General

Question 1

Why is accounting used?

Answer 1

For business firms to operate efficiently to account for money received and spent.

Question 2

Accounting

Answer 2

measures, records, and processes financial info on entity, and reports and interprets info to interested parties to make appropriate decisions

Question 3

Main objectives

Answer 3

in terms of governance of an organisation;

• provide info for decision making
• assist in discharging accountability
• help evaluate performance

Question 4

Info for decision making

Answer 4

Relevant, reliable, cost-efficient and timely info reduces uncertainty and allow better decision making

Question 5

Discharging accountability

Answer 5

To provide info for users to make informed judgments abt performance, financial position, investment activities, whether responsibilities hv been met and accountability discharged

Question 6

Sole trader

Answer 6

one-person funds itself, runs the business, responsible for debts and takes all profits and bears all losses (unlimited liability)

Question 7

Auditors (accountant)

Answer 7

Internal: employed by organisation to ensure correct processes are being followed.

External auditor: independent person that expresses opinion that company’s financial report provide fair representation of its financial status

Question 8

Assets

Answer 8

items of value owned or controlled by a business. these provide future economic benefit. E.g. premises, land

Question 9

Liabilities

Answer 9

owing items, to external parties, that must be repaid at some futuristic time

Question 10

Owner’s equity

Answer 10

difference between A&L = amount owner’s investment in the business. its a liability (money from business to owner). exists because of accounting entity

Question 11

Accounting entity concept (different from legal entity-for debts)

Answer 11

Owner and business is separate for accounting purposes.

Accounting entity is the business.

Question 12

Monetary principle

Answer 12

all transactions recorded in common monetary unit ($)

Question 13

Going concern principle

Answer 13

requires business to continue operations indefinitely (won’t be liquidated in future)

Question 14

Accounting equation

Answer 14

The relationship between A,L, OE

A = L + OE
OE=A-L
L=A-OE

Question 15

Transactions

Answer 15

financial events that affect the elements of the accounting equation

Question 16

Ledger accounts

Answer 16

a collection of all accounts.
Left= debit
right= credit

Question 17

Account rules (assumptions)

Answer 17

Assets-DR
Liability- CR
Owner's equity-CR
Revenue-CR
Expenses-DR

Question 18

Revenue

Answer 18

inflow of resource, increases equity from sale of inventory, services, or operations

Question 19

Expenses

Answer 19

outflows that decrease equity and result from services performed, cost of goods sold, general operations

Question 20

Chart of accounts

Answer 20

list of all accounts arranged according to the classification in the ledger

Question 21

Trial balance

Answer 21

list of account balances on a particular date, to check accuracy of ledger

Question 22

Accounting process

Answer 22

• Transaction
• Source documents
• Journal
• Ledger and TB
• End of period reports (SPL, SFP SCF)

Question 23

Source document

Answer 23

Provides details of a transaction and the evidence of its occurrence. AKA invoice:Records the details relating to sales of items on credit

Question 24

General journal

Answer 24

Record of transactions used to assist the ledger

Question 25

Accrual accounting

Answer 25

Transactions and events when they have an economic impact on the entity rather than when the cash flows occur

Question 26

Statement of cash flows

Answer 26

shows cash inflows and outflows. Main purpose is to highlight operating, investing and financing activities. Provides info to make and evaluate decisions

Question 27

Net profit ratio

Answer 27

measures net profit per dollar of service revenue

(Net profit/service revenue) x 100

Indicates profitability
A low figure indicates less profits and need of investigation of expense control methods, pricing practices, selling techniques.

Compare with industry average

Question 28

Return on owner’s equity

Answer 28

Measures return on investment by owners

(Net profit/ average owner’s equity) x 100

compare with current interest rates