chp1 Flashcards
(24 cards)
What are the types of businesses?
trading and service businesses
What does a trading business do
buys from suppliers and sells goods to customers
What do service businesses do
Provides service to its customers
What are the forms of business ownership
Sole proprietorship, limited liability and private limited company
Features of sole proprietorship
Pros: easy to set up, minimal administrative duties and full control over the business
Cons: funding mainly from owner, not easy to obtain bank loan and personally responsible for the debts and losses of the business
Features of limited liability partnership
Pros: access to larger pool of funds, banks and other lenders are also more likely to lend money to the business, partners are not personally liable to the businesses’ debts and losses
Cons: more procedures and formalities to comply with, control over business is shared
Who are stakeholders
Groups of people who are interested in a business and use information about a business to make INFORMED DECISIONS
I devise strategic plans to run the business. I need to consider ways to improve the performeamce of the business
Manager
I sell certain goods and provide similar services. I need to know whether I am comparable to the business and how to improve my own performance
Competitor
I contribute to the capital to the business. I need to decide whether to continue to invest in the business or sell the business.
Owner
I enforce tax regulations and I need to decide the amount of tax to collect from the business
Government
I buy goods and services from the business. I need to decide whether to continue buying from the business
Customer
I work for the business. I need to decide whether to continue working at the business
Employee
I lend money to the business, expecting a internet interest in return. I need to know whether to grant loans to the business.
Lender
I supply goods and services to the business. I need to decide whether to sell to the business on credit
Supplier
What is the role of accounting
Provided accounting and non-accounting information
Stakeholders to make INFORMED DECISIONS on the management of resources and the performance of business
What are some roles of accountants
- Accounted set up the accounting information system(AIS) to provide accounting information for decision-making
- Accountants act as stewards of businesses, by managing the resources of the business on behalf of the owner
What are the professional ethics accountants must adhere to(elaborate)
Poorly prepared financial information would mislead stakeholders into making poor decisions therefore…
accountants must have
1. Integrity - an accountant with integrity is straightforward and honest in all professional relationships
2.objective - will not let bias, conflict of interest or the undue influence of others override his/her professional judgment
What is accounting entity
The activities of a business are separate from the actions of the owner. All transactions are recorded from the point of view of the business
What is going concern
A business is assumed to have an indefinite economic life unless there is credible evidence that it may close down
What is accounting period
The life of a business is divided into regular time intervals
*common timings: quarterly(3mths), semi-annually, yearly(MUST)
What is monetary
Only business transactions that can be measured in monetary terms are recorded
What is objectivity
accounting information recorded must be supported by reliable and verifiable evidence so that financial statements will be free from options and biases
What is historical cost
Transactions should be recorded at their original cost
