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ACC10007 - Financial Information for Decision Making > Week 1 > Flashcards

Week 1 Flashcards

1
Q

What are the three steps in the planning process?

A
  1. Setting the objectives or mission of the business
  2. Setting long-term plans
  3. Setting detailed short-term plans or budgets
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2
Q

What are the nine business objectives?

A
  1. Maximisation of sales revenue
  2. Maximisation of profit
  3. Maximisation of return on capital employed
  4. Survival
  5. Long-term stability
  6. Growth
  7. Satisficing
    8 Achieving sustainable development
  8. Enhancement/maximisation of the wealth of the business
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3
Q

List three types of accounting entities

A
  1. Sole proprietorships - one owner
  2. Partnerships – more than one owner
  3. Companies – a separate legal entity
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4
Q

What are the advantages of a Sole Proprietorship?

A

Simple and inexpensive to establish and operate

Minimal financial reporting regulations

Ownership and management are normally combined

Financial rewards flow directly to the owner

Timely decision-making

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5
Q

What are the Characteristics of a Partnership?

A
  1. No separate legal entity
  2. Limited life
  3. Unlimited liability
  4. Mutual agency
  5. Co-ownership of assets
  6. Co-ownership of profits:
  7. Limited membership
  8. Increased regulation
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6
Q

What advantages does a Company have?

A 
Separation of ownership and management
Perpetual existence
Separate legal entity
Owners have limited liability
Greater access to ownership funding 
Potentially greater access to debt funding
Potential taxation advantages
Potential increases in share values when listed on the ASX
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7
Q

What disadvantages does a company have?

A

Extensive regulation
Higher establishment costs
Subject to more public scrutiny
Owners not able to watch everything
Pressure for short-term performance
Loss or dilution of original ownership control
Income tax is paid on every dollar of profit earned (no tax-free threshold)

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8
Q

True or False - A sole proprietor has unlimited liability, and no distinction is made between the proprietor’s personal wealth and that that of the business if there are business debts to be paid.

A

True

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9
Q

What are the important characteristics of a sole proprietorship?

A 
No separate legal entity
Limited life
Unlimited Liability
Minimum reporting regulations
Limited access to funds
The costs to establish a sole proprietorship structure is normally much lower than for other entity structures.
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10
Q

Does a sole proprietorship have a legal separate entity?

A

No

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11
Q

True or false. A sole proprietorship has a legal separate entity.

A

False

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12
Q

Can an owner of a sole proprietorship business, take cash out of the business, on a regular (weekly) or irregular basis?

A

Yes

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13
Q

True or false. A sole proprietor business will cease on the death of the owner.

A

True.

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14
Q

True or false. A sole proprietor has no liability towards the business.

A

False.

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15
Q

Can a sole proprietor’s business enter into contractual arrangements (borrow, lend, purchase, sell, sue or be sued) in its own right?

A

No.

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16
Q

What does a “Limited Life” characteristic mean regarding a sole proprietorship?

A

It means the business will cease being a sole proprietorship if the owner leaves the position or if the owner dies.

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17
Q

Yes or No. A sole proprietorship has unlimited liability with respect to the activities of the business.

A

Yes.

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18
Q

True or false. The owner of a sole proprietor is not responsible for the obligations and debts of the business.

A

False

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19
Q

Is there a legal requirement for a sole proprietor to produce accounting information relating to the business for other user groups? Excluding the ATO.

A

No

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20
Q

What are the advantages of a sole proprietorship?

A

They are simple and inexpensive to establish and operate.
There is minimal financial reporting regulation.
Ownership and management are normally combined
The financial rewards flow directly to the owner.
Timely decision-making is possible

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21
Q

What are the potential disadvantages of sole proprietorship structure in comparison to other structures?

A

The liability of the owner is unlimited, and personal assets may have to be used to satisfy business debts.
Access to ownership funds is restricted to the personal resources of the proprietor.
Inflexibility in management to the extend that the sole owner is frequently the sole manager.
Access to non-ownership funding (suppliers of goods and services on credit, external loans) is often limited.

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22
Q

What type of business structure does the following describe “The relationship that exists between two or more persons carrying on a business with view to profit”

A

Partnership

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23
Q

True or False. Partnerships are usually quite small in size.

A

True.

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24
Q

True or False. Partnerships are difficult to setup.

A

False.

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25
Q

Does a partnership business structure have a separate legal entity from the owners? (Yes or no)

A

No.

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26
Q

What are the potential advantages of a Partnership business structure?

A

There would normally be greater access to capital since there are two or more owners.
The partners normally bring different skills to the partnership (professional, administrative, technical)
Greater management flexibility is gained by having more than one owner.
Taxation advantages often arise when the partnership income can be spread among the partners; this applied particularly to ‘husband and wife’ activities.

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27
Q

What are the characteristics of a partnership?

A 
No separate legal entity.
Limited Life.
Unlimited Liability. 
Mutual Agency.
Co-ownership of assets.
Co-ownership of profits.
Limited Membership.
Increased regulation.
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28
Q

True or False. In a partnership it is the partners, not the partnership that enters into all contractual arrangements.

A

True.

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29
Q

True or False. It is the partnership not the partners that are liable for any of the partnership’s debts.

A

False.

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30
Q

In a sole proprietorship can assets be taken out of the business for personal consumption by the owner?

A

Yes.

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31
Q

True or False. The introduction of Goods and Services Tax (GST) has increased the requirement for regular details reports for sole proprietorships.

A

True.

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32
Q

In which business structure is access to funds most limited?

A

Sole Proprietor.

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33
Q

The costs to establish a sole proprietorship structure are normally much higher than for other entity structures.

A

False.

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34
Q

The costs to establish a sole proprietorship structure are normally much lower than for other entity structures.

A

True.

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35
Q

True or False. Sole proprietorships are complicated and expensive to establish and operate.

A

False

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36
Q

In a sole proprietorship financial rewards flow directly to the owner. Is this an advantage or disadvantage?

A

Advantage.

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37
Q

Yes or No. Partnerships are easy to setup.

A

Yes.

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38
Q

In a partnership do the partners normally bring the same or different skills?

A

Different.

39
Q

True or False. An advantage a partnership has over a sole proprietor is that management have greater flexibility by having more than one owner.

A

True.

40
Q

True or False. A Husband and Wife cannot be in a partnership business structure.

A

False.

41
Q

In a partnership, can the personal assets of each partner be called upon to satisfy the claims of the business creditors beyond the amount of the individuals share of the business?

A

Yes.

42
Q

What is the normal limit to the amount of partners that can be in a partnership?

A

20.

43
Q

What are the potential disadvantages of a partnership in comparison to a sole proprietor?

A

A higher level of regulation.
Giving up profit share to other owners (co-ownership)
Giving up individual asset ownership (co-ownership)
Reduced decision-making authority (shared-management)
Mutual agency imposes extra responsibility for the business actions of other partners.

44
Q

What are the potential disadvantages of a partnership in comparison to a limited company?

A

A limited life may affect long-term planning
Unlimited liability creates greater risk for ownership investment.
Absence of specialist management team.
Mutual agency imposes extra responsibility for the business actions of the partners.
Access to both ownership funds and debt funds is limited.

45
Q

What business structure is being described: “An artificial legal entity which has an identity separate from that of those who own and manage it”.

A

Limited Company

46
Q

What is limited liability?

A

The situation in which an investor in a business (a limited company) has his or her liability limited to a maximum specified amount; namely, the maximum that he or she has agreed to subscribe to the business.

47
Q

What is ASIC an acronym for?

A

Australian Securities and Investments Commission.

48
Q

What is an audit?

A

A process in which a range of activities are checked to ensure that the activities have been completed in accordance with a set of rules or guidelines.

49
Q

What is a board of directors?

A

The team of people chosen by the shareholders to manage a company on their behalf.

50
Q

What is strategic management?

A

An approach which seeks to provide a business with a clear sense of purpose and to ensure that appropriate action occurs to achieve that purpose.

51
Q

What is a budget?

A

A financial plan for the short term, typically one year.

52
Q

What is a not-for-profit organisation?

A

An organisation whose main aim is not to make a profit, but to achieve some other clear goal, usually of a social nature.

53
Q

What is step 1 of the planning and control process?

A

Identify business objectives.

54
Q

What is step 2 of the planning and control process?

A

Consider options.

55
Q

What is step 3 of the planning and control process?

A

Evaluate options and make a selection

56
Q

What is step 4 of the planning and control process?

A

Prepare a long-term plan based on the most appropriate option(s)

57
Q

What is step 5 of the planning and control process?

A

Prepare short-term plans (budgets)

58
Q

What is step 6 of the planning and control process?

A

Perform and collect information on actual performance

59
Q

What is step 7 of the planning and control process?

A

Respond to divergences between plans and actuals, and exercise control

60
Q

What is step 8 of the planning and control process?

A

Revise plans (and budgets) if necessary

61
Q

What are the 8 steps of the planning and control process?

A
  1. Identify business objectives.
  2. Consider options.
  3. Evaluate options and make a selection
  4. Prepare a long-term plan based on the most appropriate option(s)
  5. Prepare short-term plans (budgets)
  6. Perform and collect information on actual performance
  7. Respond to divergences between plans and actuals, and exercise control
  8. Revise plans (and budgets) if necessary
62
Q

A charity is an example of what kind of business structure?

A

Not-for-profit

63
Q

True of False. A university is an example of a limited company

A

False

64
Q

What type of business structure is a church?

A

Not-for-profit

65
Q

What is the purpose of producing accounting information?

A

The objective of providing accounting information is to enable users to make more informed decisions and judgements about the organisation concerned.

66
Q

What type of accounting information is produced more frequently? Why?

A

Management accounting information is provided on an ‘as needed’ basis for managers. Financial accounting reports, on the other hand, are prepared at less frequent, scheduled dates (e.g. year-end, quarterly, monthly).

67
Q

Which of the three major external financial reports might be best understood by a non-accountant? Why did you select that report?

A

The statement of cash flows might be best understood by non-accountants as your average person knows what is meant by cash inflow and outflow while they probably have lower knowledge of the elements of the statement of financial position and the statement of financial performance.

68
Q

For accounting purposes, is the business separate from the owner(s).

A

Yes

69
Q

True or False. A business with the company entity structure is granted a status of a ‘legal person’ and the rights and responsibilities that go with that status.

A

True.

70
Q

True or False. Relevance is not a key qualitative characteristic of accounting information.

A

False.

71
Q

What is being described?
The process of identifying, measuring and communicating information to permit informed judgements and decisions by users of the information.

A

accounting.

72
Q

What are fundamental qualities?

A

These are the two most important qualities which underline the preparation of accounting reports; namely, relevance and faithful representation.

73
Q

What is being described?

A quality that states that, in order to be relevant, accounting information must be able to influence decisions.

A

Relevance.

74
Q

What is materiality?

A

Something which has the potential to alter the decisions that users make.

75
Q

What is faithful representation?

A

A quality that says that accounting information should represent what it is supposed to represent - it should be complete, neutral and free from error.

76
Q

What is being described?

A quality which helps users identify similarities and differences between items of information.

A

Comparability.

77
Q

What is verifiability?

A

Something that can be checked and verified.

78
Q

What is being described?

Being available early enough to be of use to users.

A

Timeliness

79
Q

What is being described?

Clearly set out to facilitate understanding.

A

Understandability.

80
Q

What is management accounting?

A

An approach which aims to provide managers with the information they require to run the organisation.

81
Q

What is being described?
__________ provides general purpose financial information for a variety of users with the information being of a general-purpose nature.

A

Financial Accounting.

82
Q

What is return?

A

Return is the gain that results from a particular event or occurrence.

83
Q

What is risk?

A

The likelihood and extent that what is projected to occur will not actually occur.

84
Q

What is bring described?

The statement that shows the sources and uses of cash for a period.

A

The Statement of Cash Flows

85
Q

What statement is being described?

The statement which measures and reports how much wealth (profit) has been generated in a period.

A

The Statement of financial performance / income statement.

86
Q

What is the statement of comprehensive income?

A

It is A statement that presents all items of income and expense recognised in a period, either in a single statement of comprehensive income, or in two statements, the first being a statement displaying components of profit and loss (normal income statement), and a second which begins with profit or loss and displays components of other comprehensive income.

87
Q

What statement is being described?

A statement that shows the assets of a business and the claim on those assets at a point in time.

A

Statement of Financial position.

88
Q

True or False.

Even at zero risk, a certain level of return will be required.

A

True.

89
Q

True or false.

Wealth enhancement is the primary goal of a business.

A

True.

90
Q

What are the three main financial reports?

A
  1. Statement of cash flows
  2. Statement of financial performance
  3. Statement of financial position.
91
Q

What is a balance sheet?

A

A statement that shows the assets of a business and the claims on the business. Assets must always equal claims. Claims will relate to external liabilities and owner’s claims (known as equity).

92
Q

What is the statement of changes in equity?

A

The statement that shows all changes in the owner’s interest in the net assets of the business as a result of transactions and events during a period. This includes total comprehensive income for the period, including profit or loss, and transactions with owners in their capacity as owners, showing contributions by and distributions to owners.

93
Q

What is equity?

A

The share of the business which represents the owners’ interests.

ACC10007 - Financial Information for Decision Making (4 decks)

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