Workshop 1 Accounting Flashcards
Statement of financial position (balance sheet)
A snapshot of a business at a particular point in time. Tells us information on assets, equity and liabilities.
Income statement
Tells us information on the revenue and expenses of a business that contribute towards it making a profit.
Statement of cash flows
Tells us information on the cash flows in and out of a business.
What are the objectives of financial accounting?
- To provide information to users about a business’s financial performance (wealth gained over a period).
- To provide information to users about a business’s financial position (total wealth at any point in time).
What are the 2 fundamental characteristics accounting information should possess?
Relevance and faithful representation.
What are the 4 sequential stages of an accounting information system?
- Information identification.
- Information recording.
- Information analysis.
- Information reporting.
For information to have a faithful representation it needs to be…
Complete, neutral, free from bias and free from error.
What improves the quality of information?
Comparability, timeliness, verifiability and understandability.
What is an asset?
Something you own, i.e. phone, laptop etc.
What are non-current assets also known as?
Fixed assets
What are non-current assets?
Assets held for the long term. They are usually purchased so a business is able to deliver its goods and services to its customers.
What are tangible non-current assets?
Assets we can see and touch. Examples: land, buildings and machinery. They are initially recorded in the statement of financial position.
What are intangible non-current assets?
Assets we cannot see or touch. Examples: licenses, patents, brands, investments.
What is depreciation?
A process which spreads the purchase cost of an asset over the asset’s life. All tangible assets should be depreciated except land.
What are the 2 types of depreciation?
Straight-line and reducing balance.
What is amortisation?
Spreads the purchase cost of an intangible asset over the asset’s life.
What are current assets?
Assets that have a lifespan of less than 12 months. Examples: inventory, trade receivables, cash.
What is a liability?
Something a business owes.
What is a current liability?
A liability that must be paid within 1 year of the financial statement date. Examples: trade payables, accruals, bank loans, overdrafts.
What are accruals?
Expenses or revenues that are recognised on the income statement before cash is exchanged. They reflect economic activities as they occur rather than when cash transactions take place.
What are trade receivables?
Money owed to the business, takes place when customers buy products or services on credit. So they pay at a later date.
What are trade payables?
Money a business owes to its suppliers, takes place when a business purchases supplies on credit.
What is a non-current liability?
A liability that is due for payment after more than 1 year of the financial statement date. Example: loans, long-term debt.
What are provisions?
Estimates of possible liabilities that may arise but there is uncertainty over the amount owed and timing. Found under current and non-current liabilities. Examples: warranty claims, legal claims.
