Introduction to Accounting Flashcards
What are the three main types of profit making business entity
-Sole trader
-Partnership
-Limited liability company (LLC)
What is a sole trader
Owns their own business by themselves
What’s a partnership
Two or more people going into business together sharing risks & rewards
What is a LLC
Companies owned by its shareholders and manager by directors
Why do users need an entity’s financial information
In order to make decisions relating to providing resources to an entity
What would users need to assess within a company?
-Resources
-Efficiency & effectiveness
-Sustainability
What are the 7 influences upon financial accounting?
National law
Accounting standards
Sustainability standards
Ethical standards
Accounting concepts & individual judgement
GAAP
Other international issues
What are the four elements of accounting standards?
IFRS standards (international financial reporting standards)
IAS (international accounting standards)
IFRIC Interpretations (international financial reporting interpretations committee)
SIC Interpretations (standard interpretations committee)
What is equity?
Amount invested by owner
AKA capital
Statement of Financial Position Reflects…
Position of a business at a point in time (assets + liabilities)
Statement of Profit or Loss reflects…
- Performance of a business over a period of time
-A record of income generated and expenditure incurred over a given period
What are the two fundamental qualitative characteristics defined by the conceptual frameworks?
Relevance (predictive or confirmatory value)
Faithful representation (complete, neutral, free from error)
What 4 things enhance relevant and faithfully represented information?
Timelessness
Understandability
Verifiability
Comparability
What is ‘going concern’
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
What are the 6 IFRS standards?
Going concern
Accruals
Business entity (business is separate from its assets)
Consistency
Materiality
Historical cost
What are the 5 IESBA Code of ethics for professional accountants?
Integrity
Objectivity
Professional competency and due date
Confidentiality
Professional behaviour
Capital Expenditure is incurred either..
- to acquire LT assets (includes laptop)
- to improve earning capacity of long term assets
Revenue Expenditure is incurred either..
- for trade purposes ( raw marerials, items for resale, wages, distribution + selling expenses, finance + admin costs )
- to maintain existing earning capacity of long term assets
What does IFRS stand for
International financial reporting standards
What does IASB stand for
International accounting standards board
Define prudence
The principle of recognising expenses immediately and not recognising income until it’s reasonably certain
Shrewdness, care, caution
what does objectivity mean
a professional accountant should not allow bias, conflict of interest or undue influence of others to override professional oe business judgements.
What is the role of the International Ethics Standards Board for Accountants (IESBA) do?
produced codes of ethics that state the fundamental ethical principles
that all professional accountants should adhere to
Revenue expenditure is recorded…
in Statement of Profit or Loss
Capital Expenditure is recorded…
in Statement of Financial Position with non-current assets
Companies that are most closely regulated are..
Limited Liability Companies
Judgement may vary when…
- Valuating a building when property prices are changing
- Determining if expenditure is revenue or capital
A code bases on principles ____ contain specific rules which a professional accountant must comply with
does not
a rules based code _____ require a professional accountant to adhere to a set of principles
does not
ICAEW uses a _____ approach
principles based
Revenue - cost of sales =
gross profit
gross profit - expenses =
net profit
Capital is..
total amount business owed owner
The aim of the IFRS Sustainability Disclosure Standards is to provide..
high quality, transparent and comparable information relating to sustainability in financial statements and sustainability disclosures
what is the cash accounting basis?
a company records customer receipts in the period that they are received and expenses in the period in which they are paid
what is accrual accounting?
transactions are recorded in the period in which they occur even if the resulting cash receipts and payments occur in a different period
what is integrity?
professional accountant should be straightforward and honest in all professional and business relationships
what is professional competance and due care?
- maintain professional knowledge and skill
- acting diligently with technical and professional standards
what is confidentiality?
not disclosing any information to third parties without specific authority
what is professional behaviour?
complying with regular laws and regulations to avoid any action that discredits the profession
