Week 1 - Accounting as a information system

Question 1

What do the annual report to shareholders contain? (/financial accounting)

Answer 1

• the Statement of Comprehensive Income (or Income Statement);
• the Statement of Financial Position (or Balance Sheet);
• the Statement of Changes in Equity; and
• the Statement of Cash Flows

Question 2

Why is the annual report of limited usefullness to managers? (/financial accounting)

Answer 2

• produced only once per year;
• highly aggregated; and
• provides no comparison to target

Question 3

What is the purpose of management accounting?

Answer 3

Provides financial and non-financial information to:

• develop and implement strategy by planning for the future (budgeting);
• make decisions about products, services, prices and what costs to incur (decision-making);
• ensure that plans are put into action and are achieved (control).

Question 4

Explain some differences between accounting management and financial statements(/acconting).

Answer 4

Question 5

Mention the 5 types of Accounts

Answer 5

• Assets (owns):
  
  • Fixed (property, plant, and equipment - things that cannot easily be converted into cash)
  • Current (inventory/stock)
• Liabilities (ows):
  
  • Long term (are liabilities with a future benefit over one year)
  • Current
• Equity
• Revenue
• Expense

Question 6

Allocate these to 1 of the 5 types of accounts

Answer 6

3 fixed
4 current
5 current
6 long term liability
7 current liability
8 equty
9 current assets
10 nothing (become an expense)
11 equity
12 fixed assets

Question 7

What are the objectives of the firm, and what might be considered the most important one today?

How do you measure it?

And how do they do well?

Answer 7

1) Objectives of the firm:
• Maximise profits?
• Maximise sales?
• Corporate citizenship?
• Look after employees?
• Maximise shareholder value/wealth? (this is probably the most important)

2) shareprice and dividends

3) for increase: perform well (by good products, liking by costumer, technology, strategy, good management, happy employees, good relationsship with banks+suppliers).
So shareholder value will only increase if all of above is good, therefore is that the best objective.

Question 8

What are the types of “cost of capital”?

Which is most risky and expensive?

Answer 8

1)

• Debt: interest rate
• Equity: dividend & capital growth

2)

Equity is more expensive for companies (more risk for investors—> want more money)

Question 9

What is WACC?

Answer 9

Weighted average cost of capital (WACC)

It is constituted by equity (shares) and borrowings (debt).