Introduction to Accounting (Book) Flashcards
What is accounting?
The production of financial information regarding profit and non-profit making enterprises
What is the purpose of accounting?
-To show the performance and financial position of an enterprise
-Used by stakeholders assess and make decisions for the good of the enterprise
-Financial statements are necessary for loans, grants and tax purposes
What is financial accounting?
The bookkeeping of businesses’ past transactions
What is management accounting?
Where the financial information is used internally by managers so that they can make decisions that will affect the future of the business
What are the characteristics of financial accounting?
Comparable: must be consistent to be able to compare
Understandable
Relevant: Must be precise
Reliable: Must be verified by an auditor or supported by a director
CURR
Who uses the financial information?
Name 4
-Shareholders and potential shareholders: return on money invested
-Directors/Managers: to make informed decisions to help the business grow
-Financial institutions: whether or not a business can repay a loan with interest
-Trade creditors: The liquidity of a business, can it repay on time
-Employees and trade unions: So they know if their jobs are secure and if the business can afford a pay rise
-Competitors
-Revenue Commissioners: Is the business paying the legal tax requirements
What is a provision for bad debts?
A certain percentage of debtors are expected to be bad
-P+L Account, Subtracted from debtors in Balance sheet
What is an intangible asset?
-Assets that are invisible but saleable
-Usually written off over a number of years
-e.g. goodwill, patents
What is goodwill?
Money paid for the reputation or location of a business
What is a patent?
A license that the owner takes out so that no other person can copy their invention without their permission
e.g. Pharmaceuticals
What is another name for a fixed asset?
Tangible asset
What is the going-concern concept?
-It is assumed that the business is solvent and viable
-The business is regarded as capable of operating into the future
What is the accruals concept?
All revenue, income and expenditure for a particular period of time has to be included in the accounts, whether it has been received, paid or not.
e.g. rent due must be included in this years accounts, even if not paid
rent prepaid is not included in this years accounts
What is the consistency concept?
-A business must continue to use an accounting method in the future
-Any changes must be disclosed
What is the prudence concept?
Businesses must take caution to not overstate profits and understate losses
