q

Explain the inventory flow diagram from raw materials to finished goods

A

Slide 25, set 1

72
Q

What is market value?

A

actual value

73
Q

What is book value?

A

depreciated value

monetary value of an asset decreases over time due to use, wear etc

74
Q

What is salvage value?

A

value when sold at end of its useful life

75
Q

What is scape value?

A

value when broken down for parts

76
Q

What are the methods of depreciation?

A
  1. straight line method

2. diminishing value

77
Q

Explain the graph on slide 27 set 1, straight line depreciation method

A

TODO

78
Q

In NZ does IRD allow both the straight line and diminishing value methods as depreciation methods?

A

Yes

79
Q

Explain the graph on slide 28 set 1, straight line depreciation method

A

TODO

80
Q

What are liabilities?

A
  • debts owed by entity

- amounts owed by the business to both outside parties and those within the business

81
Q

What is a current liability?

A

– monies owing, due for repayment within (say) an accounting period

– Includes accounts payable, accrued taxes

82
Q

What is a non-current (long-term) liabilitity?

A

–eg long term borrowing, mortgages, long term service leave for employees

83
Q

What is a shareholder’s equity?

A
  • owner’s share of entity

- financial interest of the owner in the entity (the owner’s claim to the business)

84
Q

What is the shareholder’s equity comprised of?

A
  • contributed capital (cash/other resources contributed by owners)
  • retained earnings
85
Q

How do you calculate retained earnings?

A

profiles - distributions

86
Q

How do you calculate distributions?

A

dividends + drawings

87
Q

How do you calculate shareholder’s equity?

A

contributed capital + retained surplus

88
Q

Explain the diagram “relationship between three statements” on slide 34 set 1

A

TODO

89
Q

How do you calculate profit?

A

revenues - expenses

90
Q

What does Ratio Analysis examine?

A

relationships between values found on Statements of Financial Performance and Position

91
Q

What is Ratio Analysis used for?

A

Drawing conclusions about the financial health of a firm

92
Q

What three factors used to draw conclusions about the financial health of a firm?

A
  1. comparisons to the <strong>firm’s historical values of the ratio</strong>
  2. comparisons to <strong>accepted benchmarks</strong>
  3. comparisons to <strong>published industry norms</strong>

-> need multiple ratios to draw reliable conclusions

ENEL301 - Accounting (4 decks)

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