Introduction Flashcards

(49 cards)

1
Q

define accounting

A

past events are summarized into numerical information which is then presented to managers and other interested parties for decision making and control purposes

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2
Q

what does “past events are summarised” in the definition of accounting mena

A

gathering data and summarised what happened in the past and predict what will happen in the future

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3
Q

what does the “numerical information” mean in the definition of accounting

A

eg currency, results, averages

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4
Q

function of accounting

A

control outcomes and activities to enable you to account for actions and your use of resources to achieve accountability to those who entrusted you with resources and power

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5
Q

examples of decisions made using accounting information

A
production levels
product/service cost
selling prices
staff needed to meet budgeted sales target
staffing costs and income generated 
financing expenses
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6
Q

what is revenue

A

money from all sales made

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7
Q

what are the qualities expected of accounting information

A
relevance
faithful representation
comparability
verifiability 
timeliness
understandability
materiality
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8
Q

what is meant by the relevance quality

A

financial information must be relevant to users’ decision making needs ie no irrelevant information

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9
Q

in relation to relevance, how do you tell if the information is relevant

A

if it has predictive value and it has confirmatory value

only material information should be used

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10
Q

what is confirmatory value

A

the previous predictions have been correct

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11
Q

who decides what material information is relevant

A

company

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12
Q

what is meant by the faithful representation quality

A
the information is:
complete
neutral and un biased
free from error
reliable
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13
Q

what does free from error mean in faithful representation

A

accounts don’t have to be 100% accurate but estimates can sometimes be made eg on utilities (heat, lighting) and then can be adjusted later for accuracy including a note in the financial statement

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14
Q

what is meant by the comparibilty quality

A

information should be comparable over time so accounts should be prepared the same every year

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15
Q

why is comparability important

A

similarities and differences are readily apparent

eg between competitors

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16
Q

how can comparability be improved

A

through consistency i.e. using the same accounting treatments for the same types of item, from period to period

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17
Q

what does IFRS stand for

A

international financial reporting standards

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18
Q

what is meant by the verifiability quality

A

independent, knowledgeable observers agree that the information is of faithful representation eg auditors

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19
Q

what does the job of an auditor include

A

checking that financial statements are correct

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20
Q

examples of the big 5 auditors

A
Earnest and Young (EY)
Grant Thornton
Deloitte
PwC
KPMG
21
Q

what is meant by the timeliness quality

A

information should be available to users in time for it to be capable of influencing decisions

if left too long, the usefulness of information declines

22
Q

what does a plc stand for

A

public limited company

23
Q

what is an independence note

A

note signed by auditor to confirm independence

24
Q

what type of companies don’t have to produce annual reports at the end of each year

25
what is meant by the understandability quality
that the information is understood by those at who it is aimed
26
why does understandability not mean simplicity and excluding complex infromation
because excluding this complex information means that the information will not be faithfully represented or complete
27
what is assumed of financial report users
reasonable knowledge of business and economic activities so they can make sense of the reports
28
what is meant by the materiality quality
if it could influence decisions it must be reported and if information would not influence decisions it should be omitted as it could cause clutter and interfere with users' ability to make decision
29
what is IASB
international accounting standards board
30
what is the cost/benefit of financial reporting
it is expensive and timely to collect, process and verify financial information but the benefits of providing it outwieght the costs of obtaining it
31
who are the main users of financial reports and information
``` investors customers suppliers lenders government competitors the public employees management ```
32
why are investors interested in using financial reports
as they are interested in buying shares/ownership if they are potential investors and buying more or selling theirs if they are existing investors
33
why are customers interested in using financial reports
should they continue to use this company, will the entity survive
34
why are suppliers interested in using financial reports
will they be paid in the future if the company expands, will they have the capabilities to expand with them
35
why are lenders interested in using financial reports
want to know if they will be repaid +interest
36
why are governments interested in using financial reports
want to get taxes the company contributes to society
37
why are competitors interested in using financial reports
want to know best how to compete or maybe they should leave the market to benchmark thwir own performance
38
why are the public interested in using financial reports
want to know will this company still continue to provide jobs and contribute to society
39
why are employees interested in using financial reports
want to know how stable the company is and how secure their job is maybe they'll want to demand more reward for their work if the company is doing particularly well
40
why are management interested in using financial reports
to analyse and make decisions
41
why might conflict exists between user of the financial report
eg lenders and owners may have conflict because funds lended may not have been spent on what was agreed
42
what is management accounting
accounting that seeks the needs of managers decision making
43
what is financial accounting
accounting that meets the need to a variety of user
44
what are the main differences between management accounting and financial accounting
``` nature of reports level of detail regulations reporting interval time orientation range and quality of information ```
45
how do levels of detail differ between financial and management accounting
financial = broad view as used for a wide variety of purposes management = more detail into decision making
46
how do regulations differ between financial and management accounting
management reports are for internal use only so are only designed for the need of the individual manager/situation financial reports must follow a specific content and format standards under IASB and IFRS
47
how do reporting intervals differ between financial and management accounting
financial must be made either annually or sometimes biannually there are no required reporting intervals for management accounting as they are made as required
48
how does time orientation differ between financial and management accounting
financial accounting is backward looking, analysing past events and predicting based on that management accountign looks at both past and present performance
49
how does the range of information differ between financial and management accounting
financial accounting has objective info with verifiable information management can be more subjective and include information of non financial information such as sales orders, new product launches etc