Worksheet 1 (term 1)

Question 1

Explain the term financial accounting

Answer 1

The information received from bookkeeping that’s used to draw up the final accounts and financial statements

Question 2

Explain the term cost accounting

Answer 2

Includes cost control, quality control, budgetary control and planning or decision making of the business

Question 3

Explain the term management accounting

Answer 3

Includes planning, stock control, overheads of the business, fixing selling prices and wages as well as preparing budgets for the business

Question 4

Explain the term auditing

Answer 4

Checks if the accounting books were done correctly or not. Books of first entry up to final accounts are checked for a specific financial period

Question 5

Explain the term accounting

Answer 5

Accounting is classifying, summarising and recording the financial transactions of a business in monetary terms

Question 6

Explain the term bookkeeping

Answer 6

Bookkeeping is keeping records of the financial activities of a business

Question 7

Distinguish between accounting and bookkeeping

Answer 7

Both accounting and bookkeeping forms part of the financial department. Bookkeeping is the first stage - keeping systematic records of the business’ activities. Accounting analyses the bookkeeping records to prepare reports and proposals and gives reasons for the financial actions that the business takes.

Question 8

Explain five different objectives of accounting

Answer 8

1. To keep record of all non-cash transactions in the books of first entry
2. To calculate the profit or loss for any period
3. To check for errors and correct them
4. To calculate cost of production
5. To help management formulate policies

Question 9

Name the various users of accounting information

Answer 9

Internal users: Users of financial statements, normally people employed by the business and responsible for its management I.e owners, employees, managers and investors

External users: Users of financial statements, people not directly concerned with management of the business I.e customers, suppliers, financial institutions and the government

Question 10

Explain the importance of accounting information to internal users

Answer 10

1. Managers want to know
   - the overall running of the business,
   - sales,
   - expenses,
   - suppliers,
   - what the business owes to suppliers,
   - what credit customers owe to the business,
   - the money available in the business and
   - if the business is making a profit
2. Employees want to know if the business is profitable for a possible salary increase and bonuses and whether their job is safe
3. Investors want to know if the business -is being run efficiently and doing well and whether it was a good investment

Question 11

Explain the importance of accounting information to external users

Answer 11

1. Customers want to know
   - that they are getting quality goods for a reasonable price,
   - credit customers need to know what they owe
2. Suppliers want to know that the business can pay them for goods supplied on credit
3. Financial institutions want to know if the business is making a profit and can repay on a loan (they can also assist the business with information on possible investments)
4. Government wants to know that
   - all VAT business receives is less VAT than the business pays
   - the PAYE tax and income tax on profit of the business is paid over to the Receiver of Revenue

Question 12

Identify the three branches of accounting

Answer 12

Financial accounting, cost and management accounting, auditing

Question 13

Explain each of the three branches of accounting

Answer 13

Financial accounting: the information received from bookkeeping that is used to draw up the final accounts and financial statements

Cost acc: includes cost control, quality control, budgetary control and planning or decision making of the business

Management acc: Includes planning, stock control, overheads of the business, fixing selling prices and wages as well as preparing budgets for the business

Auditing: Checks if the accounting books were done correctly or not, Books of first entry up until final accounts are checked for a specific financial period

Question 14

Explain the business entity principle

Answer 14

The business is separate from the owner. The transactions of the business and owner is kept separate with two different sets of books

Question 15

Explain the money measurement principle

Answer 15

Only transactions with monetary value can be recorded in the books of the business

Question 16

Explain what GAAP stands for

Answer 16

General Accepted Accounting Principles

(relates to the rules to be applied

Question 17

Explain what IFRS stands for

Answer 17

International Financial Reporting Standards

relates to the internationally accepted set of principles the business must follow when doing financial reporting