Revision

Question 1

Accounting is relevant to the decision-making process as…

Answer 1

it helps provide financial information as to the most efficient use of available economic resources

Question 2

Although accounting provides financial

information based on…

Answer 2

past financial transactions

Question 3

Accounting is useful in…

Answer 3

giving details on how efficiently an organisation has been using its available resources

Question 4

Accounting information is useful in….

Answer 4

providing decision makers with information about the outcomes of their past business decisions.

Question 5

Past performance also gives insight to ….. for the entity

Answer 5

the future trends

Question 6

Accounting information is also used as…… of a business entity

Answer 6

part of the budgeting process

Question 7

An income statement reports…

Answer 7

the results of financial performance for a specific time period

Question 8

An income statement lists all … for the reporting period

Answer 8

income and expenses of the entity

Question 9

An income statement shows…

Answer 9

profit/loss for the period as the difference between the income and expenses

Question 10

the income statement also includes…..which will not be recorded in the statement of cash flows

Answer 10

income earned on credit (i.e. not yet received from customers)
expenses incurred on credit (i.e. not yet paid by the entity)

Question 11

The income statement is prepared on…

Answer 11

an accrual basis

Question 12

A statement of cash flows reports……

Answer 12

cash inflows and outflows of an entity for a specified time period

Question 13

cash inflows and outflows of an entity for a specified time period resulting from…..

Answer 13

operating activities (e.g. paying wages,
receiving money from customer)
investing activities (e.g. purchasing equipment in cash), 
financing activities (e.g. borrowing money from bank, owner’s drawing)

Question 14

all cash income and expenses will be recorded in the statement of cash flows under…

Answer 14

operating activities

Question 15

The statement of cash flows also includes cash inflows and outflows from other transactions such as

Answer 15

paying for equipment purchased and cash withdrawn by owner for personal use

Question 16

the income statement conveys information about…

Answer 16

the entity’s income and expenses for
the period (both cash and credit)

Question 17

the statement of cash flows conveys information about

Answer 17

the entity’s cash inflows and outflows which include cash income, expenses, and other cash transactions

Question 18

Hmany underlying assumptions of financial statements?

Answer 18

4 assumptions:

• Acc Entity Assumption
• Accrual Basic
• The going concern
• The period assupmtion

Question 19

Acc Entity assumption?

Answer 19

identify clearly the boundaries of the entity being accounted for

Question 20

Accrual Basic assumptions?

Answer 20

the effects of all transactions and events are recognize when they occur, and not when the cash is received or paid

Question 21

Accrual Basic assumptions? leads to

Answer 21

fin statments report both cash transactions and obligations to pay cash in the future (payable & receivable)

Question 22

The going concern?

Answer 22

entity continues to operate -> liquidation values of the entity’s assets are not generally reported

Question 23

the going concern assumption is set aside when?

Answer 23

the business goes to sale

Question 24

the period assumption?

Answer 24

profit is determined for particular periods of times (month or year) to get comparability of results.

Question 25

Quantitative characteristics of financial statements?

Answer 25

• Relevant
• Reliable = faithful representation
• Comparability
• Understandability
• Materiality
• Benefits and costs

Question 26

1. Relevant

Answer 26

info is useful for economic decision-making

Question 27

2. Reliability

- 1st main point

Answer 27

user is sure that the info represents faithfully, without bias or undue error, the underlying transactions and events being reported in the statements

Question 28

2. Reliability

- 2nd main point

Answer 28

info must present the facts as closely as possible

Question 29

2. Reliability

- 3rd main point

Answer 29

the economic substance of transactions and events should be given priority

Question 30

3. comparability

Answer 30

is the quality of information that enables users to identify similarities in and differences between two sets of economic data

Question 31

4. consistency

Answer 31

the use of the same accounting policies and procedures

Question 32

5. understandability

Answer 32

the quality of info that enables users who have a reasonable knowledge of business and economic activity and financial accounting

Question 33

6. materiality

Answer 33

the extent to which information can be omitted, misstate or grouped with other info without misleading the statement users when they are making their economic decisions

Question 34

7. Benefits and costs

Answer 34

the benefits of financial reporting info should justify the costs of providing and using it