The Accounting Information System - The Accounting Cycle and More Accounting Theory Flashcards
What is the business assumed to have?
An indefinite (i.e. without an end) economic life, unless there is evidence showing that the business will be closed down in the foreseeable future.
What is this assumption that a business has an indefinite economic life in accordance with?
The going concern concept.
Explain the ‘going concern’ concept.
The business entity will continue to operate indefinitely; or
The going concern concept assumes that the business has an indefinite economic life.
What does the business do as a going concern?
The business will buy assets (for example, equipment, buildings) to help it carry out its operations in the long term.
Are the assets that the business buys to help it carry out its operations in the long term expected to be sold off soon after they are acquired?
No.
How are the assets the business buys to help it carry out its operations in the long term valued and recorded?
At the historical cost (i.e. the price at which they were bought).
How would the business value the assets it has bought if there were evidence indicating that the business may close down in the foreseeable future?
These assets have to be valued at the value that they can be sold for and no longer at historical cost.
Is this business a going concern?
A coffee shop buys a computerised ordering payment system in anticipation of increased sales.
A going concern.
Is this business a going concern? A dance school has not paid rent and salaries for six months. It has also not conducted a single dance class for four months.
Not a going concern.
Is this business a going concern?
A business holds a closing-down sale of used furniture.
Not a going concern.
Will stakeholders want to know the financial performance of the business at regular time intervals?
Yes.
What is the practice of breaking up the life of a business into regular time intervals known as?
Accounting period concept.
Is it common for businesses to prepare financial statements at regular intervals, such as at the end of each month, each quarter, each half-year or each year?
Yes.
Is it possible to wait until the end of the life of a business entity to measure its performance?
No. The life of a business entity can be divided into specific periods of time for the purpose of preparing financial / accounting reports. Such a period is called an accounting period.
Give examples of accounting periods.
- a month
- every quarter (three months)
- a half-year
- a full year
Define the ‘accounting period’ concept.
The economic life of a business can be divided into specific time periods for the purpose of preparing financial reports.
What does the law require some businesses to do?
Some businesses are required to prepare their financial statements at least once a quarter (i.e. every three months) and for other businesses, once a year.
What is the end of a one-month accounting period if the beginning of accounting period is 1 February 2014?
28 February 2014
What is the beginning of a quarter of a year accounting period if the end of accounting period is 31 May 2013?
1 March 2013
What is the beginning of a half-year accounting period if the end of accounting period is 30 June 2014?
1 January 2014
What is the end of a one-year accounting period if the beginning of accounting period is 1 September 2013?
31 August 2014.
Name the months that have 31 days.
January, March, May, July, August, October, December.
Name the months that have 30 days.
April, June, September, November.
How many days are there in the month of February?
Non-leap years: 28 days Leap years (i.e. every four years): 29 days in 2012, 2016, 2020, 2024, 2028, 2032, etc.
