Module 1

Question 1

What is Accounting?

Answer 1

Accounting is the process of recording financial data in a system (Accounting system)

Question 2

What is Financial Reporting?

Answer 2

This is the reporting of financial data to the stakeholders of the business. It can also be called ‘financial accounting’

Question 3

What is a Financial Statement?

Answer 3

One of the most common types of financial reporting is the preparation of financial statements at the end of the year, which provide information about the financial position and financial performance (profitability) of the business. The financial statements are sometimes referred to as ‘the accounts’

Question 4

What is an Entity?

Answer 4

The entity is the business for which accounting records are being recorded.

Question 5

What is the Accounting Process?

Answer 5

Step 1) Record Financial Data
Step 2) Journal Entries
Step 3) Nominal Ledger
Step 4) Trial Balance
Step 5) Financial Statements

Question 6

Advantages of a computerised accounting system?

Answer 6

1) Automate various processes
2) Maintain an Audit trail
3) Ability to generate a wide range of finical reports quickly
4) Cloud base systems allow real time access

Question 7

Disadvantages of a computerised accounting system?

Answer 7

1) Expensive
2) Employees may require training
3) Software updates can cause disruptions
4) Off the shelf packages (not tailored to the business)
5) Business become heavily dependent of them

Question 8

What is the Statement Of Financial Position (SOFP)?

Answer 8

Prepared at the period end date to present the financial position of the entity (ie assets, liabilities and capital)

Question 9

What is the Statement Of Profit and Loss (SPL)?

Answer 9

Is prepared ‘for the period ended’ to present to financial performance of the entity?

Question 10

What is a sole trader?

Answer 10

A business run by an individual who is liable for any debts

Question 11

What is a partnership?

Answer 11

A business run by two or more individuals in a partnership. It is not a separate legal entity, and all partners are jointly and severally liable for any debts.

Question 12

What is a Limited Liability Company?

Answer 12

This is a separate legal entity owned by shareholders who have limited liability, which means that they are not responsible for company debts.

Question 13

What is a Limited Liability Partnership?

Answer 13

This is a partnership, but a separate legal entity, so the liability of the partner is limited.

Question 14

What is a Community Interest Company (CIC) ?

Answer 14

A special type of limited company that exists to benefit the community

Question 15

What is the accounting equation?

Answer 15

Assets = Liabilities + Equity

Question 16

What is a Current asset and a Non-Current asset?

Answer 16

Current < 1 Year (Short term)
Non-Current > 1 Year (Long term)

Question 17

Net assets =

Answer 17

Net assets = Assets - Liabilities

Question 18

What is the Reporting Entity Concept?

Answer 18

The concept requires that the transactions of the entity be recorded separately from the transactions of its owner and all other entities. DO NOT CONFUSE ENTITY TRANSACTIONS WITH PERSONAL

Question 19

What us the Accounting Period Concept?

Answer 19

Is the period of time covered by an entity’s financial statements, which is normally 12 months.

Question 20

What is the Accrual Accounting principle?

Answer 20

Depicts the effects of transactions in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period.

Income is recorded as being earned when transaction takes place NOT when cash is received.
Expenses are recorded as incurred when a transaction takes place and NOT necessarily at the point of receipt.

Question 21

What is the matching principle?

Answer 21

Income earned, and the related expenses incurred, should be matched against each other in the same accounting period.

Question 22

What is the Prudence concept?

Answer 22

Accountants must be careful to not overstate assets and income or understate liabilities or expenses.

Question 23

What is the expanded accounting equation?

Answer 23

Assets (A) = [Capital (C) + Income (I) - Expenses (E) ] + Liabilities (L)

C + I - E = Equity