Poa Flashcards
What is a trading business
Buys goods from suppliers and sells to customers
What is a service business
Provides services to its customers
What is a stakeholder
A group of people who use information of business to make decisions
Give me two stakeholders
Customers: Buys goods or services from the business
Suppliers: Supplies goods and/or services to the business
What is the role of accounting
Provides information for decision making by stakeholders and business owners to make informed decisions regarding the management of resources and performance of business
What is the role of an accountant
Act as a steward of the business to preparing and providing accounting information for stakeholder decision making
Two professional ethics
Integrity: Being straight forward and honest in all professional and business relationships
Objectivity: Not letting bias, conflict of interest and undue influence of others override professional judgement
What theory is applied for business transactions
Monetary Theory
What is Monetary Theory
Monetary theory states that only business transactions that can be expressed in monetary terms are recorded in the books
What is a cash transactions
When payment is made at the point of sale or purchase
What is credit transaction
When payment is delayed or postponed at a later date from the point of sale or purchase
What is the accounting cycle
Identify and record
Adjust
Report
Close
What is source documents
Provide proof that transaction has occured
What 2 theory are applied for source documents
Objectivity theory
Historical cost
What is objectivity theory
Provides evidence to capture occurrence of transaction
What is historical cost theory
Transaction is recorded at the original cost that is occured
What is the accounting information cycle
Source Documents
Journal
Ledger
Trial balance
Financial statements
What is receipt
Acknowledge payment received from customer
What is invoice
Informs credit customers of amount owed after the sale of goods or provision of service on credit
What is credit note
Reduces the amount owed by credit customers due to overcharges or return of goods
What is debit note
Increase the amount owed by credit customer due to undercharges
Payment voucher
Process payment by credit suppliers
Bank statement
Check and tallies business cash at bank account
What are assets
Resources owned or controlled by the business to carry out its business activities
What are liabilities
Amount the business owes to other business or other people
What is equity
Amount contributed by owners and profit generated by the business
What is income
Amount earned through the main activities of the business
What is sales revenue
Amount earned from a trading business selling goods
What is service fee revenue
Amount earned from a service business from providing services
What is other income
Income not earned from the main activities of the business
What is the theory applied for accounting equation
Accounting entity theory
Basic accounting equation
Assets = Liabilities + Equity
Expanded accounting equation
Asset = Liability + Capital + Income - Expense - Drawings
What is accounting entity theory
Activities of the business are separate from the actions of the owner
What is ALICE
Assets
Liabilities
Income
Capital
Expense
What is ledger account
Consolidation of all transactions affecting to a specific asset, liability income equity and expense
What is trade discount
Reduces list price amount
To encourage customers to buy in bulk, to buy more regularly to instil customer loyalty
What is cash discount
Reduces invoice amount
To encourage credit customers to pay early within a certain time
What is discount allowed
It is an expense and will decrease profit
Recorded with trade receivable
What is discount received
It is an income and will increase profit
Recorded with trade payable
What is the purpose of trial balance
Check for arithmetic errors
To prepare financial statements
What theories are applied for financial statements
Going concern
Accounting period
What is going concern theory
Business is assumed to operate for indefinite amount of time
What is accounting period theory
Financial statements are prepared at regular time intervals to provide timely information for stakeholders to make decisions
Purpose of statement of financial performance
To show income and expense incurred for the period of time
Informs stakeholder profitability of business
Purpose of statement of financial position
Lists assets, liabilities and equity of business at a specific date
Provides information on how resources are obtained and used in the business
What are non-currents assets
Assets which are bought for the business to generate income
Can be used for more than a year
What are currents assets
Assets which are easily converted into cash
Expected to be sold or used up within one accounting year
What are non-current liabilities
Debts which are due for settlement beyond one accounting year
What are current liabilities
Debts which are due for settlement within one accounting year
What theory is applied for sale revenue
Revenue recognition theory
What is revenue recognition theory
Revenue is recognised once goods are sol or delivered
Which accounts are closed to the income summary
Sales revenue
Service fee revenue
Sales returns
Cost of sales
Other income
Other expenses
What is income received in advance
Income received but service has not been provided
What is income receivable
Service has been provided but amounts have not been received
What theory is applied for income receivable, received in advance, prepaid expense, expense payable
Accrual basis of accoutnting
What is accrual basis of accounting
Regardless of payment has been made or not, transactions should be recorded in the relevant accounting period
What are expenses
Cost incurred in the operation of a business to earn income in the same accounting period
What theory is applied for cost of sales
Matching theory
What theory is applied for other expense
Matching theory
What is matching theory
Matching theory states that the expenses incurred must be matched against income earned in the same period to determine the profit for that period
What is expense payable
Business have used used services but have not paid
What is prepaid expense
Business has not used the service but has paid
What is cash in hand
Physical cash business keeps in its office
What is cash at bank
Cash deposited in the bank
What are dishonured cheques
When the bank rejects the cheque
Two reasons for dishonured cheques
Cheque is expired
Cheque is post dated
Two purposes of internal control
Safeguard assets of business
Comply with law and regulation
What is the purpose of internal control over cash
Cash is highly portable so it is done to reduce possibility of thefts or errors
Two internal controls
Custody of cash- Secure cash and cheques in locked storage
Authorisation - Obtain proper approvals for all payments from authorised personnel
What is bank reconciliation
When the business finds its cash at bank balance is different from the bank statement balance, bank reconciliation is carried out to find the transactions
Cause of difference between cash at bank and bank statement balance
Timing difference
What are inventories
Refers to goods bought from the business to sell to their customers and are kept to avoid stock-out situation
Accounting information for buying inventories
Cost of inventory and Gross profit margin
Non accounting information for buying inventories
Customer preference and type of storage
What is FIFO
Goods that are purchased first are assumed to be sold first
What is impairment loss
When selling price is lowered to below cost price due to unforeseen circumstances
What theory is applied for impairment lose
Prudence theory
State prudence theory
To avoid overstate of assets, profit and and income and understating liabilities, loses and expenses
How is inventory valued at
Valued at the lower cost and realisable value
Accounting information for trade receivables
Trade receivable information and credit terms and cash discountN
Non-accounting information
Reputation of customers and economic outlook
What is allowance for impairment of
Amount estimated to be uncollectible
What theory is applied for allowance for impairment
Prudence
What is Capital expenditure
Provides benefits for more than one year
Brings NCA to intended use
What is revenue expenditure
Provides benefits that will be used within one year
Operates, maintains and repairs the NCA in working condition
What theory is applied for NCA
Materiality Theory
What is materiality theory
Relevant information should be reported in the financial statements if it is likely to make a difference to the decision-making process
What is depreciation
Allocation of the cost of a NCA over its estimated useful life
What is the theory applied for depreciation
Matching and consistency
What is accumulated depreciation
Total depreciation up to date
Causes of depreciation
Usage over time and Physical wear and tear from usage and exposure
Straight line method
Decreases profit equally and decreases NCA equally
Reducing balance method
Decreases profit higher in the early years same with NCA
Accounting information for trade payable
Cost of NCA
Cost of inventory
What is consistency theory
Once accounting method is chosen, it should be applied to all future accounting periods to enable meaningful comparison
Non-accounting information for trade payable
Local or overseas suppliers
Reputation of supplier
Bank loan
Borrowed for more than one financial year
Recorded under non-current liablities
Bank overdraft
Borrowed for less than on financial year
Recorded under current liabilities
What is interest expense
Amount charged on business when taken a loan
