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Accounting For Decision Making > Introduction - Lecture 1 > Flashcards

Introduction - Lecture 1 Flashcards

1
Q

What is accounting?

A

The process of identifying, measuring and communicating relevant economic information (business transactions) about the business to a variety of users for decision making.

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2
Q

What is the process of identifying?

A

Identifying transactions that are able to be reliably measured and recorded.

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3
Q

What is the process of measuring?

A

Analysing, recording and classifying transactions.

Putting them into numerical value

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4
Q

What is the process of communicating?

A

Communicating is putting the measured information into a way that can be viewed more easily.

Via income statements, balance sheets and statements of cash flow.

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5
Q

What is the process of decision making?

A

Decision making is what happens as a result of viewing the communicated information.

The status of the business is looked upon and it is decided where to go from there. Whether current business and it’s ways are working.

The communication is used for a range of decisions by external and internal users.

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6
Q

What is a process?

A

A series of actions or steps taken to achieve a desired ending.

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7
Q

What is the definition of entities?

A

Entities can be the parties in which transactions take place between.

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8
Q

What is the definition of assets?

A

What the business owns.

Examples:

  • cash
  • inventory
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9
Q

What are liabilities?

A

Liabilities are things that the business owes to other entities.

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10
Q

What is equity?

A

Equity is the difference between the value of the assets and the value of the liabilities of something owned

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11
Q

What is a business transaction?

A

A business transaction is the external exchange of something of value between two or more entities (one is the business firm).

  • Can be reliably measured and recorded
  • Affect assets, liabilities and equity
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12
Q

What is relevant information?

A

Information that makes a difference in decision making.

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13
Q

What is accounting information?

A

Data about a business entity’s transactions.

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14
Q

Special purpose reports

A

Financial statement or financial report that is prepared for a limited group of people to view.

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15
Q

General purpose report

A

A financial report or statement prepared for external users to view.

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16
Q

What are accounts receivable?

A

Anything that is owed to us

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17
Q

Why is financial accounting?

A

It is the type of accounting that deals with preparation of financial statements primarily for external parties.

  • Has a lot of regulations (because it’s work is viewed by external parties)
  • Statements prepared in accordance with Generally Accepted Accounting Principles
  • Focus is on recording transactions and turning them into useful information
18
Q

What is management accounting?

A

A type of accounting that is internally focused and generally only of use to the company.

  • Preparing internal reports (special purpose reports) for management to assist with their decision making
  • Not regulated by as many rules
19
Q

What are Drawings?

A

Money that the owner takes out of the business in which is owed to them from their personal investments into the business

20
Q

What are accounts receivable?

A

Accounts and other entities that owe the business money.

21
Q

What is revenue (income)?

A

Amounts earned by a business - inflows into the business.

22
Q

What are expenses?

A

Amounts incurred to earn income - outflows from the business

23
Q

What is profit?

A

Profit is the result of the income minus the expenses. It is the money made and owed to the owner.

24
Q

What are dividends?

A

A sum of money paid regularly by a company to its shareholders out of its profits (reserves).

25
Q

What is an income statement?

A

A financial report or statement prepared to show profit earned by a firm.

Income - Expenses = Profit

26
Q

What is a Balance Sheet?

A

A financial report or statement prepared of the assets, liabilities and owner’s equity. It shows a company’s net worth over time and is important to have to track the company’s growth or contraction.

Assets = Liability + Owner’s Equity

27
Q

What is the rule of the accounting equation?

A

Everything analysed must be viewed from the perspective of the business.

1st side of equation: what business owns
2nd side of equation: what business owes

28
Q

What can a business owe to?

A

Owners (owner’s equity)

Non- owners (liabilities)

29
Q

What is capital?

A

Capital is the funding that an owner puts into their business to begin it’s functioning. The business owes this to the owner (owner’s equity)

30
Q

What ways can the profit of a business be owed to an owner?

A

Drawings - the owner takes the money, or some of the money that they are owed out.

Dividends - regularly paid funds owing to them, from the business

31
Q

What is a statement of changes in equity?

A

A declaration of what is owed to the owner

32
Q

What is the order of preparation of financial statements?

A
  1. Income Statement
  2. Statement of Changes in Owner’s Equity
  3. Balance Sheet
  4. Cash Flow Statement
33
Q

What is Materiality?

A

Information is material is omission or misstatement could influence decision making.

34
Q

What is materiality?

A

Information is material if omission or misstatement could influence decision making

35
Q

What is faithful representation (qualitative characteristics of financial statements)

A

Financial information will be complete, neutral and free from error.

36
Q

What is relevance (fundamental qualitative characteristics)

A

Ability to be used to influence decisions is affected by materiality.

37
Q

What is compatibility (qualitative characteristics of financial statements)

A

Consistency of measurement and presentation of items

38
Q

What is verifiability (qualitative characteristics of financial statements)

A

The information faithfully represents what it suggests that it is representing.

39
Q

What is timeliness? (QCFS)

A

Information is available to all stakeholders in time for decision making purposes.

40
Q

What is understandability? (QCFS)

A

Clarity and readability of presentation.

41
Q

What are the limitations of accounting information?

A
  • time lag in distribution of information to users
  • historical information (based on past data) therefore often outdated
  • subjectivity is some information
  • considerable choice involved in what items to report and how to report them

Accounting For Decision Making (1 decks)

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