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O levels > POA theory > Flashcards

POA theory Flashcards

1
Q
A
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1
Q

Trading business

A

Buys and sell goods to customer

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2
Q

Service business

A

Provide services to its customers

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3
Q

Sole Proprietorship

A
  • It is owned by one person who contributes capital to set up SP
  • The owner runs the business himself and has full control over it
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4
Q

Limited Liability Partnership

A
  • It is owned by two or more partners where each partner contributes capital to set up the LLP
  • Control is shared among the partners
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5
Q

Private Limited Company

A
  • It is owned by 50 or less shareholders where each shareholder buys shares and contributes capital
  • The shareholders have no control over the running of the business
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6
Q

Stakeholders and their decisions

A

Employees: Whether to continue working at the business
Suppliers: Whether to sell to the business on credit
Customers: Whether to buy from the business

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7
Q

Role of Accounting

A

Accounting is an information system that provides accounting information for stakeholders to make informed decisions

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8
Q

Role of Accountant

A

Accountants are stewards of the businesses who set up the accounting information system to provide relevant timely information to stakeholders for decision-making

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9
Q

Professional Ethics

A

Integrity: Accountants can exercise integrity by being straightforward and honest in all professional relationships

Objective: Accountants are objective when he will not let bias and conflict of interest override his professional judgement

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10
Q

Importance of an Accountant’s Professional Ethics

A

It is important because stakeholders rely on accounting provided by accountants to make informed decisions, therefore the information needs to be true and accurate

another one if got time…

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11
Q

Accounting entity theory

A

Accounting entity theory states that the owner and business are separate entities. All transactions are recorded from the point of view of the business.

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12
Q

Accounting period theory

A

Accounting period theory states that the life of a business is divided into regular intervals for the purpose of preparing financial statements

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13
Q

Accrual basis of accounting theory

A

Accrual basis of accounting theory states that income/expense is only recognised and recorded when it is earned/incurred regardless of whether cash is received/paid

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14
Q

Consistency theory

A

Consistency theory states that business accounting method must be the same from year to year to ensure meaningful comparison

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15
Q

Going concern theory

A

Going concern theory states that business is assumed to operate forever unless there is credible evidence that it may close down

16
Q

Historical cost theory

A

Historical cost theory states that transactions should be recorded at their original cost

17
Q

Matching theory

A

Matching theory states that expenses incurred must be matched against income earned in the same period to determine the profit for that period

18
Q

Monetary theory

A

Monetary theory states that only business transactions that can be measured in monetary terms are recorded

19
Q

Materiality theory

A

Materiality theory states that a transactions is considered material if it makes a difference to the decision-making process

20
Q

Objectivity theory

A

Objectivity theory states that all business transactions must be supported by verifiable evidence so that financial statements will be free from biases

21
Q

Prudence theory

A

Prudence theory states that accounting treatment chosen should be the one that least overstates assets and profits and least understates liabilities and losses

22
Q

Revenue recognition theory

A

Revenue recognition theory states that revenue is earned when goods have been delivered or services have been provided

23
Q

2 types of Business Transactions

A
  • Cash transaction is when payment is made immediately during a cash sale or cash purchases
  • Credit transaction is when payment is made at a later date during a credit sale or credit purchase
24
Q

Accounting cycle

A

Stage 1: Identifying & recording of transactions in the journal using Source documents & posting the journal entries to the ledger accounts

Stage 2: Adjusting the accounts

Stage 3: Reporting by preparing the financial statements based on the adjusted trial balance

Stage 4: Closing the temporary accounts by passing additional journal entries

25
Q

Acknowledges payment received from customers immediately after the business has sold goods or provided services

A

Receipt

26
Q

Informs credit customers of the amount owed after the business sold goods or provided services on credit

A

Invoice

27
Q

Informs credit supplier that payment by cheque has been made for a specific invoice

A

Remittance advice

28
Q

States the amount to be reduced from the invoice issued earlier due to overcharged or goods returned

A

Credit note

29
Q

States the amount to be added from the invoice issued earlier due to undercharged

A

Debit note

30
Q

Process payment to credit supplier

A

Payment voucher

31
Q

Check its own cash at bank account & tally against the business bank records

A

Bank statement

32
Q

Assets

A

Assets are resources owned by a business that are expected to provide future benefits

33
Q

Liabilities

A

Liabilities are obligations owed by a business to others that are expected to be settled in the future

34
Q

Equity

A

Equity refers to the claim by the owner on the net assets of a business

35
Q

Income

A

Income refers to amounts earned through the activities of a business

36
Q

Expenses

A

Expenses are costs incurred in the operation of a business to earn income in the same accounting period

37
Q

Accounting equations

A

Assets= Liabilities + Equity

Assets= Liabilities + Capital +(Income-Expenses)- Drawings

38
Q

Types of discounts

A

Trade discount:
Definition: Reduction off list price
Purpose:
Encourage bulk purchase
Encourage customers’ loyalty

Cash discount:
Definition: Reduction off invoiced price
Purpose: Encourage early payment

O levels (1 decks)

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