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Poa Flashcards

1
Q

What is a trading business

A

Buys goods from suppliers and sells to customers

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2
Q

What is a service business

A

Provides services to its customers

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3
Q

What is a stakeholder

A

A group of people who use information of business to make decisions

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4
Q

Give me two stakeholders

A

Customers: Buys goods or services from the business
Suppliers: Supplies goods and/or services to the business

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5
Q

What is the role of accounting

A

Provides information for decision making by stakeholders and business owners to make informed decisions regarding the management of resources and performance of business

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6
Q

What is the role of an accountant

A

Act as a steward of the business to preparing and providing accounting information for stakeholder decision making

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7
Q

Two professional ethics

A

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

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8
Q

What theory is applied for business transactions

A

Monetary Theory

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9
Q

What is Monetary Theory

A

Monetary theory states that only business transactions that can be expressed in monetary terms are recorded in the books

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10
Q

What is a cash transactions

A

When payment is made at the point of sale or purchase

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11
Q

What is credit transaction

A

When payment is delayed or postponed at a later date from the point of sale or purchase

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12
Q

What is the accounting cycle

A

Identify and record
Adjust
Report
Close

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13
Q

What is source documents

A

Provide proof that transaction has occured

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14
Q

What 2 theory are applied for source documents

A

Objectivity theory
Historical cost

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15
Q

What is objectivity theory

A

Provides evidence to capture occurrence of transaction

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16
Q

What is historical cost theory

A

Transaction is recorded at the original cost that is occured

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17
Q

What is the accounting information cycle

A

Source Documents
Journal
Ledger
Trial balance
Financial statements

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18
Q

What is receipt

A

Acknowledge payment received from customer

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19
Q

What is invoice

A

Informs credit customers of amount owed after the sale of goods or provision of service on credit

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20
Q

What is credit note

A

Reduces the amount owed by credit customers due to overcharges or return of goods

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21
Q

What is debit note

A

Increase the amount owed by credit customer due to undercharges

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22
Q

Payment voucher

A

Process payment by credit suppliers

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23
Q

Bank statement

A

Check and tallies business cash at bank account

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24
Q

What are assets

A

Resources owned or controlled by the business to carry out its business activities

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25
What are liabilities
Amount the business owes to other business or other people
26
What is equity
Amount contributed by owners and profit generated by the business
27
What is income
Amount earned through the main activities of the business
28
What is sales revenue
Amount earned from a trading business selling goods
29
What is service fee revenue
Amount earned from a service business from providing services
30
What is other income
Income not earned from the main activities of the business
31
What is the theory applied for accounting equation
Accounting entity theory
32
Basic accounting equation
Assets = Liabilities + Equity
33
Expanded accounting equation
Asset = Liability + Capital + Income - Expense - Drawings
34
What is accounting entity theory
Activities of the business are separate from the actions of the owner
35
What is ALICE
Assets Liabilities Income Capital Expense
36
What is ledger account
Consolidation of all transactions affecting to a specific asset, liability income equity and expense
37
What is trade discount
Reduces list price amount To encourage customers to buy in bulk, to buy more regularly to instil customer loyalty
38
What is cash discount
Reduces invoice amount To encourage credit customers to pay early within a certain time
39
What is discount allowed
It is an expense and will decrease profit Recorded with trade receivable
40
What is discount received
It is an income and will increase profit Recorded with trade payable
41
What is the purpose of trial balance
Check for arithmetic errors To prepare financial statements
42
What theories are applied for financial statements
Going concern Accounting period
43
What is going concern theory
Business is assumed to operate for indefinite amount of time
44
What is accounting period theory
Financial statements are prepared at regular time intervals to provide timely information for stakeholders to make decisions
45
Purpose of statement of financial performance
To show income and expense incurred for the period of time Informs stakeholder profitability of business
46
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
47
What are non-currents assets
Assets which are bought for the business to generate income Can be used for more than a year
48
What are currents assets
Assets which are easily converted into cash Expected to be sold or used up within one accounting year
49
What are non-current liabilities
Debts which are due for settlement beyond one accounting year
50
What are current liabilities
Debts which are due for settlement within one accounting year
51
What theory is applied for sale revenue
Revenue recognition theory
52
What is revenue recognition theory
Revenue is recognised once goods are sol or delivered
53
Which accounts are closed to the income summary
Sales revenue Service fee revenue Sales returns Cost of sales Other income Other expenses
54
What is income received in advance
Income received but service has not been provided
55
What is income receivable
Service has been provided but amounts have not been received
56
What theory is applied for income receivable, received in advance, prepaid expense, expense payable
Accrual basis of accoutnting
57
What is accrual basis of accounting
Regardless of payment has been made or not, transactions should be recorded in the relevant accounting period
58
What are expenses
Cost incurred in the operation of a business to earn income in the same accounting period
59
What theory is applied for cost of sales
Matching theory
60
What theory is applied for other expense
Matching theory
61
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
62
What is expense payable
Business have used used services but have not paid
63
What is prepaid expense
Business has not used the service but has paid
64
What is cash in hand
Physical cash business keeps in its office
65
What is cash at bank
Cash deposited in the bank
66
What are dishonured cheques
When the bank rejects the cheque
67
Two reasons for dishonured cheques
Cheque is expired Cheque is post dated
68
Two purposes of internal control
Safeguard assets of business Comply with law and regulation
69
What is the purpose of internal control over cash
Cash is highly portable so it is done to reduce possibility of thefts or errors
70
Two internal controls
Custody of cash- Secure cash and cheques in locked storage Authorisation - Obtain proper approvals for all payments from authorised personnel
71
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
72
Cause of difference between cash at bank and bank statement balance
Timing difference
73
What are inventories
Refers to goods bought from the business to sell to their customers and are kept to avoid stock-out situation
74
Accounting information for buying inventories
Cost of inventory and Gross profit margin
75
Non accounting information for buying inventories
Customer preference and type of storage
76
What is FIFO
Goods that are purchased first are assumed to be sold first
77
What is impairment loss
When selling price is lowered to below cost price due to unforeseen circumstances
78
What theory is applied for impairment lose
Prudence theory
79
State prudence theory
To avoid overstate of assets, profit and and income and understating liabilities, loses and expenses
80
How is inventory valued at
Valued at the lower cost and realisable value
81
Accounting information for trade receivables
Trade receivable information and credit terms and cash discountN
82
Non-accounting information
Reputation of customers and economic outlook
83
What is allowance for impairment of
Amount estimated to be uncollectible
84
What theory is applied for allowance for impairment
Prudence
85
What is Capital expenditure
Provides benefits for more than one year Brings NCA to intended use
86
What is revenue expenditure
Provides benefits that will be used within one year Operates, maintains and repairs the NCA in working condition
87
What theory is applied for NCA
Materiality Theory
88
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
89
What is depreciation
Allocation of the cost of a NCA over its estimated useful life
90
What is the theory applied for depreciation
Matching and consistency
91
What is accumulated depreciation
Total depreciation up to date
92
Causes of depreciation
Usage over time and Physical wear and tear from usage and exposure
93
Straight line method
Decreases profit equally and decreases NCA equally
94
Reducing balance method
Decreases profit higher in the early years same with NCA
94
Accounting information for trade payable
Cost of NCA Cost of inventory
94
What is consistency theory
Once accounting method is chosen, it should be applied to all future accounting periods to enable meaningful comparison
94
Non-accounting information for trade payable
Local or overseas suppliers Reputation of supplier
94
Bank loan
Borrowed for more than one financial year Recorded under non-current liablities
94
Bank overdraft
Borrowed for less than on financial year Recorded under current liabilities
95
What is interest expense
Amount charged on business when taken a loan
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N-LVL (6 decks)

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