SU 1 Flashcards by Pitch xoxo

What are accounting records

Complete record of any & all transactions entity entered into

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Purpose of accounting records

Entity’s manual/computerised records of assets, liabilities, revenue, expenses, equity, & other monetary transactions

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Need for accounting records (6)

Recording transactions
Compiling financial statements
Decision-making
Performance measurement
Legal accountability
Tax purposes

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Examples of accounting records (7)

Internal sales order
Delivery note
Sales invoice
Sales & debtors ledgers
GL
Trial balance
Annual financial statements

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Do different accounting records have different functions?

Yes

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What are financial statements

Reports compiled by entity which details company’s financial activities & overall performance & health

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Components of financial statements (6)

SoFP
SPLOCI
Statement of changes in equity
Statement of cash flows
Notes to financial statements
Other reports & disclosures

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Purpose & need of financial statements (4)

Provides financial info about company that’s useful to users
For decision-making
Mostly portrays past events, not forward-looking
Reflection of director’s stewardship & use of company resources

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Who is responsible for preparation of financial statements

Board of directors
(can delegate to CFO / accounting department)

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What is a user of financial statements

Individuals & parties that use info from financial statements for various reasons

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Users of financial statements (5)

Shareholders
Employees & trade unions
Banks & other financial institutions
Customers & suppliers
Gvrn

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Explain ‘shareholders’ as users of financial statements

Whether to buy, sell, hold onto shares

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Explain ‘employees & trade unions’ as users of financial statements

Gain understanding & view performance

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Explain ‘banks & other financial institutions’ as users of financial statements

Determines ability of entity to pay debts

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Explain ‘customers & suppliers’ as users of financial statements

Determines financial performance & health

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Explain ‘gvrn’ as users of financial statements

For taxation purposes

What is an assertion

Statement / representation made by preparers about issued financial statements

2 Categories of assertations

Classes of transactions, events, related disclosures
Account balances & related disclosures

Elements of ‘classes of transactions, events, related disclosures’

All accounting entries except balances
i.e. bank, sales, credit sales

Elements of ‘account balances & related disclosures’

Opening & closing balances

Requirements of ‘classes of transactions’ (6)

Occurrence
Accuracy
Cut-off
Completeness
Classification
Presentation

Explain the ‘occurrence’ requirement for ‘classes of transactions’ (2)

Proof that it occurred (source documents)
Relates to entity

Explain the ‘accuracy’ requirement for ‘classes of transactions’

Amounts should match source document

Explain the ‘cut-off’ requirement for ‘classes of transactions’ (2)

Year-end
Only report on 12-month period

Explain the 'completeness' requirement for both assertions

- Everything that should've been there is there

Explain the 'classification' requirement for both assertions

- Correct accounts according to IFRS

Explain the 'presentation' requirement for both assertions

- Presented accurately

Requirements of 'account balances' (6)

- Existence - Accuracy, valuation, allocation - Rights & obligations - Completeness - Classification - Presentation

Explain the 'existence' requirement for 'account balances' (2)

- What's in statements should always exits - Physical verification

Explain the 'accuracy, valuation, allocation' requirement for 'account balances'

- Cost model / fair value model

Explain the 'rights & obligations' requirement for 'account balances' (2)

- Proof of purchase - Authentication & verification

What is the companies act

SA legislation that provides for incorporation, registration, management of companies

Define 'Section 28: Accounting records' (4)

- Accurate & complete accounting records kept - In 1 of the official languages of SA - At company's registered office - Records need to be sufficient to prepare financial statements & serve as evidence for audit

Define 'Section 24'

All documents, accounts, records in any form needs to be kept for min of 7 years

Define 'Section 29: Financial Statements' (7)

- Compiled according to correct prescribed reporting framework (IFRS) - Fairly presents affairs of company - Show assets, liabilities, equity, income, expense - Accounting period & date of publication - Audited / reviewed & by whom - Name & designation of person who prepared statements - Not false, misleading, or incomplete

What happens if 'section 29: financial statements' is not adhered to (2)

- CIPC: stop business immediately - SAICA: lose 'license'

Define 'Section 30: Financial Statements' (6)

- Prepared within 6 months after year-end - Auditor's report - Director's report - Approved by board & signed - 1st shareholders' meeting after approval - If audited, directors' remuneration disclosed separately

Define 'Section 31: Financial Statements' (2)

- Copy need to be sent to all shareholders - Includes auditor's report

Define 'Regulation 25(3)' (5)

- Min requirements to be included in accounting records of company - Assets, liabilities - Inventory (year-end valuation purposes) - Revenue & expenses - Other