Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

acct 102 > test 1 > Flashcards

test 1 Flashcards

1
Q

accounting is?

A

the information system that identifies, records and communicates the economic events of an entity to interested users

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

who are the main users of GPFR

A

lenders and owners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what is the objective of GPFR

A

to provide financial information about the reporting entity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

GPFR’s are governed by?

A

GAAP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

define specific purpose financial reports

A

show information required for specific things eg: tax filing, applying for a bank loan

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what are generally accepted accounting practises

A

conventions and doctrines which have evolved over time which financial statements must comply with

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what is the purpose of accounting as in the conceptual framework

A

provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in their capacity as capital providers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what types of qualities come under qualitative characteristics

A

fundamental and enhancing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what are the fundamental qualities

A

relevance and faithful representation (completeness, neutrality and free from error)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what are the enhancing qualities

A

comparability, verifiability, timeliness, understandability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

describe a sole trader

A

i am the business and the business is me, no establishment costs, the business will last as long as the person decides it to, liability is on risk of personal debt, there is no reporting regulation, have to finance yourself

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

describe a partnership

A

2+ people, minimal costs, only bound by people, partners can be added or removed, joint and unlimited liability as the partners are liable for each other, mutual agency as one enters contract for all, don’t need to comply with GAAP, unregulated, agreements determine how you share profit, access to funds is better than sole trader

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

describe companies

A

allows businesses to grow unlimitedly, seperate legal entity, owners = shareholders, limited liability = legal safeguard, extensive regulation by gaap, company is taxable as a seperate legal entity, life span is perpetual/indefinite

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

define assets

A

business resources such as cash, receivables, inventory, land, buildings, equipment and intangible items - A present economic resource controlled by the entity. An economic resource is a right that has the potential to produce economic benefits. The thing being considered must either be controlled or a right to be an asset.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

define liabilities

A

provision of recourse/claim of creditors against resources eg: payables. This is something you borrowed so it is someone else - A present obligation of the entity to transfer an economic resource (rights and obligations is a pair)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

define owners equity

A

provision of recourse/claim of owners against resources, made up of capital (what the owner puts in from investment) and retained earnings (how much you have earnt from your business). It is something you can claim against as it is yours.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

what is the accounting equation

A

A = L + OE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

what are the formats of the balance sheet

A

horizontal/T account or vertical/report

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

define the periodicity assumption

A

this is a part of gaap. For comparability, your financial statements must be prepared on equal intervals to allow for equal comparison of the same period of time. This is a fundamental assumption as it makes statements informative.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

NZ IAS 1 (test of gaap) says classifications of assets can be based on?

A
  1. their nature or function as current or non-current

2. the order of liquidity (how fast can it be realised)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

an asset is current where it meets one of:

A
  1. expected to be realised in a normal operating cycle
  2. held to be traded
  3. realised within 12 months
  4. cash or cash equivalent
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

describe going concern

A

assumes the entity will keep operating for at least another period (financial year = 12 months) so that assets can be current and beyond that year non-current

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

what is the opposite of going concern and what does it mean

A

liquidity basis - telling user you will close down in the next 12 months

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

describe accounts receivables

A

accrual basis of accounting = gross ar - bad and doubtful debts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

inventory could be?

A

raw materials, consumables, work in progress or finished goods for sale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

describe the prudence principle

A

do not overstate your assets - gaap standard

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

describe prepayments

A

cash already paid and the legal right to receive the benefit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

define property plant and equipment assets (ppe)

A

tangible and defined as being held for use in the production or supply of goods and services, for rental to others, or for administrative purpose - expected to be used for more than one period (periodicity)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

describe materiality

A

only account for things that will make a difference and be able to influence the decisions of the users

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

what do you include in an at cost measurement

A

any costs which are directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner necessary

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

how do businesses measure their ppe from year 2 onwards

A

either cost model: initial cost - accumulated depreciation

or

revaluation model: based on market and what you could sell your item for right now

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

define depreciation

A

represents wear and tear from ordinary use using useful life as something gets old or outdated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

define an intangible asset

A

an identifiable non-monetary asset without a physical substance such as goodwill, licenses, patents etc.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

what is amortisation

A

the depreciable amount of an intangible asset over its useful life

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

what is a long term investment

A

term deposits, security investments like shares and bonds or investment in subsidiaries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

what prudence adjustments need to be done on assets?

A

take bad and doubtful debts off accounts receivable, look at cost vs net realisable value for inventory where costs exceed the net realisable value write the asset down, use the fair value for investments, revalue property plant and equipment using depreciation, revalue intangible assets using amortisation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

a liability is current when?

A
  1. it expects to settle the liability in its normal operating cycle
  2. it holds the liabilities primarily for the purpose of trading
  3. due to be settled within 12 months
  4. does not have an unconditional right to defer settlement of the liability
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

in what sequence are liabilities ordered?

A

by settlement - what needs to be settled first

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

where do dividends come from

A

retained earnings

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

what is a reserve

A

when something is in between - eg: a piece of land worth $400k is now with $500k so we can report a $100k reserve because it is only assumption based

41
Q

incomes and expenses may be classified by:

A

their nature or their function

42
Q

how do you calculate gross profit

A

revenue less cost of sales

43
Q

is dividends an expense?

A

no, it is paid out from retained earnings

44
Q

define income

A

Income is increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from holders of equity claims.

45
Q

define expenses

A

Expenses are decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distribution to holders of equity claims.

46
Q

what 3 GAAP conventions and principles underpin the consistency of the income statement presentation

A

realisation convention, accural basis, matching principle

47
Q

describe the realisation convention

A

a revenue should be recognised when and only when it is realised

48
Q

when is a revenue realised?

A
  1. job is done
  2. amount of revenue generated can be objectively determined
  3. reasonably certainty the amount owing will be received
  4. any other outstanding items can be determined with reasonable certainty
49
Q

GAAP uses cash accounting, true or false

A

false - accrual accounting

50
Q

profit goes into _____ and dividends come out of it

A

retained earnings

51
Q

describe matching principle

A

expenses and revenue relate and should be recognised in the same period as there is a relationship and we spend money to make money

52
Q

what are the 4 GAAP inventory flow assumptions

A

individual identification, first in first out, weighted average cost with a periodic system or weighted average cost with a perpetual system

53
Q

how does the individual identification inventory flow assumption work?

A

tell me every individual thing you have sold - makes sense but not very easy for everyone to apply

54
Q

how does the first in first out inventory flow assumption work?

A

assumes the oldest inventory is sold first

55
Q

how does the weighted average cost (WAC) with a periodic system inventory flow assumption work?

A

after the period finishes, calculate total costs and divide by how many things you bought. then multiply this by the number of things sold for COGS and do the same for how many you sold for inventory

56
Q

how does the WAC with a perpetual system inventory flow assumption work?

A

you are benefitted by the perpetual system because you can see inventory levels, COGS and sales at any time you want

57
Q

how does an organisation choose which inventory flow assumption to use?

A

Because of faithful representation businesses have to determine which one suits their pattern and business to faithfully represent their reality. When a business makes the choice, they are accountable.

58
Q

what is a perpetual inventory system

A

a. Every purchase and sale is recorded, every in and every out

59
Q

what is a periodic inventory system

A

a. Not everything is recorded at the time, rather it is done periodically by doing a stocktake every week, month etc.

60
Q

define depreciation

A

the systematic allocation of the depreciable amount of an asset over its useful life.

61
Q

what four factors need to be considered when calculating depreciation

A
  1. The cost (or other value) of the assets
    1. The useful life of the asset
    2. The estimated residual value of the asset
    3. The depreciation method
62
Q

how do you calculate depreciation using the straight line method

A

divide the cost by the useful life to get the depreciation for each year. every year the depreciation expense is the same

63
Q

how do you calculate depreciation using the accelerated or diminishing value depreciation method

A

take the rate and multiply it by the opening carrying amount to get the annual depreciation for the first year. After that multiply the percentage by the closing carrying amount from the previous year. the annual amounts of depreciation should reduce year by year

64
Q

how do you calculate depreciation using the unit of production method

A

use the number of jobs an asset can do and divide the cost by it. this gives you the amount to write off per job/use

65
Q

how do organisations choose a depreciation method?

A

choose a method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity - faithful representation

66
Q

the cash flow statement is ___ ___ rather than accrual based like the other statements

A

cash based

67
Q

what is cash flow from operating activities

A

from ordinary operations such as cash received from customers (sales), payment to suppliers and employees, interest paid etc.

68
Q

what is cash flow from investing activities

A

flows from acquisition and disposal of property, plant and equipment and lending money and collecting repayments

69
Q

what is cash flow from financing activities

A

flows from issuing debt and repayments or obtaining cash from shareholders and providing them with return on their investment

70
Q

how is the cash flow statement useful

A

good check on the balance sheet, highlights the difference between profit and net cash provided by operating activities, shows ability to pay dividends and meet obligations and ability to generate future cash flow

71
Q

what do cash flows from operating activities tell us?

A

the business strategy - the quality of the firms operating profit and evaluates liquidity and insolvency

72
Q

what do cash flows from investing activities tell us?

A

if the business is looking to the future or not - if yes it will be negative as they are investing in ppe etc.

73
Q

what do cash flows from financing activities tell us?

A

helps to predict future cash flows by providers of funds eg: issuing shares, repaying loans or giving more share options

74
Q

why are the profit and cash flow from operating activities different

A

income statement includes accruals and depreciation and other calculations in it are ‘fake’ as they are judgements to put a number in not real

75
Q

what other statement does the statement in changes of equity link to

A

statement of financial position

76
Q

retained earnings is topped up with ___ and paid out with ___

A

profit, dividends

77
Q

the total equity in the statement of changes in equity is the same as the equity section of which statement

A

the balance sheet

78
Q

describe agency theory

A

when shareholders give money to an organisation the executive becomes the agent of this money which could be an issue as we are all self-interested.

79
Q

describe information asymmetry

A

directors know more than shareholders and the shareholders have to be able to rely on the other party so an audit is required.

80
Q

who are the big four

A

kpmg, pwc, deloitte and ey

81
Q

who has to be audited (general)

A

any organisation that has public accountability (public funds) or prepares GPFR as they have to be checked for GAAP - includes issuers, companies and charities

82
Q

who are audits prepared for

A

shareholder

83
Q

what is audited

A

only statements, notes and other relevant accounting policies and information

84
Q

what are the 4 opinions that can be given in an audit

A

unmodified, qualified, adverse, disclaimer

85
Q

what is an unmodified opinion in an audit

A

the best - meets GAAP and presents fairly

86
Q

what is a qualified opinion in an audit

A

partially non-compliant

87
Q

what is an adverse opinion in an audit

A

almost completely negative - do not rely - very bad opinion

88
Q

what is a disclaimer opinion in an audit

A

auditor can’t do their job as there is not enough information given

89
Q

how should the evidence for audit be described if it is good

A

sufficient and appropriate

90
Q

what are the 5 fundamental principles of ethics for auditors

A

integrity, objectivity, professional competence and due care, confidentiality, professional behaviour

91
Q

describe the integrity principle for auditors

A

you have to be honest to be able to audit

92
Q

describe the objectivity principle for auditors

A

cant be influenced in any way

93
Q

describe the professional competence and due care principle for auditors

A

have to pass exams and keep up with technology because you cant be lazy

94
Q

describe the confidentiality principle for auditors

A

you cannot share a clients information

95
Q

describe the professional behaviour principle for auditors

A

you represent a profession so getting drunk etc cannot be accepted

96
Q

what adds to or takes away from the share capital column of the statement of changes in equity

A

issue of new shares adds to it

97
Q

what adds to or takes away from the retained earnings column of the statement of changes in equity

A

profit tops it up and dividends is taken away

98
Q

what adds to or takes away from the total equity column of the statement of changes in equity

A

this is the horizontal sum of the values in the table

99
Q

describe monetary unit assumption

A

we want things to be measurable in terms of a dollar amount

acct 102 (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions