Chapter 1

Question 1

What is accounting

Answer 1

the process identifying, measuring and communicating information to allow informed judgements and decisions by users of the information.

Question 2

What is finance

Answer 2

the study of how businesses raise funds and select appropriate investments

Question 3

Why would a customer use accounting information

Answer 3

to figure out how the business may meet customer needs

Question 4

Why would a competitor use accounting information

Answer 4

to learn how best to compete with that business and make comparisons with their own performance

Question 5

Why would an employee use accounting information

Answer 5

• to know if they should keeping working for the business
• know the future plans , profits and financial strength of business

Question 6

Why would the government use accounting information

Answer 6

to make sure the business is paying the correct tax

Question 7

Why would community representatives use accounting information

Answer 7

• to provide economic support of the business
• the business’s ability to provide employment for community
• use of community resources
• the business’s willingness to fund environmental improvements

Question 8

Why would investment analysts use accounting information

Answer 8

whether to advise clients to invest in the business

Question 9

Why would suppliers use accounting information

Answer 9

whether to continue to supply to the business, can they afford goods on credit

Question 10

Why would lenders use accounting information

Answer 10

assess businesses affordability, should they lend money

Question 11

Why would managers use accounting information

Answer 11

assess whether the performance of the business needs to be improved

Question 12

Why would owners (shareholders) use accounting information

Answer 12

whether to invest more into the business or sell shares

Question 13

What are the two fundamental qualities of financial information

Answer 13

relevance and faithful representation

Question 14

What is relevance

Answer 14

the ability of accounting information to influence decisions

Question 15

What is faithful representation

Answer 15

the ability of information to be relied on to represent what it is meant to represent

Question 16

What three qualities does an account need to be faithfully represented

Answer 16

• to be complete, incorporate everything
• neutrality, without bias
• free from error

Question 17

What is materiality

Answer 17

quality of accounting info meaning that misrepresentation will alter decisions made by users

Question 18

What is comparability

Answer 18

quality that helps users to identify similarities and differences between items of info

Question 19

What is verifiability

Answer 19

quality that provides assurance to users that the info is faithfully represented

Question 20

What is timeliness

Answer 20

provison that accounting info should be made available in time for users to make their decisions

Question 21

What is understandability

Answer 21

quality that allows info to be understood by those who the info is for

Question 22

What is the accounting information system

Answer 22

the system used to identify, record, analyse and reports accounting info

Question 23

What is management accounting

Answer 23

seeks to meet the accounting needs of managers

Question 24

What is financial accounting

Answer 24

seeks to meet the needs of owners, lenders and other external users

Question 25

What is the nature of financial reports

Answer 25

they tend to be general purpose

Question 26

What is the nature of management reports

Answer 26

they tend to be specific purpose reports

Question 27

What is the level of detail in a financial report

Answer 27

they tend to be less detailed and provide a broad overview of performance

Question 28

What is the level of detail in a management report

Answer 28

provide managers with considerable detail to help with operational decisions

Question 29

Do financial report follow regulations

Answer 29

they are subject to accounting regulations imposed by law and accounting rule makers

Question 30

Do management reports follow regulations

Answer 30

no, only to meet needs of managers

Question 31

When are financial reports produced

Answer 31

annual basis, sometimes half yearly

Question 32

When are management reports produced

Answer 32

as frequently as needed by managers

Question 33

What time period does financial reporting look at

Answer 33

reflect position and performance for past period (can occasionally concern future performance)

Question 34

What time period does management reporting look at

Answer 34

provides information concerning future performance and past performance

Question 35

What is a sole proprietorship

Answer 35

a form of business unit where an individual is operating the business on their own account

Question 36

What are the qualities of a sole proprietorship

Answer 36

- small - easy to set up, no formal procedures - owner has say over decision making - owner has unlimited liability

Question 37

What is a partnership

Answer 37

business unit where at least two individuals, no more than twenty, operate a business with the intention of making profit

Question 38

What are the qualities of a partnership

Answer 38

- small - easy to set up, no formal procedures - parternships not recognised as separate entities from business - partners have unlimited liability

Question 39

What is a limited company

Answer 39

business unit that is granted separate legal existence from the owners

Question 40

What are the qualities of a limited company

Answer 40

- range from small to large - number of owners can be unlimited - owners have limited liability, will not use private assets to pay debts - only liable for the amount they have invested in the business - limits risk - lengthy process to set up

Question 41

What does the board of directors do (3)

Answer 41

1. set overall direction and strategy for business 2. monitor and control activities 3. communicate with shareholders and others

Question 42

What is the role of a CEO

Answer 42

responsible for running the business on a day to day basis

Question 43

What is the role of the chair

Answer 43

responsible for running the business in an efficient manner

Question 44

What is strategic management

Answer 44

setting a course to achieve long term goals such as objectives and ensuring they are implemented effectively

Question 45

Three examples of unethical behaviour

Answer 45

- lying - stealing -fraudulent behaviour

Question 46

Three examples of not for profit organisiations

Answer 46

- charities - churches - trade unions