Written questions Flashcards
Benefits of keeping accounting records
Improved accuracy - trial balance can be used
More detailed information leading to better decision making
Reduces the chances of fraud - reconciliation of the two figures can be done
Improved credit control - more detailed information about sales ledger
Identify the key changes in the liquidity of the business
Identify what happened
What did it change
Consequences
Question about cash and profit
Some transactions affect profit e.g. depreciation
Some transactions affect cash e.g. dividend
Some transactions affect both at different times e.g. tax paid
Importance of IAS
Reliable - not containing errors or bias
Relevant - to help decision making e.g. shareholders
Comparable - between years within a business and different businesses in different countries
Understandable - by stakeholders such as HM Customs
To ensure fair presentation and to show a true and fair view
IAS 36
Recoverable amount is the higher of the NRV and the value in use
The asset is impaired if recoverable amount is lower than the value of asset in use
Therefore the difference should be written off as a loss on the income statement and as deducted from non-current assets
Advantages on schedule of non-current assets
Satisfies various criteria RRCU
Complies with the requirements and thus supports showing a true and fair view
Disadvantages of schedule of non-current assets
Contains historical data and might not reflect the current position of the business
Summarised format - not detailed cost for individual asset addition and disposal
Usefulness to employees
See if the business is profitable
to see if their job is safe
ask for a raise
Outdated
Usefulness to trade payables
Check liquidity
likelihood of being paid
If credit terms should be reviewed
Problems obtaining financial statements
Advantages of statement of cash flows
Assess the performance of the business because it focuses on cash where it comes from and on what it has been spent which is essential for the short term survival of the business and could affect the business ability to pay divined
Role of directors in the preparation of financial statements
Ensure that financial statements are RRCU
Responsibility of stewardship to record accurate information in the published financial statements
Prepared as part of the financial statement which reviews the main activities of the business
Usefulness of Statement of cash flows for debenture holder
If loans have been advanced or repaid extra loan higher borrowing, risk and gearing difference
