POA Flashcards
What is the difference between a trading business and a service business?
A trading business refers to a business that buys goods and resell at a higher price while a service business provides services to customers.
What are different type of stakeholders and the decisions they make?
Managers: Whether to find ways to improve the business performance.
Employee:Whether they can choose to continue working for the business.
Lenders: Whether the business has the ability to repay the loan.
Competitors:Whether the business is comparable to other businesses.
What is the role of accountants?
It is to set up the accounting informtion system and become stewards of the business and are responsible in managing resources on the business on behalf on the owner.
What is the role of accounting?
An accounting information system is set up to give information to stakeholders regarding the management of resources and the performance of the business.
What are the 2 things an accountant must have?
Have integrity:Be honest in all professional relationships.
Be Objective: Must not let any bias, conflicts of interests or any undue influence that affects his or her professional judgment.
What is the Objectivity theory?
The Objectivity theory states that all source documents in the business transactions provide verifiable and reliable evidence that the business activity has taken place.
What is the Monetary theory?
All business transactions are recorded in monetary terms.
What is the historical cost theory?
All business transactions are recorded at their original cost.
What is the Going Concern Theory?
It states that the business is assumed to have an indefinite economic life unless there is credible evidence that it may close down.
What is the Accounting Entity Theory?
It states that the activities of the business should be separated by the actions of the owner. All business transactions are recorded from the point of view of the business.
What is the accounting period theory?
It states that the business life is divided into regular time intervals.
What is Matching Theory?
It states that the expenses incurred should be matched against the income in that same period to determine profit for that period.
What is Revenue Recognition Theory?
It states that revenue is earned when goods have been delivered or when services have been provided.
What is the Accural Basis of Accounting Theory?
It states that the business activities that have occurred, regardless of whether cash is paid or received, should be recorded in the relevant accounting period.
What is Prudence theory?
It states that the accounting treatment used by the business should least overstates its assets and profits while it least understates liabilities and losses.
What is Consistency theory?
It states that the accounting method used by the business must be consistent from one financial period to another financial period. Inconsistency may lead to misleading figures in financial statements.
What is the Materiality theory?
It states that the item is material if it makes a big difference in decision making. The value of the transaction is compared to the size of the business.
What is Net Realisable Value?
It refers to the amount of potential receivable from selling its inventory.
What is an Asset?
It refers to the resources owned by the business that are used to provide future benefits.
What is a liability?
It refers to the obligations owed by the business that are expected to be settled in the future.
What is Equity?
It refers to the claim by the owner on the net assets of the business.
What is an Income?
It refers to the amount of revenue earn through activities of the business; comprises revenue.
What is an Expense?
It refers to the costs incurred against the operation of the business to earn income in the same financial period.
What are the elements of the Accounting Equation?
Assets, Liabilities and Equity