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poa > intro to accounting > Flashcards

intro to accounting Flashcards

1
Q

types of businesses

A

trading: sells and buys goods to customers
service : provide services to customers

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2
Q

role of accounting

A

provide accounting and non-accounting information for skateholders for them to make informed decisions on the management of resources and performance of business

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3
Q

role of accountants

A
  • Decision making : provide both a and na info for decision-making
  • Stewardship : managing business resources on behalf of owner
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4
Q

skateholders

A
  • owner : whether to sell or invest in business
  • manager : gauge the performance of the business and take measures to improve it
  • suppliers : sell goods to business on credit
  • government : evaluate if business abides to the tax regulations and decides on the amount of tax
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5
Q

two professional ethics

A
  • integrity : straightforward and honest in the communication of all financial information
  • objectivity : information must be unbiased and based on facts
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5
Q

why are professional ethics important

A

to ensure FS is fairly prepared by accountants as it is used by skateholders

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5
Q

accounting and non accounting info

A

accounting : cost of goods, storage cost
non : customer’s preference, type of storage

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6
Q

the steps in accounting

A

source doc, journal, ledger, trial balance, FS

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7
Q

purpose of source document

A

prove that transaction has taken place

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8
Q

journal

A

it is like a diary, daily record of transactions organised by transaction dates

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9
Q

ledger

A

** consolidation ** of all transactions relating to a specific asset, liability, equity, income or expense item

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10
Q

trial balance

A

provides a summary of ending balances of each ledger account at a specified date

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11
Q

financial performance

A

provides report on income,expense and profit/loss over a period of time

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12
Q

financial position

A

provides information on asset,liabilities and equity at a specified date

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13
Q

four stages of accounting cycle

A

identify and record, adjust, report, close

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14
Q

assets

A

resources owned or controlled by a business that are expected to provide future benefits

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15
Q

nca and ca

A

nca : provides benefit for over a year
ca : provides benefit within a year
nca : cannot be converted into cash easily
ca : converted into cash easily

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16
Q

liability

A

obligations owed by the business to others that are expected to be settled in the future

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17
Q

ncl vs cl

A

ncl : repaid over one financial year
cl : paid within one financial year

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18
Q

equity

A

owner’s claims on the net assets of the business

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19
Q

basic accounting eqn

A

assets = liabilities + equity

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20
Q

income

A

amount earned through the activities of the business

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21
Q

s

sales revenue

A

money earned from selling goods

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22
Q

expenses

A

costs incurred in the operation of the business to earn income in the same accounting period

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23
Q

cost of sales

A

total goods sold in trading business

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24
Q

discount allowed vs discount received

A

da : cash discount given by business to credit customers
dr ：trade discount received from other businesses/supplier

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25
Q

difference of trade disc and cash disc

A

TD : reduction to the invoice amount of goods owed by customer
TD: recorded as discount allowed and discount received in ledger accounts
CD : reduction to list price of goods
CD : not recorded in ledger account and only invoiced amount recorded

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26
Q

double entry system recording

A

transactions will affect two accounts, one dr and one cr, both amounts must be the same

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27
Q

cash sales vs credit sales

A

cash sale : immediate payment during the purchase or cash sale
credit sale : delayed payment during a credit sale or purchase

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28
Q

why do customers return goods

A

sales returns :
* faulty goods
* wrong specifications
* damaged goods
* defects

29
Q

purpose of a business giving trade discount?

A

to encourage customer to buy in bulk

30
Q

purpose of giving cash discount to credit customer

A

to encourage credit customers for early payment within a specified time

31
Q

purpose of trial balance

A
  • facilitate in the preparation of FS
  • check for arithmetic accuracy in recording
32
Q

limitations of TB

A
  • not an absolute proof of accuracy
  • there are errors not revealed by TB
33
Q

income recieved in advance

A

money received in advanced for goods/services to be provided in the next financial year but have not earned income yet.

34
Q

income receivables

A

provided goods/services to customer but have not received payment from customer , but have earned the income

35
Q
A
36
Q

prepaid expenses

A

already paid for the service beforehand but have not benefitted from service yet

37
Q

expense payables

A

have not paid for the services yet but already benefitted from service

38
Q

reasons why cheque are dishonoured

A
  • expired
  • post-dated
  • info inconsistent
  • info incomplete
39
Q

purpose of internal controls

A
  • safeguard net assets of a business
  • deter or detect fraud
  • reduce theft possibilities over cash
  • comply with law and regulations
40
Q

reasons for different balances in business and bank statement

A
  • deposits in transit
  • cheques not yet presented
  • direct deposits
  • dishonoured cheques
41
Q

examples of internal controls

A
  • bank recon
  • authorisation
  • segregation of duties
  • custody of cash
42
Q

purpose of bank rec

A
  • check the bank account balance of business against the bank’s record as shown on bank statement
  • deter fraud
  • check for errors made by bank or business
43
Q

inventory

A

goods bought by customers

44
Q

why do businesses keep inventory?

A

to prevent out-of-stock situations

45
Q

what if a business buys too much inventory?

A

incur higher storage costs and increase risk of goods becoming obselete

46
Q

perpetual inventory system

A

quantity and availability of inventories are updated on a continuous basis

47
Q

how do businesses manage inventories

A
  • keep proper records to track inventory
  • keep physical inventory in warehouse
  • buying insurance to insure inevntory
48
Q

cost of invetory purchased includes :

A
  • purchased price
  • delievery
  • installation costs
  • custom duties
  • insurance to bring in goods
  • packing materials
  • wages for employees to pack inventory
49
Q

trade receivables

A

amount owed by credit customers to business on credit

50
Q

why do businesses grant credit

A

to encourage customers to buy goods and services so they can receive the goods first and pay later

51
Q

what is impairment loss on TR

A

when customers do not pay up amount owed, the business suffers a loss

52
Q

what is allowance for impairment of TR

A

estimated amount of debts likely to be uncollectible

53
Q

capital vs revenue expenditure

A

capital : expenditure incurred to ** buy and bring** in NCA to its intended use
revenue ： expenditure inccured to repair,maintain and operate NCA in working condition

54
Q

capital vs revenue

A

capital : recorded as NCA
rev : recorded as expense
capital : provides benefit for more than a year
rev : provides benefit within a year

55
Q

revue exp examples

A
  • petrol
  • annual insurance/tax
  • servicing/repair
56
Q

depreciation

A

allocation of cost of NCA over its estimated useful life

57
Q

causes of depreciation

A
  • wear and tear
  • legal limits
  • usage
  • obsolescence
58
Q

suitability of depreciation methods

A

SL : if NCA used uniformly throughout its useful life
RB : if NCA used more in its earlier years and gets used lesser in the older days as it becomes less efficient

58
Q

why do businesses borrow from banks?

A

insufficient cash to fund their activities

59
Q

LTB vs STB

A

ltb : repaid more than a year
stb : repaid within a year

60
Q

bank loan vs bank overdraft

A

bank loan : fixed sum of money borrowed from bank
bank overdraft : amount not fixed but cannot exceed agreed limit
bank loan : repaid more than a year
bank overdraft : repaid within a year
bank loan : equal installment repayments made over the loan period
bank overdraft : any cash deposit into the cash at bank account

61
Q

interest expense on bank loan

A

paid regularly and reported as an expense

62
Q

sole proprietorship

A

only one owner

63
Q

capital

A

personal assets contributed by owner to the business

64
Q

drawings

A

assets taken by owner for personal use

65
Q

profit or loss

A

difference between total income and totla expenses

66
Q

errors not revealed by trial balance

A
  • transaction not recorded at all
  • transaction recorded on the wrong sides of account
  • transaction recorded in wrong account of same accounting element
  • amount recorded wrongly
67
Q

expanded accounting eqn

A

assets=liabilities + capital + (income-expense) - draiwngs

67
Q
A
68
Q

purpose of source document

A
  • provide evidence to capture the occurence of transaction
  • provide detail of business transaction needed for recording
  • ensure transaction recorded at original cost that it occured
69
Q
A

poa (2 decks)

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