poa theory

Question 1

state and explain 2 professional ethics an accountant should have

Answer 1

integrity - to be straightforward and honest in their business relationships
objectivity - do not let bias, conflict of interest or influence of others to override professional judgement

Question 2

accounting entity concept

Answer 2

activities of business are separate from actions of owners, all transactions should be recorded from business point of view

Question 3

monetary concept

Answer 3

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

Question 4

objectivity theory

Answer 4

accounting information recorded must be supported by relevant and verifiable evidence so that financial statements will be free from opinions and biases

Question 5

going concern theory

Answer 5

a business is assumed to have indefinite economic life unless there is credible evidence that it may close down

Question 6

accounting period concept

Answer 6

life of a business is divided into regular time intervals

Question 7

accrual basis of accounting concept

Answer 7

business activities that have occurred, regardless of whether cash is paid or received, should be recorded in the relevant accounting period

Question 8

matching theory

Answer 8

expenses incurred must match the income earned in the same period to determine profit for that period

Question 9

consistency concept

Answer 9

once an accounting method is chosen, it should be applied to all future accounting periods to enable meaningful comparison

Question 10

prudence concept

Answer 10

business cannot overstate assets and profit and understate liabilities and losses

Question 11

materiality concept

Answer 11

relevant information should be reported in the financial statements if it is likely to make a difference to the decision-making process

Question 12

revenue recognition concept

Answer 12

revenue is earned when goods have been delivered or service has been provided

Question 13

what is a source document

Answer 13

it is an original written document that provides details and evidence of the transaction that has taken place

Question 14

state the accounting equation

Answer 14

assets = liabilities + equity

Question 15

state the difference between a cash discount and a trade discount

Answer 15

trade discount:
-given to encourage customers to buy in bulk
cash discount:
-given to encourage customers to pay early within a specified amount of time

Question 16

purposes of trial balance

Answer 16

-to ensure arithmetic accuracy in recording
-to facilitate the preparation of financial statements

Question 17

state the rule for inventory valuation, name and explain the accounting concept that supports the application of this rule.

Answer 17

prudence concept states that business cannot overstate assets and profits and cannot understate liabilities and losses, therefore inventory is valued at lower of cost of net realizable value so that assets are not overstated.

Question 18

what is FIFO

Answer 18

first in first out, goods bought first are assumed to be sold first

Question 19

define depreciation

Answer 19

depreciation is the allocation of the cost of a non current asset over its estimated useful life

Question 20

causes of depreciation

Answer 20

obsolescence, wear and tear, usage, legal limits