Week 1 Flashcards
What are the three accounting disciplines?
- Financial accounting
- Management accounting
- finance
Which accounting discipline is used by external users?
Financial accounting
Which accounting discipline is used by internal users?
Management accounting
who decides how to format and layout management accounting statements?
the company’s board of directors and managers
what primary info does financial accounting show us?
reports on past performance and current position
what primary info does management accounting show us?
forecasts for future and monitor current performance
What is the principal type of measurement for financial accounting?
financal data- quantitative
what is the principal type of measurement for management accounting?
quantitative and qualitative, financial and non-financial
how often is financial accounting measured?
annually
how often is management accounting measured?
monthly
what are the three FUNCTIONS of financial accounting?
recording (expenses and income) , processing (turning it into financial info) and presenting (financial statements such as income statements, balance sheet and cash flow statements)
who are the users of financial accounting?
investors, lenders, creditors, customers, employees, government etc
what is the name of the organisations that makes sure all firms follow the same accounting standards?
International Accounting standards board (IASB)
why does the IASB make sure every firm follows its standards?
So that there is comparability between all financial statements for the benefit of their users
what does the statement of financial position look at?
what is owned and what is owed by the business
what does the statement of profit or loss look at?
looks at the income and expenses of the firm for the current year allowing reflection on the performance of the business
what does the statement of cash flows look at?
reflects cash received and cash spent by the business
what does faithfully represent mean?
financial info must be neutral (no bias), complete and free from error
what does equity (or capital) mean?
what the business owes the owner of the funds (business).
what are expenses?
the daily costs incurred in running the business
what is materiality?
Materiality is how important the data is to a decision. Thus if the data is omitted from the decision making will it have a big influence on the decision made.
what does understandability mean?
Financial data needs to be understood by people outside of the accounting world such as lenders and investors
describe a sole trader in respect to running the business, accounting and control
All liabilities are in the hands of the owner. There is no separation between the business and the owner legally so all taxation is paid through the owner
describe a partnership in respect to running the business, accounting and control
2-20 partners. partners are taxed on their individual earnings
describe an LTD in respect to running the business, accounting and control
Shareholders are the owners of the company. The business is a separate legal entity so the business and its owners pay separate taxation. The shareholders are not responsible for the debts of the company but can claim any investment (shares purchased) as well as any residual benefit from the company
can an investor recover their invested money if the business fails and is unable to pay the employees wages or government tax bills?
NO
can an investor recover their invested money if the business fails and is able to pay the employees wages or government tax bills?
YES
