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intro to accounting Flashcards

1
Q

types of businesses

A

trading: sells and buys goods to customers
service : provide services to customers

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2
Q

role of accounting

A

provide accounting and non-accounting information for skateholders for them to make informed decisions on the management of resources and performance of business

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3
Q

role of accountants

A
  • Decision making : provide both a and na info for decision-making
  • Stewardship : managing business resources on behalf of owner
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4
Q

skateholders

A
  • owner : whether to sell or invest in business
  • manager : gauge the performance of the business and take measures to improve it
  • suppliers : sell goods to business on credit
  • government : evaluate if business abides to the tax regulations and decides on the amount of tax
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5
Q

two professional ethics

A
  • integrity : straightforward and honest in the communication of all financial information
  • objectivity : information must be unbiased and based on facts
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5
Q

why are professional ethics important

A

to ensure FS is fairly prepared by accountants as it is used by skateholders

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5
Q

accounting and non accounting info

A

accounting : cost of goods, storage cost
non : customer’s preference, type of storage

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6
Q

the steps in accounting

A

source doc, journal, ledger, trial balance, FS

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7
Q

purpose of source document

A

prove that transaction has taken place

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8
Q

journal

A

it is like a diary, daily record of transactions organised by transaction dates

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9
Q

ledger

A

** consolidation ** of all transactions relating to a specific asset, liability, equity, income or expense item

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10
Q

trial balance

A

provides a summary of ending balances of each ledger account at a specified date

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11
Q

financial performance

A

provides report on income,expense and profit/loss over a period of time

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12
Q

financial position

A

provides information on asset,liabilities and equity at a specified date

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13
Q

four stages of accounting cycle

A

identify and record, adjust, report, close

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14
Q

assets

A

resources owned or controlled by a business that are expected to provide future benefits

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15
Q

nca and ca

A

nca : provides benefit for over a year
ca : provides benefit within a year
nca : cannot be converted into cash easily
ca : converted into cash easily

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16
Q

liability

A

obligations owed by the business to others that are expected to be settled in the future

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17
Q

ncl vs cl

A

ncl : repaid over one financial year
cl : paid within one financial year

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18
Q

equity

A

owner’s claims on the net assets of the business

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19
Q

basic accounting eqn

A

assets = liabilities + equity

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20
Q

income

A

amount earned through the activities of the business

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21
Q

s

sales revenue

A

money earned from selling goods

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22
Q

expenses

A

costs incurred in the operation of the business to earn income in the same accounting period

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23
cost of sales
total goods sold in trading business
24
discount allowed vs discount received
da : cash discount given by business to credit customers dr ：trade discount received from other businesses/supplier
25
difference of trade disc and cash disc
TD : reduction to the invoice amount of goods owed by customer TD: recorded as discount allowed and discount received in ledger accounts CD : reduction to list price of goods CD : not recorded in ledger account and only invoiced amount recorded
26
double entry system recording
transactions will affect two accounts, one dr and one cr, both amounts must be the same
27
cash sales vs credit sales
cash sale : immediate payment during the purchase or cash sale credit sale : delayed payment during a credit sale or purchase
28
why do customers return goods
sales returns : * faulty goods * wrong specifications * damaged goods * defects
29
purpose of a business giving trade discount?
to encourage customer to buy in bulk
30
purpose of giving cash discount to **credit customer**
to encourage **credit customers** for early payment **within a specified time**
31
purpose of trial balance
* facilitate in the preparation of FS * check for arithmetic accuracy in recording
32
limitations of TB
* not an absolute proof of accuracy * there are errors not revealed by TB
33
income recieved in advance
money received in advanced for goods/services to be provided in the next financial year but **have not earned income yet.**
34
income receivables
provided goods/services to customer but **have not received payment from customer** , but have **earned the income**
35
36
prepaid expenses
already paid for the service beforehand but **have not benefitted from service yet**
37
expense payables
have not paid for the services yet but already benefitted from service
38
reasons why cheque are dishonoured
* expired * post-dated * info inconsistent * info incomplete
39
purpose of internal controls
* safeguard net assets of a business * deter or detect fraud * reduce theft possibilities over cash * comply with law and regulations
40
reasons for different balances in business and bank statement
* deposits in transit * cheques not yet presented * direct deposits * dishonoured cheques
41
examples of internal controls
* bank recon * authorisation * segregation of duties * custody of cash
42
purpose of bank rec
* check the bank account balance of business against the bank's record as shown on bank statement * deter fraud * check for errors made by bank or business
43
inventory
goods bought by customers
44
why do businesses keep inventory?
to prevent out-of-stock situations
45
what if a business buys too much inventory?
incur higher storage costs and increase risk of goods becoming obselete
46
perpetual inventory system
quantity and availability of inventories are updated on a continuous basis
47
how do businesses manage inventories
* keep proper records to track inventory * keep physical inventory in warehouse * buying insurance to insure inevntory
48
cost of invetory purchased includes :
* purchased price * delievery * installation costs * custom duties * insurance to bring in goods * packing materials * wages for employees to pack inventory
49
trade receivables
amount owed by credit customers to business **on credit**
50
why do businesses grant credit
to encourage customers to buy goods and services so they can receive the goods first and pay later
51
what is impairment loss on TR
when customers **do not pay up** amount owed, the business suffers a loss
52
what is allowance for impairment of TR
estimated amount **of debts** likely to be **uncollectible**
53
capital vs revenue expenditure
capital : **expenditure incurred** to ** buy and bring** in NCA to its intended use revenue ： **expenditure inccured** to **repair,maintain and operate** NCA in working condition
54
capital vs revenue
capital : recorded as NCA rev : recorded as expense capital : provides benefit for more than a year rev : provides benefit within a year
55
revue exp examples
* petrol * annual insurance/tax * servicing/repair
56
depreciation
allocation of cost of NCA over its estimated useful life
57
causes of depreciation
* wear and tear * legal limits * usage * obsolescence
58
suitability of depreciation methods
SL : if NCA used uniformly throughout its useful life RB : if NCA used more in its earlier years and gets used lesser in the older days as it becomes less efficient
58
why do businesses borrow from banks?
insufficient cash to fund their activities
59
LTB vs STB
ltb : repaid more than a year stb : repaid within a year
60
bank loan vs bank overdraft
bank loan : fixed sum of money borrowed from bank bank overdraft : amount not fixed but cannot exceed agreed limit bank loan : repaid more than a year bank overdraft : repaid within a year bank loan : equal installment repayments made over the loan period bank overdraft : any cash deposit into the cash at bank account
61
interest expense on bank loan
paid regularly and reported as an expense
62
sole proprietorship
only one owner
63
capital
personal assets contributed by owner to the business
64
drawings
assets taken by owner for personal use
65
profit or loss
difference between total income and totla expenses
66
errors not revealed by trial balance
* transaction not recorded at all * transaction recorded on the wrong sides of account * transaction recorded in wrong account of same accounting element * amount recorded wrongly
67
expanded accounting eqn
assets=liabilities + capital + (income-expense) - draiwngs
67
68
purpose of source document
* provide evidence to capture the occurence of transaction * provide detail of business transaction needed for recording * ensure transaction recorded at original cost that it occured
69

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