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Introduction Flashcards

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 Primary & Secondary qualities expected of accounting information

A 
Primary Qualities:
Relevance (Nature & Materiality)
Faithful representation

Secondary Qualities that enhance the fist:
comparability
verifiability 
timeliness
understandability
Reliability
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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
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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
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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

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22
Q

what does a plc stand for

A

public limited company

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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
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
45
What's the Nature of Accounting?
Based on an ancient need to keep records of surplus goods for wealthy individuals and institutions.
50
What is the objective of accounting?
Go prepare general purpose financial statements that provide specific information to a wide range of users about an entity's: financial performance, financial position, changes in financial position, and cash flows.
51
What does IFRS stand for? And what is its principle objectives?
International Financial Reporting Standards. 1. To develop a single set of high quality, understandable, enforceable and globally accepted international financial reporting standards. 2. To take account of the financial reporting needs.
52
What is the conceptial framework?
It's not a standard, but a foundation that enhances consistency over the standards using theoretical peinciples. * the objective of general purpose accounting * Qualitative characteristics of useful financial information. * The elements form which financial statements are prepared * The concepts of capital & capital maintenance
53
What is the basic assumption?
Accepting that the information presented us prepared under the assumption that the entity is going to continue into the forseeable future.
54
What is the accrual principle?
All economic activities of an entity are recorded when they *occure* NOT necessary when money is received or paid.
55
56
What is the nature of accounting?
Its based on an ancient need to keep records of surplus goods for wealthy individuals and institutions.
57
58
What's the brief history of accounting?
First use of tax accounting old was the Egyptians found on tablets 3200 years ago. But the first use of current accounting systems where the Italians during the 14th to 16th centuries due to increased capital and credit. In 1494 the father of accounting Luca Pacioli, published a book that created the method fo the double entry system.
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Accounting 1 (8 decks)

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