intro to acc/regulatory framework

Question 1

What is financial accounting?

Answer 1

collecting, recording, summarising and communicating financial info.

Question 2

Types of businesses

Answer 2

1) Sole trader
2) Partnership
3) limited liability
4) Non-profit

Question 3

What is the income statement, it’s elements and equation?

Answer 3

1)Summary of an organisation’s performace in profitability(or lack of) through revenues and expenses.
2)Elements include: Income, purchases and expenses.
3) Based on: Income=Revenue-expenses

Question 4

What is capital and revenue expenditure?

Answer 4

1) Capital expenditure: The acquistion of a non current asset or it’s improvement for the sake of earning capacity.
2) Revenue expenditure: Incurred for the purpose of trade/maintance of non current assets and their earning capacity.

Question 5

What is the balance sheet(SOFP), it’s elements and what it’s based on?

Answer 5

1) Presents the financial position of an entity at a given date giving infomation of what it owns and owes.
2) Elements: Current & non-current assets/liabilities, Owners capital/equity(cash, credit & withdrawls) payables and purchases.

Question 6

What is the purpose of a regulatory framework in accounting and it’s elements?

Answer 6

Purpose: To ensure that financial statements can be relied on by promoting consistency & comparability of accounting information.
Elements:
1) It’s theoretical/ conceptual framework is governed by local laws & accounting standards by an authorised body e.g International Accounting standards board.
2) The IASB’s framework includes: Objectives(provide useful info). Assumptions & qualitative characteristics(Accrual concepts etc). And elements of financial statements( Income & expenses, Assets & liabilities and capital. Measurements of profit & capital maintenance and asset valuation.

Question 7

International financial reporting standards(IFRS) vs International accounting standards board(IASB)

Answer 7

IFRS’ framework: Financial statements must be harmonic, consistant and comparable.
IASB is an independent body that sets the IFRS, whom are then reponsible for the development, approval & publication of the IFRS’ interpretations.