Introduction to accounting Flashcards
Accounting definition
Process of identifying, measuring and communicating information to permit informed judgements and decisions by users of information
Financial accounting definition
External reporting to make investment decisions and hold accountability for use of resources
Management accounting definition
Internal reporting for managers to make decisions on products, services, pricing and development
What is a sole trader
When one individual owns and operates a businesses
Is a sole trader incorporated or unincorporated
Unincorporated
What tax are sole traders profits subject to
income tax
What is a partnership
A business run by two or more individuals
What happens to profits and tax in a partnership
Profits are split and tax is applied individually
What is a company
A separate legal; identity
Are companies incorporated or unincorporated
Incorporated
Are partnerships incorporated or unincorporated
They can be both
What tax are companies subject to
corporation tax
What is a PLC
public company, shares sold on stock exchange
What is a LTD
Private company, shares sold privately
What is the entity concept
Owners are deemed as legally external to the company
What is the purpose of regulatory framework
Ensures needs of users are met with enough information
Ensures comparability and consistency
Ensures validity in the financial reporting process
Who are the UK standard setters
FRS (financial reporting standard)
Who are the international standard setters
IASB (International accounting standards board)
IFRS (International financial reporting standard)
What is the IFRS
Sets out concepts for preparation and presentation of financial statements
helps shareholders interpret and understand statements
Ensures consistency
What are the fundamental characteristics that make financial statements useful
Relevance and Faithful representation
What are the Enhancing characteristics that make financial statements useful
Verifiability
Comparability
Timeliness
Understandability
What is relevance
Capable of making a difference in users decisions
Is material (can make a difference)
has predictive/ confirmatory value
What is faithful representation
Data is complete
Free from error (without omissions)
Neutral (Objective)
Reflects economic substance not legal form
What is verifiability
Capable of direct or indirect verification
Different independent observers can agree to a particular depiction
What is comparability
Over time and with other entities
Accounts should be prepared on a consistent basis
What is timeliness
Information is issued in a timely manner so it can influence decisions
What is understandability
Classify and present information concisely so those with reasonable knowledge could understand
