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Accounting Information & Employment > Introduction to Bookkeeping > Flashcards

Introduction to Bookkeeping Flashcards

1
Q

What does accounting comprise of?

A

The recording of transactions and summarising the information

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2
Q

What do we record?

A

Detailed records of each transaction made by the business entity

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3
Q

How do we summarise?

A

Using financial statements

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4
Q

What financial statements can we use to summarise?

A

The Statement of Profit and Loss (Income Statement), The Statement of Financial Position, The Statement of Comprehensive Income, The Statement of Changes in Equity, The Statement of Cash Flows

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5
Q

What is The Statement of Profit and Loss?

A

A financial statement that summarises the revenues, costs, and expenses incurred during a specified period, usually a fiscal quarter or year.

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6
Q

What is The Statement of Financial Position?

A

A financial statement which reports an entity’s assets, liabilities, and the difference in their totals as of the final moment of an accounting period.

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7
Q

What is The Statement of Comprehensive Income?

A

A financial statement which provides a summary of a company’s net assets over a given period of time. In other words, the statement highlights adjustments on equity.

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8
Q

What is The Statement of Changes in Equity?

A

A financial statement which details the change in owners’ equity over an accounting period by presenting the movement in reserves comprising the shareholders’ equity.

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9
Q

What is The Statement of Cash Flows?

A

A financial statement that summarises the amount of cash and cash equivalents entering and leaving a company.

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10
Q

What are the different types of business entities?

A

Sole trader, limited liability company, partnership, limited liability partnership, not-for-profit organisations, and charitable organisations

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11
Q

What is a sole trader?

A

A sole trader is a self-employed person who owns and runs their own business as an individual.

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12
Q

What is a limited liability company?

A

A limited liability company is a business entity that provides its owners with the limited liability protection of as corporation, while allowing earnings to pass through to the owners for tax purposes.

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13
Q

What is a partnership?

A

A partnership is a form of business in which two or more persons join their money and skills in conducting the business.

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14
Q

What is a limited liability partnership?

A

Limited Liability Partnerships are a business format with some benefits and disadvantages compared to partnerships and all companies limited by shares. Broadly, an LLP prepares accounts like a limited company but is taxed like a partnership.

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15
Q

What are not-for-profit organisations?

A

Not-for-profit organisations are formed to pursue a goal, not for profit or for any of the proceeds to go to its members of leaders. These organisations don’t have commercial owners and must rely on funds from contributions, events, etc.

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16
Q

What are charitable organisations?

A

A charitable organisation has to comply with both company law and charity law. All charitable organisations have to keep accruals accounts, irrespective of income or assets.

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17
Q

Who are users of accounting information?

A

Management, owners/shareholders, potential investors, lenders, employees, the government, and the general population

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18
Q

If we buy assets, what statement does it appear on?

A

The Statement of Financial Position

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19
Q

If we pay an expense, what statement does it appear on?

A

The Statement of Profit or Loss

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20
Q

What do we call the purchase of assets?

A

Capital expenditure

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21
Q

What do we call the payment of expenses?

A

Revenue expenditure

22
Q

What is the accounting equation?

A

Assets = Capital + Liabilities

23
Q

What does the term ‘net assets’ refer to?

A

Assets - Liabilities

24
Q

What does an increase in net assets mean?

A

An increase in capital

25
Q

What are the 3 reasons why the capital of a business should change over time?

A

1) More capital introduced, 2) Profit for the period, and 3) Drawings during the period

26
Q

What happens in the double-entry accounting system?

A

At least two accounting entries are required to record each financial transaction

27
Q

What happens when the accounting entries are recorded without error?

A

The aggregate balance of all accounts having debit balances will be equal to the aggregate balance of all accounts having credit balances.

28
Q

What are the two different approach to bookkeeping?

A

Traditional approach and the accounting equation approach

29
Q

What happens in the traditional approach?

A

Accounts are classified as real, personal, and nominal. Transactions are entered in the books of accounts by applying the golden rules of accounting

30
Q

What are real accounts?

A

Accounts relating to assets and liabilities including the capital account of the owners.

31
Q

What are personal accounts?

A

Accounts relating to persons or organisations with whom the business has transactions and will mainly consist of accounts of debtors and creditors.

32
Q

What are nominal accounts?

A

Revenue, expenses, gains, and losses.

33
Q

What are the golden rules of accounting?

A

1) Real account: Debit what comes in and credit what goes out, 2) Personal account: Debit the receiver and credit the giver, and 3) Nominal account: Debit all expenses and losses and credit all incomes and gains

34
Q

What happens in the accounting equation approach?

A

Under this approach, transactions are recorded based on the accounting equation, i.e., Assets = Liabilities + Capital. The accounting equation is a statement of equality between the debits and the credits. The rules of the debit and credit depend on the nature of an account.

35
Q

Under the accounting equation approach, what different types are the accounts classified into?

A

Assets, capital, liabilities, revenue or incomes, and expenses or losses

36
Q

What is an asset account?

A

When a debit entry represents an increase in assets and a credit entry represents a decrease in assets.

37
Q

What is a capital account?

A

When a credit entry represents an increase in capital and a debit entry represents a decrease in capital.

38
Q

What is a liabilities account?

A

When a credit entry represents an increase in liabilities and a debit entry represents a decrease in liabilities.

39
Q

What is a revenue or incomes account?

A

When a credit entry represents an increase in incomes and gains and a debit entry represents a decrease in incomes and gains.

40
Q

What is an expenses or losses account?

A

When a debit entry represent an increase in expenses and losses, and credit entry represents a decrease in expenses and losses.

41
Q

How can we get an account to remain in balance?

A

A change in one account must be matched with a change in another account

42
Q

What are classed as debits?

A

Assets, expenses, and drawing accounts

43
Q

What are classed as credits?

A

Liability, revenue and capital accounts

44
Q

What does a general ledger look like?

A

Debits on the left side, credits on the right side. Since the accounts must always balance, for each transaction there will be a debit made to one or several accounts and a credit made to one or several accounts.

45
Q

How are debits recorded?

A

On the left side of a t-account.

46
Q

What balances does debit increase?

A

The assets and expenses accounts

47
Q

What balances does debit decrease?

A

The liability, revenue and capital accounts

48
Q

How are credits recorded?

A

On the right side of a t-account.

49
Q

What balances does credit increase?

A

The liability, revenue and capital accounts

50
Q

What balances does credit decrease?

A

The assets and expenses account

51
Q

What is the DEAD mnemonic?

A

Debit to increase Expense, Asset and Drawing accounts

52
Q

What is the CLIC mnemonic?

A

Credit to increase Liability, Income and Capital accounts

Accounting Information & Employment (3 decks)

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