SAC 1 - 1/2 Accounting

Question 1

Assets

Answer 1

economic resources controlled by an entity as a result of past events with the potential to produce future economic benefits

e.g. buildings, products, cash on hand/bank, accounts receivable

Question 2

Liabilities

Answer 2

present obligations owed by an entity to transfer economic resources as a result of past events
e.g. loans, bank overdrafts, accounts payable

Question 3

Owners equity

Answer 3

residual value of the assets of an entity after its liabilities have been deducted.

Question 4

Revenue

Answer 4

increases in assets, or decreases in liabilities, that result in an owners equity (other than those relating to contributions by the owner)
e.g. sales

Question 5

Expenses

Answer 5

decreases in assets or increases in liabilities, that result in a decrease of the owner’s equity (other than drawing, by the owner)
e.g, manufacturing costs, wages

Question 6

Accounting Elements

Answer 6

Assets, liabilities, owner’s equity, revenue and expenses

Question 7

Accounting Equation

Answer 7

Owners Equity = Assets - Liabilities

Question 8

Current assets and liabilities

Answer 8

resources expected to provide economic benefits/ be settled within the next 12 months

Question 9

Non-current assets and liabilities

Answer 9

resources expected to provide economic benefits/ be settled within greater than 12 months

Question 10

Accounting Assumptions

Answer 10

Period, Accrual basis, Going assumption, Entity
(PAGE)

Question 11

Period assumption

Answer 11

the life of the business is separated into reporting periods to measure performance

Question 12

Accrual basis

Answer 12

expenses and revenue are recognized before they are paid

Question 13

Going assumption

Answer 13

business will continue to operate and not crash in the near future

Question 14

Entity assumption

Answer 14

the business and its record are kept separate from its owners

Question 15

Qualitative Characteristics

Answer 15

Timeliness, understandability, relevance, faithful representation, comparability, verifiability
TURFCV

Question 16

Timeliness

Answer 16

information can only be valuable if provided in a timely manner

Question 17

Understandibility

Answer 17

information is presented in a way that people who have a reasonable understanding of business can understand it

Question 18

Relevance

Answer 18

information is relevant if it has the potential to affect the decision making of users of the report

Question 19

Faithful representation

Answer 19

information must faithfully represent the economic events being reported

Question 20

Comparability

Answer 20

consistent accounts methods should be used so that the differences in accounting reports can be identified and understood

Question 21

Verifiability

Answer 21

information should be presented accurately and be supported by evidence such as (source) documents

Question 22

Characteristics of Small Business

Answer 22

• independently owned and operated
• decision making is done by the owner
• owner = manager
• employs less than 15 people with less than 2 million turnover

Question 23

Types of small business operations

Answer 23

Trading business
Service business
Manufacturing business

Question 24

Support for small businesses

Answer 24

• qualified accountant (taxation, future business prospects, investment opportunities, , determine selling prices)
• banks (advice)
• government (advice on their site)

Question 25

Users of Financial Information

Answer 25

banks- to evaluate the finances of the business other lenders- to assess if the business is a good risk government departments - to assess the owner's tax liability potential owners- to evaluate the potential of the business

Question 26

Forms of Ownership

Answer 26

Sole proprietorship, partnership, private company, franchises

Question 27

Sole proprietorship

Answer 27

Business owned by a single person Easy and cheap to set up, sell or wind up the business owner makes all the decisions/ keeps all profits Business ceases when the owner dies, limited skills of the owner, limited access to finance, unlimited liability (debts of the business becomes your own)

Question 28

Partnership

Answer 28

Business owned by two or more people Relatively easy and cheap, sell or wind up the business, more skills and finance available to owners, tax benefits Business ceases when one of the partners leaves the business, profit and decisions must be shared and unlimited liability

Question 29

Private Company

Answer 29

Aka proprietary company owned by one or some people know as shareholders separate legal entity from its owners (incurs its own debts, can sue and be sued and pays tax in its own right) increased access to capital, separate legal structure, ownership canbe passed onto new owners, limited liability Disadvantages Expensive + complex to set up, higher ongoing costs, more heavily regulated, possibly difficult to change ownership, may be difficult to to attract finance due to stringent regulations

Question 30

Franchises

Answer 30

A business in which the owner agrees to run the business as a member of a group, with all the franchise members operated as a similar business Franchisor establishes a rule for the group and receives a fee from members Advantages established brand name greater chance of success Most major decisions can be made by experienced managers in the head office There is access to bulk buying and potentially more competitive pricing Disadvantages There are establishment fees which a franchisee must pay to franchisor Membership fees are ongoing. Franchisees may have little control over the business. There is a lack of individuality, as these businesses are often clones

Question 31

Un/limited liability

Answer 31

The business is a separate accounting entity from its owners, but not a separate legal entity Business cannot sue or be sued Owners are personally responsible for all the debts of the business. Therefore they may have to use their own personal assets to repay debts of the business

Question 32

Investing opportunities

Answer 32

go revise notes

Question 33

rates or return formula

Answer 33

profit after tax/ amount invested

Question 34

rates of return

Answer 34

go to textbook!!!

Question 35

business failure

Answer 35

Insufficient starting capital Poor management skills Insufficient professional advice Unrealistic predictions

Question 36

business success

Answer 36

Willingness to work hard and learn from mistakes Positive and enthusiastic approach Managerial skills People skills The level of competition in the market The market either growing or shrinking