Role of Accounting & Finance Flashcards
What are the (3) main characteristics of a Limited Company?
- Seperate legal entity
- Unlimited life
- Limited liability
In the context of limited companies, what does sperate legal entity mean?
- Seperate from the people that own the entity
- Entity has the legal capacity of a person
- Responsible for its own debts
Explain the shareholder liability for a limited liability company?
The liability of shareholders is limited to the amount of money invested
Why are limited companies the prefered form of business organization?
- Benefits of limited liability
- Ability to offer shares to a large number of investors
Asside from limited companies what are the (2) other main types of business structures?
- Sole trader
- Partnership
What are listed companies?
A listed company is listed on an exchange (eg. NZX) where shares of companies are brought and sold using sharebrokers
Explain Market capitalisation
Market capitalisation is the value of each shre of the compny multiplied by the number of shares in the company
What is a share?
- Represents an ownership interest
- A passive form of investment
- Relatively easy for people to buy and sell shares in listed companies
What are dividends?
Companies may make payment to shareholders as part of the profits. Different types of companies have different polices which may change over time.
What are Capital gains?
The potential gain or loss from price movements
Where are the (2) main places companies recieve finance?
- Equity finance
- Debt finance
What is equity finance?
Finance supplied by shareholders. Equity finance comes in two main forms:
- Share capital
- Retained earnings
What is debt finance?
Debt finance is supplied for external lenders to the entity and are commonly known as borrowings or loans
What is Accounting?
In the context of ACCTG101, Accounting represents the collection, analysis and communication of economic reporting.
Accounting follows this process:
- Information identification
- Information recording
- Information analysis
- Information reporting
What is the reporting entity concept?
The reporting entity concept helps us determin what to report in the company’s financial statements
According to the entity concept, do limited companies report on their owners’ personal assets and debts?
No, the owner’s personal assets are excluded from financial reports. They are also excluded from financial reports from sole traders and partnerships.
The business entity convention (reporting entity concept)…
A. requires that the personal wealt of the owners be combined with the assets of the company
B. requires that loans made by owners to the company are not reported in the company’s financial statements
C. applies to partnerships
D. does not apply when consolidating the financial statements of a parent company and its controlled subsidary
C. applies to partnerships
The business entity covention applies to all company structures, including sole traders and partnerships
Explain the relationship between a reporting entity and a legal entity
In accounting we are concerned with a reporting entity rather than a legal entity.
In a sole trader the company and the owner are treated as a single legal entity, however only the company is considered part of the reporting entity.
Within a group of companies there can be many individual legal entities which form part of a reporting entity.
What are the (4) main sections of an annual report?
- A report by the directors
- Information about the senior managers
- Financial statements
- The audit report
What are the (4) primary reports contained in the annual report?
- Balance sheet
- Statement of Comprehensive Income and/or Income Statement
- Statement of Changes in Equity
- Cash Flow Statement
What is the Balance Sheet?
A snapshot of business at one moment in time.
Specifies what the business owns, what it owes and the shareholders’ interest
What is the Statement of Comprehensive Income?
A summary of profit (income less expenses) for a period of time
What is the Cash Flow Statement?
A summary of cash receipts and payments over the income statement period
What is the Satement of Changes in Equity?
A report which identifies how the shareholders’ claim on the company has changed over the income statement period
What follows the 4 primary financial statements in the annual report?
Accounting Policies and Notes to the Financial Statements
What is the objective of the Accounting Policies and Notes to the Financial Statements?
To explain the assumptions and choices made in producing the financial statements.
Provide further details relating to the primary reports
What does GAAP stand for and what does it do?
Generally Accepted Accounting Practices
GAAP describes the basis on which general purpose finance statements are normally prepared
GAAP is primarily the NZ equivalent to International Financial Reporting Standards (IFRS)
What other accounting rules apply to listed companies?
Listed companies are subject to rules issued by NZX as a condition of listing
GAAP includes:
- ____ ____, ____ and ____ relating to particular circumstances and
- ____ ____ and ____ of general application
- Specific rules, practicies and procedures relating to particular circumstances and
- Broad concepts and principles of general application
What is the key difference between a ‘listed’ company and an ‘unlisted’ company?
Shares in a listed company can be easily traded where as shares in an unlisted company are generally private
What is Financial Accounting?
Finanacial Accounting provides annual general purpose reports to external users providing broad details on the past performance of the business as required by regulation
What is the primary focus of Finanacial Accounting?
Objective and verifiable information
What is Management Accounting?
Management Accounting provides detailed specific reports to internal users whenever required with no restrictions, using past information to predict future preformance
Describe the range of infomration included in Financial Accounting reports?
Quantifiable in money terms
Focuses on objective and verifable data
Describe the range of information included in Management Accounting reports?
Can contain non-financial information
Less focus on objectivity and verifiability
