Introduction To Accounting

Question 1

What is the purpose of accounting?

Answer 1

To collect, analyse, and communicate financial information to help users make informed decisions.

This definition emphasizes the multifaceted nature of accounting.

Question 2

What are the two main strands of accounting?

Answer 2

• Financial Accounting
• Management Accounting

Question 3

What does financial accounting provide information about?

Answer 3

Information to users outside the organisation, primarily through financial statements.

Key documents include the Income Statement, Statement of Financial Position, and Statement of Cash Flows.

Question 4

What is the main focus of management accounting?

Answer 4

Provides information for internal users and is mainly concerned with the future.

Question 5

Fill in the blank: An accounting information system includes identifying and capturing relevant information, __________, analysing and interpreting the information, and reporting the information.

Answer 5

Recording in a systematic manner

Question 6

What are the characteristics of useful accounting information?

Answer 6

• Relevance
• Faithful representation
• Comparability
• Verifiability
• Understandability
• Timeliness
• Materiality

Question 7

True or False: Sole proprietors have limited liability.

Answer 7

False

Question 8

What distinguishes public limited companies (plc) from private limited companies (ltd)?

Answer 8

Plc shares can be traded on stock exchanges, while ltd shares cannot.

Question 9

Who are the primary users of accounting information?

Answer 9

• Investors/owners
• Investment analysts
• Managers
• Lenders
• Suppliers
• Customers
• Competitors
• Public
• Government & their agencies
• Employees

Question 10

What is meant by ‘substance over form’ in accounting?

Answer 10

Accounting information should reflect the economic substance rather than just the legal form.

Question 11

Fill in the blank: The __________ shows the assets, liabilities, and capital at the end of a period.

Answer 11

Balance Sheet or Statement of Financial Position

Question 12

What is the main purpose of the cash flow statement?

Answer 12

Shows the major sources and uses of cash during a period.

Question 13

What is the role of accountants in relation to stakeholders?

Answer 13

To provide relevant and reliable information to facilitate decision-making.

Question 14

What is meant by ‘materiality’ in accounting?

Answer 14

The importance of including information that influences a user’s decisions; non-material information should not clutter reports.

Question 15

Fill in the blank: Management accounting helps control an organisation’s __________.

Answer 15

resources

Question 16

What is the significance of timely information in accounting?

Answer 16

It must be available when decisions are being made.

Question 17

What do auditors do?

Answer 17

Examine financial statements to ensure accuracy and compliance.

Question 18

True or False: Charities are always set up as private limited companies.

Answer 18

False

Question 19

What is the primary concern of management accounting?

Answer 19

The organisation’s decision-making process and future performance.

Question 20

Define “Limited”

Answer 20

The liability of shareholders is limited to the amount they agreed to pay for their shares.

Question 21

What is a Sole proprietor

Answer 21

Person in business alone, capital raised individually, not a separate legal entity so if business becomes insolvent, creditors can pursue personal assets.

Question 22

Partnerships

Answer 22

Each partner raises a specific amount of capital often in accordance to a partnership agreement

Question 23

Unincorporated associations

Answer 23

Corporate bodies that act like companies but have no share capital. (Eg trade unions)

Question 24

Trusts

Answer 24

Specific entities set up under a legal deed of trust. (Usually for benefit)