Introduction to Accounting

Question 1

What are the three main types of profit making business entity

Answer 1

-Sole trader
-Partnership
-Limited liability company (LLC)

Question 2

What is a sole trader

Answer 2

Owns their own business by themselves

Question 3

What’s a partnership

Answer 3

Two or more people going into business together sharing risks & rewards

Question 4

What is a LLC

Answer 4

Companies owned by its shareholders and manager by directors

Question 5

Why do users need an entity’s financial information

Answer 5

In order to make decisions relating to providing resources to an entity

Question 6

What would users need to assess within a company?

Answer 6

-Resources
-Efficiency & effectiveness
-Sustainability

Question 7

What are the 7 influences upon financial accounting?

Answer 7

National law

Accounting standards

Sustainability standards

Ethical standards

Accounting concepts & individual judgement

GAAP

Other international issues

Question 8

What are the four elements of accounting standards?

Answer 8

IFRS standards (international financial reporting standards)

IAS (international accounting standards)

IFRIC Interpretations (international financial reporting interpretations committee)

SIC Interpretations (standard interpretations committee)

Question 9

What is equity?

Answer 9

Amount invested by owner

AKA capital

Question 10

Statement of Financial Position Reflects…

Answer 10

Position of a business at a point in time (assets + liabilities)

Question 11

Statement of Profit or Loss reflects…

Answer 11

• Performance of a business over a period of time
  -A record of income generated and expenditure incurred over a given period

Question 12

What are the two fundamental qualitative characteristics defined by the conceptual frameworks?

Answer 12

Relevance (predictive or confirmatory value)

Faithful representation (complete, neutral, free from error)

Question 13

What 4 things enhance relevant and faithfully represented information?

Answer 13

Timelessness

Understandability

Verifiability

Comparability

Question 14

What is ‘going concern’

Answer 14

the entity is viewed as continuing in operation for the foreseeable future. The entity has neither intention or necessity of liquidation or ceasing to trade

Question 15

What are the 6 IFRS standards?

Answer 15

Going concern

Accruals

Business entity (business is separate from its assets)

Consistency

Materiality

Historical cost

Question 16

What are the 5 IESBA Code of ethics for professional accountants?

Answer 16

Integrity

Objectivity

Professional competency and due date

Confidentiality

Professional behaviour

Question 17

Capital Expenditure is incurred either..

Answer 17

• to acquire LT assets (includes laptop)
• to improve earning capacity of long term assets

Question 18

Revenue Expenditure is incurred either..

Answer 18

• for trade purposes ( raw marerials, items for resale, wages, distribution + selling expenses, finance + admin costs )
• to maintain existing earning capacity of long term assets

Question 19

What does IFRS stand for

Answer 19

International financial reporting standards

Question 20

What does IASB stand for

Answer 20

International accounting standards board

Question 21

Define prudence

Answer 21

The principle of recognising expenses immediately and not recognising income until it’s reasonably certain

Shrewdness, care, caution

Question 22

what does objectivity mean

Answer 22

a professional accountant should not allow bias, conflict of interest or undue influence of others to override professional oe business judgements.

Question 23

What is the role of the International Ethics Standards Board for Accountants (IESBA) do?

Answer 23

produced codes of ethics that state the fundamental ethical principles
that all professional accountants should adhere to

Question 24

Revenue expenditure is recorded…

Answer 24

in Statement of Profit or Loss

Question 25

Capital Expenditure is recorded…

Answer 25

in Statement of Financial Position with non-current assets

Question 26

Companies that are most closely regulated are..

Answer 26

Limited Liability Companies

Question 27

Judgement may vary when…

Answer 27

• Valuating a building when property prices are changing
• Determining if expenditure is revenue or capital

Question 28

A code bases on principles ____ contain specific rules which a professional accountant must comply with

Answer 28

does not

Question 29

a rules based code _____ require a professional accountant to adhere to a set of principles

Answer 29

does not

Question 30

ICAEW uses a _____ approach

Answer 30

principles based

Question 31

Revenue - cost of sales =

Answer 31

gross profit

Question 32

gross profit - expenses =

Answer 32

net profit

Question 33

Capital is..

Answer 33

total amount business owed owner

Question 34

The aim of the IFRS Sustainability Disclosure Standards is to provide..

Answer 34

high quality, transparent and comparable information relating to sustainability in financial statements and sustainability disclosures

Question 35

what is the cash accounting basis?

Answer 35

a company records customer receipts in the period that they are received and expenses in the period in which they are paid

Question 36

what is accrual accounting?

Answer 36

transactions are recorded in the period in which they occur even if the resulting cash receipts and payments occur in a different period

Question 37

what is integrity?

Answer 37

professional accountant should be straightforward and honest in all professional and business relationships

Question 38

what is professional competance and due care?

Answer 38

• maintain professional knowledge and skill
• acting diligently with technical and professional standards

Question 39

what is confidentiality?

Answer 39

not disclosing any information to third parties without specific authority

Question 40

what is professional behaviour?

Answer 40

complying with regular laws and regulations to avoid any action that discredits the profession