introduction to module Flashcards
what is accounting ?
Accounting manages economic events in 3 basic activities: identify, record and communicate
What is the accounting system ?
The accumulated financial and managerial accounting data
What is managerial accounting
Information for decision making and control of an organisations operations. Used for internal users
What is financial accounting ?
Published financial statements and other financial reports. Used for external users
What are the characteristics of financial accounting ?
mainly for external users
general purpose
broad overview
abides by financial accounting regulations
done annual or semi-annual
mainly historical
quantifiable in money terms and focuses on objective data
What are the characteristics of managerial accounting ?
internal users only
done for a specific purpose
quite detailed
no restrictions
done whenever required
focuses on both past and future
can contain non-financial information and less focus on data
Examples of internal users
marketing
management
finance
human resources
Examples of external users
investors
creditors
What is an asset ?
A resource controlled by the entity from which future economic benefits are expected to flow
What is a liability ?
An entity’s obligation to transfer economic benefits as a result of past events
What is equity?
The residual interest in the asset of an entity after deducting all its liabilities
What is income ?
Increase in equity (other than those relating to contributions from owners)
What are expenses ?
Decrease in equity (other than those relating to contributions from owners)
What is a business entity ?
The business is separate from its owners
What is a historical cost ?
Transactions are recorded at the cost where they occur
What is a going concern ?
The entity will continue in operation for the foreseeable future
What are accruals ?
Revenue and costs must be recognised as they are earned or incurred not as they are received or paid
What is consistency ?
The presentation and classification of items should stay the same from one period to the next
What is materiality ?
Information is material if its omission or misstatement could effect the economic decision of others
What are the components of a financial statement ?
statement of financial position (balance sheet)
statement of profit and loss and other comprehensive income
statement of changes in equity
statement of cash flows accounting policies and explanatory notes
What is a balance sheet ?
A snapshot of where a company is at at a particular point in time
What is an income statement ?
How the company is doing in terms of sales, expenses and profitability over time
What is the statement of cash flow
Tracks the inflow and outflow of cash providing an insight into a companies financial health
What is the purpose of a financial statement ?
To provide information about the financial position, financial performance and cash flows of an entity that is useful to make economic decisions
What are the 3 different types of businesses ?
proprietorship / sole trader
partnership
corporation / limited company
What is a sole trader ?
Someone may enter a business alone selling a good or providing a service
have unlimited liability
Describe the accounting information for a sole trader
A sole trader may not feel the need to submit accounting information due to a lack of people who want to invest however need to submit accounting information to governments for tax collection, banks for lending and a person who may want to take over the business once the owner retires
What is a partnership ?
Unlimited liability and profits are shared between owners
as with the sole traders the business is not legally regarded as separate from its owners
Describe a limited company
Unlike sole traders these are regarded as legally separate from its owners (the shareholders)
this means they have limited liability as they’re only responsible for their investment in the firm
legally required to produce financial accounts and submit them to a companies house
What is the difference between a public and private limited company ?
a private limited company has LTD
a public limited company has PLC
a private limited company is prohibited by law from offering shares to the public (usually family controlled businesses)
a public company can offer shares to the public
