Week One (Introduction to Accounting) Flashcards
What is the nature of accounting?
Accounting the process of identifying, measuring and communicating information to permit informed decisions by users of information.
Which three groups of individuals are likely to benefit from accounting information?
- Managers
- Owners
- Lenders
What kind of decisions can be made using accounting information? (4)
- Develop new products
- Price products
- Finance Business
- Restructure business
What is the three main roles of accounting?
- Collection, analysis, communication of economic information
- Assisting in informed choices about scarce resources
- Reporting on the status of transaction during a period
For accounting to serve as a function, list the 7 qualitative functions it must satisfy
- Relevance - ability to influence decisions
- Materiality - potentional to alter decisions
- Faithful representation - complete, neutral
- Comparability - Allows identification of similarities and differences
- Verifiability - supported by evidence
- Timeliness - available early to be useful
- Understandability - clearly and concisely set.
What are the two most important qualities for accounting information?
- Faithful representation
- Relevance
(CHECK ANSWER)
Describe how stakeholder theory influences who uses accounting information
Stakeholder theory argues that organisations have a variety of interested parties. Their interests need to be considered and incorporated in a harmonised manner to achieve the best outcomes.
Who are the 10 users of accounting information?
- Owners
- Customers
- Competitors
- Employeers and their representatives
- Government
- Community representatives
- Investment analysts
- Suppliers
- Lenders
- Managers
What does ‘Management Accounting’ provide
Provides managers with the information they require for day-to-day running of the business
What does ‘Financial Accounting’ provide
Provides general-purpose financial information for a variety of users
What three main financial reports are used in financial accounting (and what questions do they answer)?
- Statement of cash flows - shows sources and uses of cash during a period
- Statement of financial performance - shows how much profit has been generated in a period (income statement)
- Statement of financial position - shows financial position at end of period (balance sheet)
What are the five main uses of management accounting?
- Prediction of future financial performance as part of long-term planning
- Budgeting as a means of both planning and control
- Cost control and savings
- Pricing
- Project appraisal
What are the three types of business ownership
- Sole proprietorship - one owner with unlimited liability
- Partnership - two or more owners with unlimited liability for general partners
- Limited Company - legal entity which has an identity separate from that of those who own and manage it
What are the characteristics of sole proprietorship?
- No separate legal entity
- Limited life
- unlimited liability
- minimum reporting regulations
- Limited access to funds
- Low cost to establish
What are the characteristics of a partnership?
- No separate legal entity
- limited life
- unlimited liability
- minimum reporting regulations
- mutual agency
- co-ownership of assets and profits
- limited membership
- increased regulation
