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Intro to Finance and Accounting > Lecture 1 (24/9) > Flashcards

Lecture 1 (24/9) Flashcards

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1
Q

What do businesses need in order to function

A

need money

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2
Q

What is one of the main reasons to start a business

A

To make money

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3
Q

What will business owners WANT TO do in the future

A

MAKE MONEY MONEYYYY

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4
Q

What is accounting?

A

keeping track/producing reports to work out how to make money/ fix problems

-communicates the information they have created to decision makers

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5
Q

Why do businesses need accountants if they want to function

A

accountants will keep track of money, make sure money is under control

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6
Q

Why do buinsesses need accountants if they want to make money?

A

they would need them so they will be able to know how much money buisnesses are making (external people will also like this information eg. investors)

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7
Q

Why do businesses who want to make MORE money in the future need accountants

A

they will have detailed information to help them decide how to best do this

-by having a track record of their financial information they are able to improve.

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8
Q

What are the two core areas of accounting

A

Financial accounting and Management accounting

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9
Q

What is financial accounting?

A

recording what’s going on with the operations and money and product the business status so it can be published so ppl can know how it is doing
–done once a year

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10
Q

What is Management Accounting

A

record the info and use internally how to make businesses better –

e.g. changing prices/ stop making products

etc. make decisions to improve internally –inside business through the year –constantly looking at how to improve and get rid of stuff not making profit

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11
Q

What are the two specialists areas

A

Auditing and Tax

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12
Q

What is Auditing

A

basically checking financial accounts
= ensuring the data is reliable
- Independent checkers check the financial statement of the businesses to ensure this

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13
Q

What is tax accounting

A

financial statements work out how much tax – reduce tax bill etc

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14
Q

What are the reasons to study Financial Accounting before Management Accounting

A

-First introduced 500/600 years ago.
-easier to understand

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15
Q

What is the main goal of Accountants?

A

Work out how well a business did in a year

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16
Q

Goal of Financial accounting

A

Producing a financial statement

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17
Q

Why are financial statements important?

A

people need to know how the business is doing - they need to know for many reasons

e.g. Investors need to know so that they don’t make a risk investment - they need to make a return on investment

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18
Q

What will happen if there arent any financial statements?

A

The economy will go to a halt:
> people don’t know how the business is operating
> don’t know if they are making a profit/loss
> people are uncertain
> no one will invest/banks wont lend
>businesses wont be able to operate
without money
> = crashed economy = no taxes paid etc

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19
Q

List 8 people/groups of people who are interested in the financial statements.

A

-Owners/shareholders/potential investors
-Lenders (e.g. banks)
-Employees
-Competitors
-Suppliers
-Customers
-General Public
-Governments

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20
Q

Why are :Owners/shareholders/potential investors, interested in financial statements

A

Want to know:
- their Return on investment (e.g. is the business making profit)
Riskiness on investments (will they make a loss)

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21
Q

Why are Lenders, interested in financial statements

A

Want to know:
-Businesses ability to repay loan and interest

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22
Q

Why are Employees, interested in financial statements

A

Want to know:
-Job security (e.g. will be made redundant/wages etc)
-pay rises

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23
Q

Why are Competitors, interested in financial statements

A

Want to know:
-Rivals:
-sales
-margins
-cost structure

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24
Q

Why are Suppliers, interested in financial statements

A

Want to know:
-Ability o pay for goods/services (e.g. if got trade credit)
-continuity of operations

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25
Q

Why are Customers, interested in financial statements

A

Want to know
-Continuity of operations

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26
Q

Why are General Public, interested in financial statements

A

Want to know
-Economic prospects
]-Employment

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27
Q

Why are Government, interested in financial statements

A

Want to know
-Taxes payable
-Economic indications

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28
Q

What also impacts accounting

A

Assumptions and concepts

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29
Q

What are 5 of some of the assumptions and concepts that may impact accounting?

A

1.Historical cost
2. Money Measurement
3.Business Entity
4.Dual Aspect
5. Time interval

30
Q

What is Historical cost ?

A

a measure value used in accounting = value of asset on balance sheet is recorded as the cost it was when bought

31
Q

What is Money Measurement

A

businesses should only record transactions that can be quantified in monetary terms (e.g. branding)

32
Q

What is Business Entity?

A

states that a business is a separate entity from its owners and other organizations

33
Q

What is Dual Aspect

A

every financial transaction has two equal and opposite effects

34
Q

What is time interval

A

businesses should divide their financial activities into regular intervals, or accounting periods, to assess their performance and position

35
Q

What are Financial statements also known as?

A

Financial accounts or Annual reports

36
Q

What is the three basic contents of Financial Statements?

A
  1. The statement of Financial Position
  2. The statement of Profit or Loss
  3. The statement of Cash Flows
37
Q

What is The statement of Financial Position also known as?

A

“Balance Sheet”

38
Q

What is The statement of Profit or Loss also known as?

A

Income statement

39
Q

What is the Balance Sheet?

A

statement at the end of the year – shows all of the main stuff- money in bank – owns/owes

40
Q

What are Assets?

A

What the business owns

41
Q

What are Liabilities

A

The amount the business owes

42
Q

What is capital

A

A measure of the owners stake in the business (what the owner invested in the business - what has taken out)

43
Q

What is Capital also known as?

A

Owners Equity

44
Q

What is the meaning of ‘Stock of good for resale’

A

inventory

45
Q

What is money in the bank on the balance sheet

A

Asset

46
Q

What is the name for money due from customers and an example of how it can be incurred

A

receivables
-e.g. customers paying for a good on credit, they are going to pay it back eventually over a period of time

47
Q

What is the businesses brand/rep on the balance sheet

A

Asset but it is too hard to usually measure so it isnt really represented .

48
Q

What is the ‘accounting equation’

A

Asset = Capital + Liabilities

49
Q

What is the term used for owed to suppliers

A

Payables/trade payables

50
Q

What does the accounting equation say

A

Resources = Source of resources.

51
Q

Why does the accounting equation say that they are equal?

A

Because assets are made from liabilities = everything u got must’ve been paid somehow
> Either through owner/lenders

52
Q

What are the three ways the accounting statement can be rearranged

A

Asset = Liabilities + Capital
Capital = Asset - Liabilities
Liabilities = Asset - Capital

53
Q

Why should the balance sheet be written in order

A

better understand = easier to read so can invest

54
Q

What is Liquidity?

A

the ease with which an asset can be converted into ready cash without affecting its market price

55
Q

What is the most liquid asset

A

Cash

56
Q

What order must the balance sheet be displayed in

A

Least liquid -> Most Liquid

57
Q

What is the order of the balance sheet

A

Inventory, Receivables, Bank, Cash

58
Q

What are the two assets on the SFP

A

Non current assets/Current assets

59
Q

What does SFP stand for

A

The Statement of Financial Position

60
Q

What is Non current Asset

A

Long life assets acquired by the business to be used over MORE then one year

61
Q

Examples of non current asset

A

Machinery, Buildings

62
Q

What is Current Asset

A

Assets expected to be sold, consumed, converted into other assets WITHIN one year

63
Q

Example of current asset

A

Inventory

64
Q

Is Cash an Current or Non current Asset

A

Current - always going up and down - consumed

65
Q

Is trade receivables a current/non current asset and why?

A

Current asset - customer is going to pay within a short time period - and then be converted into cash

66
Q

What are the two liabilities

A

Current and Non current

67
Q

What is current liabilities

A

Amount owed and expected to be paid off WITHIN a year

68
Q

Examples of current liabilities

A

Trade payables, bank overdraft

69
Q

What is Non current Liabilities

A

Amount expected to be paid after MORE then one year

70
Q

Examples of non current asset

A

Bank Loan (usually have a longer time to pay off e.g. 5 years)

Intro to Finance and Accounting (1 decks)

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