Chapter 1

Question 1

What is the role of accounting?

Answer 1

Accounting is a process of recording, summarising, reporting, analysing and interpreting the financial information of an organisation. The role of accounting is to provide relevant and timely financial information to the decision-making process.

Question 2

What is the role of an accountant?

Answer 2

Accountants, prepare and provide accounting information for decision-making and becomes steward of the business

Question 3

What are the two professional ethics?

Answer 3

1. Integrity - straightforward, and honest in all relationships.
2. Objectivity - to be unbiased.

Question 4

Why do accountants need to uphold such professional ethics?

Answer 4

Being a steward of the business means that the stakeholder plays, trust in accountants to provide accurate and appropriate information that are true and fair

Question 5

What are the two categories that stakeholders are classified into?

Answer 5

1. Internal stakeholders.
2. External stakeholders.

Question 6

What kind of decision making?

Answer 6

Depending on the purpose of each stakeholders, objectivity in reading the financial statements. Different users have different purpose in knowing the accounting information of the business for different decision-making.

Question 7

What kind of information? And it’s examples.

Answer 7

1. Accounting information.
   Examples : profit, expenses, assets, financial ratio
2. Non-accounting information.
   Examples : relationship with supplier, economic outlook

Question 8

Who are the four types of internal stakeholders?

Answer 8

Owners, managers, internal investors, and employees

Question 9

Who are the six external stakeholders?

Answer 9

Potential investors, government, bank and other lenders, suppliers, customers and competitors

Question 10

What is owners and managers decision making needs?

Answer 10

To make decisions on the business strategies that the business should adopt based on the performance of the business

Question 11

What is the internal investors decision-making needs?

Answer 11

To decide whether to keep their investment or sell their investment in the business

Question 12

What is the employees decision-making needs?

Answer 12

To evaluate their career prospects as well as a stability of the business to decide whether to stay in the business or whether they can expect any bonuses

Question 13

What is the potential investors decision-making needs?

Answer 13

To decide whether they one to make investments in the business

Question 14

What is the government decision making needs?

Answer 14

To Decide on the amount of tax to collect from the business

Question 15

What is the bank or other lenders decision-making needs?

Answer 15

To look at the financial health of the business to decide whether they want to access credit facilities or loans to the business

Question 16

What is suppliers decision-making needs?

Answer 16

To decide whether they want to sell on credit to the business

Question 17

What is customers decision making needs?

Answer 17

To determine whether they want to purchase from the business due to after sale service

Question 18

What is competitors decision making needs?

Answer 18

For comparison of performance, and to decide how to improve their operations

Question 19

What is a trading business? And examples.

Answer 19

A trading business involves buying and selling of inventory such as supermarkets furniture, shops, bookshops

Question 20

What is a service business? And examples.

Answer 20

Service business involves providing services for customers such as nail salons, hair, salons, tuition, service, and repair stores

Question 21

How many forms of business entities are there and what are they?

Answer 21

1. Sole proprietorship (SP)
2. Limited liability partnership (LLP)
3. Private limited company (PTE LTD)

Question 23

What is accounting entity theory?

Answer 23

It states that the business and the owner are treated as separate and distinct entities and all transactions are recorded from the business point of view

Question 24

What is monetary theory?

Answer 24

It states that only transaction that can be expressed in monetary terms can be recorded in the books

Question 25

What is going concern theory?

Answer 25

It’s assumed that the business has an indefinite economic life, and will continue to operate indefinitely

Question 26

What is accounting period theory?

Answer 26

It states that the life of the business can be divided into different regular intervals for financial statement

Question 27

What is objectivity theory?

Answer 27

It states that all business transaction recorded should be supported by a reliable and verifiable supporting documents or evidence

Question 28

What is materiality theory?

Answer 28

It states that an item is considered material or significant if it affects the decision making process of the business and therefore should be considered as an asset

Question 29

What is prudence theory?

Answer 29

The business must report and adjust for losses that are likely to be incurred to ensure that profits and assets are not overstated

Question 30

What is matching theory?

Answer 30

It states that expenses incurred must be matched against income earned in the same period to determine the profit of that period

Question 31

What is accrual basis of accounting theory?

Answer 31

It states that the business should be consistent in applying its accounting policies from period to period to ensure meaningful comparability of financial performance across the financial period

Question 32

What is historical cost theory?

Answer 32

It states that all business transactions should be recorded at historical cost in the books

Question 33

What is revenue recognition theory?

Answer 33

It states that revenue should only be recognised when the goods are sold or services are provided to a customer

Question 34

What is a cash transaction?

Answer 34

Cash is received or paid when goods our services are provided or received

Question 35

What is a credit transaction?

Answer 35

Cash is paid at a later date and goods and services are provided and receive first

Question 36

What is the purpose of receipt?

Answer 36

Issued by the business To acknowledge payment received from customers immediately.

Question 37

What is the purpose of an invoice

Answer 37

Issued by the business to inform the customer the amount owed

Question 38

What is the purpose of a debit note?

Answer 38

Issued by the business to a customer due to an undercharge (in the previous invoice)

Question 39

What is the purpose of a credit note?

Answer 39

Issued by the business to a customer to acknowledge the return of goods, all to correct and overcharge in the previous invoice

Question 40

What is the purpose of a Reminttance advice?

Answer 40

Receive by the business from customer to inform payment of invoice

Question 41

What is the purpose of bank statement?

Answer 41

An official summary report issued by the bank, showing the financial transaction and balance of a given period of time for the business bank account

Question 42

What is the purpose of a payment voucher?

Answer 42

It is an internal document used to authorise payment of cash or check to a party.

Question 43

What?