Intro to Acc Frameworks Flashcards
What is the purpose of accounting information?
To provide financial information about the ongoing activities of an organization for decision making
Who are the main users of of accounting?
Management, investors, lenders, customers, suppliers, employees, government and the general public.
Explain how the accounting info can help the users
Management - to make informed decisions
Investors - to buy, hold or sell stock
Lenders - to pay loans when due
Customers - continuance of enterprise
Suppliers - If amounts owing to them will be paid
Employees - the stability and profitability of employer
Government - regulation of business
The general public - trends and recent development of the business
State the characteristics of accounting information
Relevant, timeliness, comparability, understandable, verifiability and faithful representation.
Define asset. Use examples.
A present economic resource that has the potential to produce economic benefits. Eg. Motor vehicle
Define liability. Use examples.
A present obligation that has a duty or responsibility that an entity cannot avoid. eg. loan
Define equity. Use examples.
The residual interest in the assets of the entity after deducting all its liabilities. eg. capital.
Define revenue. Use examples.
The increase in assets or decrease in liabilities that results in the increase of equity. Rent received
Define expenses
The decrease in assets or the increase in liabilities that results in the decrease of equity. eg. wages
Explain the basic accounting equations
Asset = Equity - Liability
Liability = Equity - Asset
Equity = Asset + Liability
Differentiate between capital and revenue expenditure
Capital expenditure is financed via statement of financial position, whereas revenue expenditure, is financed via the statement of profit or loss.
What is the importance of the accounting standard
It is based on consistent concepts resulting in the financial information that is useful to investors, creditors and lenders.
Examples of current and non-current assets.
Current - inventory/stock, cash in hand/bank, prepaid expenses, debtors.
Non-current - motor vehicle, equipment, land, patents, copyrights and buildings.
What are examples of capital expenditure?
Capital, loans, reserves and retained profits.
What are examples of revenue expenditure?
turnover or other revenue
