ACF100 - WEEK 1 Flashcards
(26 cards)
What is the purpose of accounting
To, IDENTIFY, MEASURE AND COMMUNICATE financial information to help users make decisions
What is the accounting entity concept
where the business is separate from its owners for accounting purposes
Who are the internal users of financial statements?
Investors, lenders, and other creditors.
Who are external users of financial statements?
Customers, competitors, employees, government, analysts, and the community.
What do investors mainly look for in financial statements?
Profitability and future growth potential.
What information do banks/lenders focus on?
The business’s ability to repay debts.
What are the objectives of financial accounting?
Provide relevant, reliable information to external users for decision-making and compliance.
Who has unlimited liability in a sole trader?
The individual owner.
What is the difference between incorporated and unincorporated partnerships?
Incorporated partnerships have limited liability; unincorporated do not.
What type of liability do company shareholders have?
Limited liability (up to the amount invested).
Define ‘Assets’.
Resources controlled by the entity that have future value.
Define ‘Liabilities’.
Obligations to transfer resources to third parties.
Define ‘Equity Capital’.
The owner’s investment in the business.
Define ‘Income’.
Value received from delivering goods or services.
Define ‘Expenses’
Costs incurred to deliver goods or services.
What is the fundamental accounting equation?
Assets = Liabilities + Equity Capital
How is Profit calculated?
Profit = Income – Expenses
What is Net Assets?
Assets – Liabilities
What happens to profit in equity capital?
It is added to equity.
Full equity capital equation
Assets - Liabilities = Owner Contributions + Income - Expenses - Withdrawals
What does the Balance Sheet show?
A snapshot of the business’s assets, liabilities, and equity at a specific date.
What does the Income Statement show?
Revenue and expenses over a period, leading to profit or loss.
What does the Cash Flow Statement show?
Inflows and outflows of cash and the ending cash balance.
What is another name for the Statement of Profit or Loss?
Income Statement
