Introduction To Accounting

Question 1

2 elements of accounting

Answer 1

• recording

- summarising (financial statements) - profit or loss + statement of financial position

Question 2

Profit making business entities

Answer 2

• sole trader
• Partnership
• company

Question 3

Components of a full set of financial statements

Answer 3

• statement of financial position
• statement of profit or loss
• statement of changes in equity
• statement of cash flows
• notes to the financial statement

Question 4

Statement of profit or loss

Answer 4

Shows revenue and expenses of a business over the financial year
Revenue - cost of sales = gross profit
Gross profit + other operating income - distribution costs - admin expenses = profit from operations
Profit from operations - finance cost (interest on loans) + investment income = profit before tax
Profit before tax - tax = net profit/ (loss) for the period

Question 5

Capital expenditure

Answer 5

• buying long term assets (non-current)

- upgrading long term assets to make them more productive

Question 6

Revenue expenditure

Answer 6

• Cost of sales, distribution + selling admin

- repairs and maintenance of long-term assets

Question 7

Statement of financial position

Answer 7

List of assets and liabilities of a business at year end total assets must = equity + liabilities
Assets:
Non-current (long term) - PPE, goodwill (intangible), investments
Current - inventories, trade and other receivables, prepayments, cash and cash equivalents

Equity:
capital and reserves - ordinary share capital, preference share capital, share premium account, reserves, retained earnings

Liabilities:
Non-current (12+ months) - loan notes
Current (short term loans) - trade and other payables, short term borrowing, tax payable

Question 8

IESBA code of ethics

Answer 8

• integrity
• objectivity
• professional competence and due care
• confidentiality
• professional behaviour

Question 9

ICAEW code of ethics

Answer 9

Derived from IESBA code. Required to follow the sprit as well as the letter of the rules. Principles based code