Introduction To Accounting Flashcards
What is the purpose of accounting?
To collect, analyse, and communicate financial information to help users make informed decisions.
This definition emphasizes the multifaceted nature of accounting.
What are the two main strands of accounting?
- Financial Accounting
- Management Accounting
What does financial accounting provide information about?
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.
What is the main focus of management accounting?
Provides information for internal users and is mainly concerned with the future.
Fill in the blank: An accounting information system includes identifying and capturing relevant information, __________, analysing and interpreting the information, and reporting the information.
Recording in a systematic manner
What are the characteristics of useful accounting information?
- Relevance
- Faithful representation
- Comparability
- Verifiability
- Understandability
- Timeliness
- Materiality
True or False: Sole proprietors have limited liability.
False
What distinguishes public limited companies (plc) from private limited companies (ltd)?
Plc shares can be traded on stock exchanges, while ltd shares cannot.
Who are the primary users of accounting information?
- Investors/owners
- Investment analysts
- Managers
- Lenders
- Suppliers
- Customers
- Competitors
- Public
- Government & their agencies
- Employees
What is meant by ‘substance over form’ in accounting?
Accounting information should reflect the economic substance rather than just the legal form.
Fill in the blank: The __________ shows the assets, liabilities, and capital at the end of a period.
Balance Sheet or Statement of Financial Position
What is the main purpose of the cash flow statement?
Shows the major sources and uses of cash during a period.
What is the role of accountants in relation to stakeholders?
To provide relevant and reliable information to facilitate decision-making.
What is meant by ‘materiality’ in accounting?
The importance of including information that influences a user’s decisions; non-material information should not clutter reports.
Fill in the blank: Management accounting helps control an organisation’s __________.
resources
What is the significance of timely information in accounting?
It must be available when decisions are being made.
What do auditors do?
Examine financial statements to ensure accuracy and compliance.
True or False: Charities are always set up as private limited companies.
False
What is the primary concern of management accounting?
The organisation’s decision-making process and future performance.
Define “Limited”
The liability of shareholders is limited to the amount they agreed to pay for their shares.
What is a Sole proprietor
Person in business alone, capital raised individually, not a separate legal entity so if business becomes insolvent, creditors can pursue personal assets.
Partnerships
Each partner raises a specific amount of capital often in accordance to a partnership agreement
Unincorporated associations
Corporate bodies that act like companies but have no share capital. (Eg trade unions)
Trusts
Specific entities set up under a legal deed of trust. (Usually for benefit)
