lecture 1: introduction

Question 1

goal of accounting

Answer 1

provide usefull info about busineses to various groups. It contains a historical record of all the financial transactions

Question 2

why do you need accounting?

Answer 2

to gain understanding of the past performance and make predictions about the future

Question 3

main concepts of accounting

Answer 3

• conservatism
• accruals
• going concern
• consistency
• separate entity

Question 4

accruals

Answer 4

revenue is recognized when it’s earned, and expenses when assets are consumed

Question 5

going concern (concept)

Answer 5

there is an assumption that business will continue functioning in the future

Question 6

conservatism (concept)

Answer 6

revenue is only recognized when there is a REASONABLE certainty it will be realised

Question 7

consistency (concept)

Answer 7

accounting method should be consistend

Question 8

separate entity (concept)

Answer 8

transactions of the vusiness are separate from the owners

Question 9

assets (BS)

Answer 9

probable future avonomic benefits obtained or controlled by an entity from the past transactions

Question 10

non current assets

Answer 10

called fixed assets and used on the continuing basis

Question 11

current assets

Answer 11

expected to be converted into cash within an operating cycle (1 year)

Question 12

liabilities

Answer 12

future sacrifices of benefirs or providing services to other entities

Question 13

stockholders equity

Answer 13

the residual interest in the net assets that remains agter deduction liabilities

Question 14

reserves

Answer 14

the undistributed gains of the company

Question 15

RE

Answer 15

retained earnings = total accumulated profits of the company that have been tetained NOT distributed to the shareholders as dividends

Question 16

income statement

Answer 16

shows how is the financial performance of the company , explains the changes in liability, equity and assets

Question 17

operating profit

Answer 17

income earned from core activities of the business. its independent capital structure

Question 18

unusual / infrequent items

Answer 18

these are abnormal earnings, does not often happen

Question 19

income tax expense

Answer 19

the expense that is out of control of the management

Question 20

net income

Answer 20

net earnings figure after all expenses BEFORE the dividends

Question 21

linkages

Answer 21

linkage 1:
= RE from IS flow through the RE account in the BS

linkage 2:
- cash flow from CF shows increase or decrease in cash on BS

Question 22

accruals

Answer 22

cost and revenues are matched in the periods they are related to !! (not based on the cash)

-> accruals: expenses enjoyed, not yet paid
->prepayments; expenses paid, not yet enjoyed

Question 23

6 steps of the generic framework of FSA

Answer 23

• articulate the purpose and contect of analysis
• collect data
• process data
• analyse and interpret the data
• communicate the conclusion
• follow up