Lecture 1

Question 1

Define accounting

Answer 1

Accounting is a process of identifying, measuring and communicating economic information to make informed decisions by users of information

Question 2

Accounting is a systematic way of…

Answer 2

recording business transactions in the books of account so that the state of the business is quickly revealed

Question 3

Who is dubbed the ‘father of accounting’?

Answer 3

Luca Pacioli

Question 4

What is a conceptual framework for accounting?

Answer 4

A statement of principles which provides generally accepted guidance for the development of new reporting practices and for challenging and evaluating the existing practices

Question 5

When was the new conceptual framework completed by and who was it issued by?

Answer 5

Issued by the international Accounting Standards Board (IASB) in 1989, completed in 2018

Question 6

Who are the users of the information financial accounting provides?

Answer 6

Wide range of external users ( e.g: banks, at it is released to the public

Question 7

What is the nature of a financial accounting report like?

Answer 7

• It is a broad overview
• It is less detailed
• It covers a general purpose

Question 8

Who are the users of the information management accounting provides?

Answer 8

Managers, as it is internal to the business

Question 9

What is the nature of a management accounting report like?

Answer 9

• It is used for specific decision making
• It contains a high level of detail
• It is created for a specific purpose

Question 10

What is the difference in interval time between financial and management accounting reports?

Answer 10

Financial reports are determined by rules and regulations and are produced annually or semi-annually. Management reports are produced when required.

Question 11

What are the timelines of financial accounting reports like?

Answer 11

They are prepared to cover a past period of time and thus are mainly historical. Show what has happened to the entity.

Question 12

What are the timelines of management accounting reports like?

Answer 12

They are prepared for future periods of time, and can therefore be both based on the past and future. Essentially predicting and setting aims

Question 13

What kind of information are financial accounting reports made up of?

Answer 13

Quantifiable figures

Question 14

What kind of information are management accounting reports made up of?

Answer 14

Both quantitative and qualitative information

Question 15

What are the six key factors that enhance the usefulness of accounting information?

Answer 15

Relevance
Faithful representation (reliability)
Comparability
Verifiability
Timeliness
Understandability

Question 16

Define financial statement

Answer 16

Financial statements are the main mechanism we have in business to establish business confidence, for effective operation and investment decision making

Question 17

What does an ‘income statement’ do?

Answer 17

Measures profit or loss over a period of time

Question 18

What does a ‘cash flow statement’ do?

Answer 18

Shows the amount of cash going in and out of the company

Question 19

What is a ‘statement of financial position’?

Answer 19

A financial photograph at a moment in time (Assets, liabilities, capital)

Question 20

What does the ‘Statement of Changes in Equity’ present?

Answer 20

Changes in the ownership interest of an entity from the start to the end of the period

Question 21

Why would managers and owners as investors look at their companies financial statements?

Answer 21

To see how the company is performing and what they need to improve

Question 22

Why would lenders look at a companies financial statements?

Answer 22

To look at the risk associated with lending to this company - know how much to lend

Question 23

Why would suppliers and other trade creditors look at a companies financial statements?

Answer 23

To know if the company is reliable - will they will get payment/should they enter contracts?

Question 24

Why would employees look at a companies financial statements?

Answer 24

To see the companies job stability, potential for growth e.t.c

Question 25

Why would the Government and their agencies look at a companies financial statements?

Answer 25

To see it's financial stability and ability to pay taxes, the companies profits and regulate them if necessary

Question 26

Why would customers look at a companies financial statements?

Answer 26

To see how their money is being used, the companies reason for existence and their aim - does it resonate? Possibility of investing in company

Question 27

Why would the general public look at a companies financial statement?

Answer 27

To see if it is benefitting the world in any way e.g are they sustainable

Question 28

What are the six (8) types of business structure?

Answer 28

* Sole Proprietorship/trader * Partnership * Limited Liability Company (LLC) - Private Limited Company (Ltd) - Public Limited Company (Plc) * Limited liability partnership * Corporation * Cooperative (Co-op)

Question 29

What is the difference between a Private Limited Company and a Public Limited Company?

Answer 29

A public limited company can sell shares on the market and therefore have lower liability as any risks will not directly affect just the owners

Question 30

Accrual Basis of Accounting

Answer 30

Revenues and expenses are recognised when they are earned or incurred, regardless of when cash is received or paid

Question 31

Cash Basis of Accounting

Answer 31

Revenues and expenses are recognised only when cash is received or paid

Question 32

What confusion can Accrual Basis of Accounting cause?

Answer 32

Income is recorded when the company has delivered goods or services, and expenses are recorded when they are incurred, not necessarily when cash changes hands

Question 33

What problem can Cash Basis of Accounting cause?

Answer 33

Cash Basis of Accounting does not account for accounts receivable or payable, so it can sometimes present a misleading view of the company's financial health