Past odd mock Questions Flashcards
What is accounting?
The process of collecting, recording, analysing financial
information.
Organisations can do for own benefit (to assess performance, identify areas of the business doing badly…),
or to fulfil particular requirements (comply with tax rules, prepare accounts
required by company legislation, etc.).
Information is used by
owners, mangers, shareholders, investors, lenders, employees and other interested
parties.
What are the characteristics of good accounting information
Relevant: Enable good decisions to be made.
Reliable: accurate and creditable.
Easy to Understand: Well presented correctly laid-out.
Comparable: Prepared so comparisons can be made with previous years and
other companies.
Why Do Farmers / Clubs / Firms / Anyone Prepare Accounts?
To calculate profit.
To assess the effectiveness of different parts of the organisation.
To use as a business plan when trying to attract investment.
To calculate the tax liability of the organisation.
What Are Accounting ‘Concepts’?
Going concern concept
Accrual concept
Consistency concept
Prudence concept
Explain the going concern concept as a concept of accounting
When preparing accounts, the accountant should
always assume that the firm will continue to exist indefinitely.
Explain the accruals concept as a concept of accounting
Revenue and expenses should be included in accounts as soon
as they are earned or incurred, regardless of whether the money has been actually
received or paid yet.
Explain the consistency concept concept as a concept of accounting
The method a firm uses to deal with particular accounting
issues should be the same every time.
Explain the prudence concept concept as a concept of accounting
When preparing accounts revenue should not be
overestimated and expenses should not be underestimated. Accountant is
expected to record information somewhat ‘pessimistically’. (e.g. Stock is valued at the lower of cost and selling price).
What Are Accounting ‘Bases’?
These are the methods used to implement the accounting concepts. e.g. We use
depreciation (an accounting base) to apply the concept of prudence.
What Are Accounting ‘Policies’?
These are the strategies used to apply the accounting bases. e.g. We can apply
depreciation using the ‘straight line’ policy or the ‘reducing balance’ policy.
What acts and bodies regulate the way accounts are prepared and presented
- Government, through laws like Companies Act 1963-90
- Accounting profession, through SSAP’s (Statements of Standard Accounting Practice) and FRS’s (Financial Reporting Standards).
- Stock exchange, through their listing rules.
- EU, through regulations and directives.
What is the role of an auditor
To confirm that the accounts presented to them represent a ‘true and fair’ view of the financial position of the company – that all of the relevant information has
been included, that the accounts have been prepared in accordance with the
legislation,
