Introduction to accounting

Question 1

Accounting definition

Answer 1

Process of identifying, measuring and communicating information to permit informed judgements and decisions by users of information

Question 2

Financial accounting definition

Answer 2

External reporting to make investment decisions and hold accountability for use of resources

Question 3

Management accounting definition

Answer 3

Internal reporting for managers to make decisions on products, services, pricing and development

Question 4

What is a sole trader

Answer 4

When one individual owns and operates a businesses

Question 5

Is a sole trader incorporated or unincorporated

Answer 5

Unincorporated

Question 6

What tax are sole traders profits subject to

Answer 6

income tax

Question 7

What is a partnership

Answer 7

A business run by two or more individuals

Question 8

What happens to profits and tax in a partnership

Answer 8

Profits are split and tax is applied individually

Question 9

What is a company

Answer 9

A separate legal; identity

Question 10

Are companies incorporated or unincorporated

Answer 10

Incorporated

Question 11

Are partnerships incorporated or unincorporated

Answer 11

They can be both

Question 12

What tax are companies subject to

Answer 12

corporation tax

Question 13

What is a PLC

Answer 13

public company, shares sold on stock exchange

Question 14

What is a LTD

Answer 14

Private company, shares sold privately

Question 15

What is the entity concept

Answer 15

Owners are deemed as legally external to the company

Question 16

What is the purpose of regulatory framework

Answer 16

Ensures needs of users are met with enough information

Ensures comparability and consistency

Ensures validity in the financial reporting process

Question 17

Who are the UK standard setters

Answer 17

FRS (financial reporting standard)

Question 18

Who are the international standard setters

Answer 18

IASB (International accounting standards board)
IFRS (International financial reporting standard)

Question 19

What is the IFRS

Answer 19

Sets out concepts for preparation and presentation of financial statements

helps shareholders interpret and understand statements

Ensures consistency

Question 20

What are the fundamental characteristics that make financial statements useful

Answer 20

Relevance and Faithful representation

Question 21

What are the Enhancing characteristics that make financial statements useful

Answer 21

Verifiability
Comparability
Timeliness
Understandability

Question 22

What is relevance

Answer 22

Capable of making a difference in users decisions
Is material (can make a difference)
has predictive/ confirmatory value

Question 23

What is faithful representation

Answer 23

Data is complete
Free from error (without omissions)
Neutral (Objective)
Reflects economic substance not legal form

Question 24

What is verifiability

Answer 24

Capable of direct or indirect verification

Different independent observers can agree to a particular depiction

Question 25

What is comparability

Answer 25

Over time and with other entities

Accounts should be prepared on a consistent basis

Question 26

What is timeliness

Answer 26

Information is issued in a timely manner so it can influence decisions

Question 27

What is understandability

Answer 27

Classify and present information concisely so those with reasonable knowledge could understand