Lecture 1 Flashcards

1
Q

Define accounting

A

Accounting is a process of identifying, measuring and communicating economic information to make informed decisions by users of information

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2
Q

Accounting is a systematic way of…

A

recording business transactions in the books of account so that the state of the business is quickly revealed

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3
Q

Who is dubbed the ‘father of accounting’?

A

Luca Pacioli

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4
Q

What is a conceptual framework for accounting?

A

A statement of principles which provides generally accepted guidance for the development of new reporting practices and for challenging and evaluating the existing practices

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5
Q

When was the new conceptual framework completed by and who was it issued by?

A

Issued by the international Accounting Standards Board (IASB) in 1989, completed in 2018

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6
Q

Who are the users of the information financial accounting provides?

A

Wide range of external users ( e.g: banks, at it is released to the public

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7
Q

What is the nature of a financial accounting report like?

A
  • It is a broad overview
  • It is less detailed
  • It covers a general purpose
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8
Q

Who are the users of the information management accounting provides?

A

Managers, as it is internal to the business

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9
Q

What is the nature of a management accounting report like?

A
  • It is used for specific decision making
  • It contains a high level of detail
  • It is created for a specific purpose
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10
Q

What is the difference in interval time between financial and management accounting reports?

A

Financial reports are determined by rules and regulations and are produced annually or semi-annually. Management reports are produced when required.

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11
Q

What are the timelines of financial accounting reports like?

A

They are prepared to cover a past period of time and thus are mainly historical. Show what has happened to the entity.

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12
Q

What are the timelines of management accounting reports like?

A

They are prepared for future periods of time, and can therefore be both based on the past and future. Essentially predicting and setting aims

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13
Q

What kind of information are financial accounting reports made up of?

A

Quantifiable figures

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14
Q

What kind of information are management accounting reports made up of?

A

Both quantitative and qualitative information

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15
Q

What are the six key factors that enhance the usefulness of accounting information?

A

Relevance
Faithful representation (reliability)
Comparability
Verifiability
Timeliness
Understandability

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16
Q

Define financial statement

A

Financial statements are the main mechanism we have in business to establish business confidence, for effective operation and investment decision making

17
Q

What does an ‘income statement’ do?

A

Measures profit or loss over a period of time

18
Q

What does a ‘cash flow statement’ do?

A

Shows the amount of cash going in and out of the company

19
Q

What is a ‘statement of financial position’?

A

A financial photograph at a moment in time (Assets, liabilities, capital)

20
Q

What does the ‘Statement of Changes in Equity’ present?

A

Changes in the ownership interest of an entity from the start to the end of the period

21
Q

Why would managers and owners as investors look at their companies financial statements?

A

To see how the company is performing and what they need to improve

22
Q

Why would lenders look at a companies financial statements?

A

To look at the risk associated with lending to this company - know how much to lend

23
Q

Why would suppliers and other trade creditors look at a companies financial statements?

A

To know if the company is reliable - will they will get payment/should they enter contracts?

24
Q

Why would employees look at a companies financial statements?

A

To see the companies job stability, potential for growth e.t.c

25
Q

Why would the Government and their agencies look at a companies financial statements?

A

To see it’s financial stability and ability to pay taxes, the companies profits and regulate them if necessary

26
Q

Why would customers look at a companies financial statements?

A

To see how their money is being used, the companies reason for existence and their aim - does it resonate? Possibility of investing in company

27
Q

Why would the general public look at a companies financial statement?

A

To see if it is benefitting the world in any way e.g are they sustainable

28
Q

What are the six (8) types of business structure?

A
  • Sole Proprietorship/trader
  • Partnership
  • Limited Liability Company (LLC)
    • Private Limited Company (Ltd)
    • Public Limited Company (Plc)
  • Limited liability partnership
  • Corporation
  • Cooperative (Co-op)
29
Q

What is the difference between a Private Limited Company and a Public Limited Company?

A

A public limited company can sell shares on the market and therefore have lower liability as any risks will not directly affect just the owners

30
Q

Accrual Basis of Accounting

A

Revenues and expenses are recognised when they are earned or incurred, regardless of when cash is received or paid

31
Q

Cash Basis of Accounting

A

Revenues and expenses are recognised only when cash is received or paid

32
Q

What confusion can Accrual Basis of Accounting cause?

A

Income is recorded when the company has delivered goods or services, and expenses are recorded when they are incurred, not necessarily when cash changes hands

33
Q

What problem can Cash Basis of Accounting cause?

A

Cash Basis of Accounting does not account for accounts receivable or payable, so it can sometimes present a misleading view of the company’s financial health

34
Q
A