Chapter 1 Added Questions Flashcards
(43 cards)
State, the role and objective of accounting
Accounting is a process off, recording, summarising, reporting, analysing and interpreting of the financial information of an organisation in the form of financial report. These financial reports are used to communicate to the stakeholders on the financial performance and position of the organisation for decision making purpose.
State the two roles of accounting
Stewardship accountants have the responsibility of managing the business resources on behalf of the owners and to provide the owners with financial information to help in decision-making and managing the operations of the business.
Decision-making, where accountants help interested stakeholders make decisions in relations to the business by providing them with the relevant and true information through financial reports
State and explain the two professional ethics that accountants must adhere to
Integrity- to be straightforward and honest in all professional and business relationships.
Objectivity - to be unbiased when making a professional judgement in the accounting process
Due to pandemic, joy co, suffered a net loss of $100,000 as business performance fell. In order to continue and save the business joy desperately needed a bank loan through tight over this tough period. She told Adam the accountant to overstate its revenue so that the net loss becomes a net profit. In order to secure a bank loan. She threatened to fire Adam if he does not follow the instructions.
State and explain the relevant professional ethnic violated if Adams followed the instructions
Adam will be violating the integrity principle, as if he follows the instructions, he will be providing fault information to a stakeholder
OR
Adam will be violating the objectivity principal, as if he follows the instructions, he is biased towards his own gains of not getting fired, and being influenced to override his professional judgement
Explain why accountants need to uphold professional ethics? Explain the importance of having integrity and objectivity in preparing and presenting financial statements.
It is important for accountants to uphold the professional ethics, as being a steward of the business means the various stakeholders placed thrive and rely on the accountant to provide accurate and through information to make decisions. If inaccurate or false information about the business was provided it can lead to stakeholders making poor decisions.
State one internal who is interested in the accounting information of the business for decision-making explain what kind of decision making the need the financial information for
Internal stakeholders, owners of the business
To decide whether to keep their investment or sell their investment in the business
Explain why stakeholders of a business are interested in accounting information
Depending on who the stakeholders are, they have different purpose
State examples of non-accounting information needed by owners and managers of a business for decision-making explain why they are interested in non-accounting information
Customers preference, social responsibility and environmental impact. Making decisions solely looking at the accounting information may cause stakeholders to omit important business related factors that are not shown on financial statements but may affect decisions.
What is the primary object of a business?
The primary object of a business is to make profit
State the difference between a trading business and a service business give examples for each business types
Service business provide services to customers to earn revenue and do not have a trading portion in its statement of financial performance
Trading business buys and sells goods to the customer to earn revenue and have a trading portion in its statement or financial performance
State the different forms of business entities
- Sole proprietorship
Business entity is wholly owned and controlled by an individual where there is no legal distinction between owner and business - Limited liability, partnership
A partnership where individual partner’s own liability is generally limited - Private limited company.
A business form which is a legal and the tea that is separated and from each shareholders and directors
State two differences between Sole proprietorship and private limited company
Sole proprietorship is a business owned by owners. A private limited company can be owned up to 50 owners.
Owner of sole proprietorship has unlimited liability while owners in a private limited company has limited liability.
State a features of limited liability partnership
Liability partnership is owned by at least two person called partners no maximum limit on numbers of partners.
What does it mean by unlimited liability and limited liability?
Unlimited liability is when the owner of the business must assume personal responsibility for the debt incurred by the business.
Limited liability is when shareholders have no personal liability for the companies debt, liability is limited to a shareholders investment
Give two examples of accounting and non-accounting information that a business manager may need
Accounting information – cost of inventory and storage cost
Non-accounting information – types of storage and consumer preferences
What is a business transaction?
A business transaction is an event with a third party that is recorded in the accounting system of the organisation involving an exchange of resource that can be measured in monetary terms. A business transaction should always be supported by a source document.
State, the stages of the accounting cycle
- Identifying and recording.
- Adjusting.
- Reporting
- Closing at the end of the financial year.
Explain what source document are and state the purpose of using source document with a relevant accounting theory
Source documents are records that support a business transaction. It serves as evidence to prove that the business transaction has occurred and to provide details on the transaction.
In accordance with objectivity theory, where transactions recorded need to be supported by reliable and verifiable information
State the process of accounting information system
Source document followed by Journal, followed by ledger account, followed by trial balance, followed by financial statements
State whether there is any violation of accounting principles
He bought a computer using the business bank account for his son, and the transaction was recorded as a non-current asset
Violated – accounting entity theory
State whether there is any violation of accounting principles
Next trading decided to change the depreciation method of a motor vehicle to straight line method from reducing balance method with no specific reason
Violated – consistency theory
State whether there is an violation of accounting principles
Jocelyn, the accountant of THG Ltd recorded stationary as non-current assets in the book
Violated – materiality theory
Identify the accounting theory applied
Then which was previously bought at cost of $10,000 has appreciated in value and is now worth $15,000, but no adjustment has been made
Historical cost theory
Identify the accounting theory applied
The business is assumed to operate in an indefinite period
Going concern theory
