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intro and financial statments Flashcards

1
Q

What are the primary statements?

A

statement of profit or loss
statement of financial position
statement of changes in equity
statement of cash flows

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2
Q

how long is a fiscal year?

A

52 weeks

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3
Q

what is the statement of profit or loss?

A

its knows as the income statement and shows the financial performance of an entity such as a business within a given time period

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4
Q

what is the statement of financial position?

A

aka a balance sheet. It gives a snapshot of a businesses assets liabilities and equity at a single point in time

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5
Q

What does a statement of changes in equity do?

A

It enhances interest of owners during the period

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6
Q

what is the statement of cashflows?

A

presents all cash movements. Shows the cash inflows and outflows

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7
Q

what are the accounting policies?

A

holds all the rules followed in preparing financial statements

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8
Q

what are notes to the accounts?

A

provide details about the numbers in the financial statement

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9
Q

what is accounting?

A

the process of identifying, measuring and communicating economic information to make informed judgements and decisions by the users of the information

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10
Q

Give some examples of who uses annual reports

A

Shareholders
Banks
Employees
Managers and directors
Suppliers
Customers
HMRC
Credit rating agencies

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11
Q

What do users want from financial statements?

A

financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity’

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12
Q

what makes information in financial statements useful?

A

conceptual framework produced by the international accounting standard board which sets out underlying concepts for financial statements

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13
Q

What does IASB stand for?

A

international accounting standard board

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14
Q

what 3 things make for a faithful representation of information?

A

completeness neutrality and freedom from error

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15
Q

list 4 enhancing characteristics of financial information?

A

Comparibility
Verifiability
Understanability
Timliness

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16
Q

What des IFRS stand for?

A

international financial reporting standards

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17
Q

what is a sole trader?

A

one owner

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18
Q

what is a partnership

A

2-20 owners

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19
Q

what is limited liability?

A

legal protection which only allows shareholders to lose what you put into the business leaving them unresponsible for potential debts etc

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20
Q

what does IFRS stand for?

A

international financial reporting standards

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21
Q

who uses IFRS?

A

international businesses although it was used in EU only before

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22
Q

what is IFRS?

A

globally agreed upon guidelines that are followed internationally by firms when producing financial statements aka balance sheets

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23
Q

when was IFRS first published?

A

2003

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24
Q

who created the IFRS?

A

the international accounting standards board

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25
what does IFRS aim to achieve?
comparability, global consistency, fair presentaion, relevance and reliability
26
how does IFRS enhance investor confidence?
it provides a standardised framework for assessment of financial performance which can attract investment and lead to a more efficient allocation of capital
27
how can IFRS reduce costs?
compliance with IFRS means that theres less worry of compliance of other rules as its standardised meaning companies can easily prepare statements making sure they're fully legal
28
how does IFRS facilitate capital flows?
due to the standardised practises barriers of a complex or different process are avoided allowing for more efficient capital flows globally
29
What does GAAP stand for?
generally accepted accounting principles
30
when did GAAP emerge?
1970s
31
What is GAAP?
a set of standards and procedures followed when producing financial statements in order to provide a common language for financial professionals
32
What countries follow GAAP?
The US
33
What were the 4 major rules for GAAP when it emerged in the 1970s?
Accrual accounting methods Depreciation of capital Reporting of historical costs Reporting of bad debts
34
What does accrual accounting methods refer to in GAAP?
It records revenue when a good is sold not when a payment is received DIrect expenses for goods solds are recorded when a sale is transacted Indirect expenses are recorded when expenses are paid
35
What does depreciation of capital refer to in GAAP?
costs are accounted for over the entire life of the asset
36
What does reporting of historical costs refer to in GAAP?
some assets are accounted for using original purchase costs rather than current market values eg property equipment of facilities
37
What does reporting of bad debts refer to in GAAP?
companies with high account receivables must report that some or all of that money may not be received
38
What are the 10 principles in GAAP?
principle of consistency principle of permanent methods principle of non compensation principle of prudence principle of regulartor principle of sincerity principle of good faith principle of materiality principle of continuity principle of periodicity
39
What is principle of consistency
ensures consistent standards are followed
40
What is principle of permanent methods
ensures consistent procedures and practises allowing for comparison
41
What is principle of non compensation
all aspects of an organisations performance must be reported no compensating a debt with an asset
42
What is principle of prudence
all finance reporting must be factual reasonable and not speculative
43
What is principle of regularity
all accountants must stand by the GAAP consistently
44
What is principle of sincerity
accountants must always report with basic honesty and accuracy
45
What isprinciple of good faith
must act honestly and in good faith
46
What is principle of materiality
has to disclose the general financial position of the business
47
What is principle of continuity
asset valuations must be made with the assumption that the business will continue on moving foward
48
What is principle of periodicity
have to abide by financial reporting periods eg quarterly or annually
49
benefits of GAAP
credibility compatibility regulatory compliance
50
What is Neutrality?
faithful financial statements without any bias
51
What is understandabiity?
presenting and describing financial information clearly, so that a user with a reasonable level of knowledge can understand it
52
What is the main objective of financial statements, according to the Conceptual Framework?
To provide information to help users make economic decisions.
53
the use of standard layouts for the primary financial statements, such as the statement of profit or loss, is an example of applying the principle of:
Comparability
54
what is conceptual framework?
it sets out the fundamental concepts for financial reporting that guide the Board in developing IFRS Standards.
55
what is the structure of most conceptual frameworks?
who are users of financial statements? what are the info needs of the user? what type of financial statements will best satisfy their needs?
56
what are listed companies?
companies that have shares listed on the stock exchange eg public limited company
57
what are unlisted companies?
companies that don't have shares listed on the stock exchange
58
name some real life examples of unlisted companies
Aldi
59
name some real life examples of listed companies
Apple
60
what is external reporting?
not involved in the day to day running of the business and is also known as financial accounting
61
what is internal reporting?
they are involved in the day to day running of the business and also known as management accounting
62
what is an entity?
something that exists independently
63
name 3 limitations of a sole trader
high risk no limited liability leaving assets etc in jeopardy hard to expand banks may give unfavourable interest rates
64
name some benefits of a partnership
more skills allows easier expansion than a sole trader higher efficiency
65
name some benefits of a sole trade
all the profits high risk high reward own ideas free reign of ideas and control
66
name 3 limitations of a partnership
profits are shared joint and several liability clashing ideas and disagreements
67
what is a dividend?
Joint and several liability is a way to reduce the risk of financial loss to one party to a contract. It allows a plaintiff suing for damages to pursue full payment, if necessary, from the party with the deepest pockets if the others named cannot pay.
68
what is an owners capital?
this is the amount of money the owner has invested into the business

Financial accounting (9 decks)

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