Wk 1 Intro to A&F Flashcards
How does accounting manage economic events?
Identifying, recording, and communicating
What is managerial accounting?
Detailed information for decision making and control of an organisation’s operations (internal use)W
What is financial accounting?
Publishing financial statements and other financial reports, uses quantitative financial data (external use)
Who are some internal users of accounting data?
Marketing, management, finance, and HR
Who are some external users of accounting data?
Investors, customers, competitors, gov and tax authority
What are the main elements in accounting?
Assets, liability, equity, income, expenses
What are assets?
Resource controlled by the entity from which future economic benefits are expected to flow to the entity
What is a liability?
Entity’s obligation to transfer economic benefits as a result of past events
What is income?
Increase in equity - other than those relating to contributions from owners
What is a business entity?
Legal structure of the business, legally separate from its owners
What is historical cost?
Transactions recorded at the cost when they occurred
What is going concern?
The entity will continue in operation for the foreseeable future
What is accruals?
Revenue and costs must be recognised as they are earned or incurred
What is consistency?
The presentation and classification of items should stay the same from one period to the next
What is materiality?
Information is material if its omission or misstatement could influence the economic decision of users
What is the purpose of financial statements?
To provide information about the financial position, performance, and cash flows of an entity which is useful to a wide range of users in making economic decisions
What are the two fundamental qualitative characteristics?
- Relevance, influences stakeholder decisions
- Faithful representation: must capture the economic activity of an entity (information must be complete, neutral, and free from error)
What are the enhancing qualitative characteristics?
- comparability
- verifiability
- understandability
- timeliness, not out of date
What are the 3 main types of profit-making business entities?
- sole trader
- partnership
- corporation/limited company
What is a sole trader?
Usually owned by one person, person, and business are treated legally the same (unlimited liability)
Accounts do not need to be submitted to CH, but accounting info may still be needed
What is a general partnership?
Unlimited liability still applies, not treated separately legally
Profits made shared between partners, not necessarily equally
What is a limited company?
Limited liability, separate from owners
Must submit annual accounts to CH
Private company (Ltd) cannot offer shares to the public but a public company (Plc) can but is more regulated
