Introduction to accounting

Question 1

Features of a sole proprietorship (SP)

Answer 1

-It is owned by one person who contributes capital to set up the SP

-The owner runs the business themselves and has absolute control over it

-The SP exists as long as the owner is alive and desires to continue operation

Question 2

Features of a limited liability partnership (LLP)

Answer 2

-It is owned by two or more partners where each partner contributes capital to set up the LLP

-Control over the business is shared among the partners with at least one partner heavily involved in running the business

-The LLP exists forever until wound up or struck off

Question 3

Features of a private limited company (PLC)

Answer 3

-It is owned by 50 or less shareholders where each shareholder buys shares and contributes capital

-The shareholders have no control over the running of the business, unless they are part of the management team

-The company exists forever until wound up or struck off

Question 4

Stake holders that would be interested in accounting information: Employees

Answer 4

To decide whether to continue working for the business

Question 5

Stake holders that would be interested in accounting information: Government

Answer 5

To decide how much tax to impose on the business

Question 6

Stake holders that would be interested in accounting information: Suppliers

Answer 6

Whether to sell to the business on credit, depending on their ability to pay

Question 7

Stake holders that would be interested in accounting information: Managers

Answer 7

Whether to consider ways to improve the performance of the business

Question 8

What is the role of accounting

Answer 8

Accounting is an information system that provides accounting information for stakeholders to make informed decisions regarding the management of resources and performance of business

Question 9

What is the role of accountants

Answer 9

Accountants prepare and provide accounting information for decision-making. In doing so, accountants set up an accounting information system and become stewards of businesses

Question 10

Professional ethics: Integrity

Answer 10

An accountant that has integrity is straightforward and honest in all professional relationships

Question 11

Professional ethics: Objectivity

Answer 11

An accountant that is objective will not let bias, conflict of interest or the undue influence of others override his or her professional judgement

Question 12

Accounting entity theory

Answer 12

The activities of the business and the actions of the owner are kept separate. All transactions recorded are from the point of view of the business

Question 13

Accounting period theory

Answer 13

The life of a business is divided into regular time intervals

Question 14

Accrual basis of accounting theory

Answer 14

Business activities that have occurred, regardless of whether cash is paid or received, should be recorded in the relevant accounting period

Question 15

Consistency theory

Answer 15

After an accounting method is chosen, the business should stick to that accounting method to enable a meaningful comparison

Question 16

Going concern theory

Answer 16

A business is assumed to have an indefinite economic life unless there is credible evidence that it may close down

Question 17

Historical cost theory

Answer 17

Transactions should be recorded at their original cost

Question 18

Matching theory

Answer 18

Expenses incurred must be matched against income earned in the same period to determine the profit for that period

Question 19

Materiality theory

Answer 19

A transaction is considered material if it makes a difference to the decision-making process

Question 20

Monetary theory

Answer 20

Only business transactions that can be measured in monetary terms are recorded

Question 21

Objectivity theory

Answer 21

Accounting information recorded must be supported by reliable and verifiable evidence so that financial statements will be free from opinions and biases

Question 22

Prudence theory

Answer 22

The accounting treatment chosen should be the one that least overstates assets and profits and least understates liabilities and losses

Question 23

Revenue recognition theory

Answer 23

Revenue is earned when goods have been delivered or services have been provided

Question 24

What is a trading business, add example

Answer 24

A trading business is a business that buys and sells goods for profit, bookshop

Question 25

What is a service business, add example

Answer 25

A service business is a business that provides services for profit, hair salon