Unit 1 accounting

Question 1

Significance of an accounting period

Answer 1

• Accounting period concept assumes life of a business is divided into arbitrary time period.
• The periods include monthly,quarterly,six monthly and yearly.
• Aim is to determine an accurate profit

Question 2

How is profit obtained for an accounting

Answer 2

Profit is determined by deducting the expenses from the revenue for an accounting period.

Question 3

When is revenue recognise

Answer 3

Revenue is said to recognised when it is earned. For a service business, it means when the service is performed rather than when the cash is received.

Question 4

When are expenses said to be recognise

Answer 4

Expenses are said to be recognised when they are incurred. For a service business, it means when the service is performed rather than when the cash is paid.

Question 5

What is the method of account most commonly used?

Answer 5

The method of accounting most commonly used is the accrual accounting system. This system recognises transactions and events when they have an economic impact on the business., rather than when the associated cash flows occur.

Question 6

Difference between accrual accounting and cash accounting

Answer 6

Accrual accounting recognises transactions and events when it has an economic impact to the entity, whereas cash accounting recognises a transaction when cash has been received or paid out.

Question 7

Cash accounting

Answer 7

Effects of transaction are recognised when cash is received or paid out

Question 8

Statement of cash flow

Answer 8

-A general financial report that provides information useful to business in making and evaluating decisions based on there inflows and outflows.

• and is prepared from a cash at bank account
• It recognises the inflow and out flow of cash during a period of time
• Highlights the operating, investing and financing activities of a business

Question 9

Statement of financial position

Answer 9

-The purpose is to show the accounting equation ( Asset less liabilities equal net asset or owners equity)

Question 10

Statement of profit or loss

Answer 10

-Purpose to determine a net profit or a net loss
-Net profit is when revenue is greater than expense
Net loss is when expense is greater than revenue
- A report and prepared a outside a letter gut from a ledgers account

Question 11

Business report extract key headings

Answer 11

ㅁIssues Identified
ㅁreturn on owners equity
ㅁProposed change 1
ㅁProposed change 2

Question 12

Issues identified

Answer 12

ㅇNet profit profitability compare result to ratio of the months
ㅇ identify difference
ㅇ Compare business result to industry
ㅇ interpret the position of business
ㅇ analyse individual accounts in PnL which provides further investigation

Question 13

Return on owners equity

Answer 13

Compare results for 2 years 
Underside difference between years
Compare business results to industry 
Interpret the decision of business
Ana it’s individual accounts in statement of financial position ( drawings and cash position)

Question 14

Proposed changes

Answer 14

Judgement for/ against change
Make a decisions
Provide decision linked to accounts

Question 15

Owners equity

Answer 15

Indicates the return to the owner and is calculated by dividing the net profit by the average of owners equity at the beginning and end of an accounting period

Question 16

Net profit ratio

Answer 16

Indicates in each service revenue dollar and how much profit business has made.
IF RATIO IS HIGH =high profit
Low ratio=Low profit