Week 3

Question 1

What are the books of Prime Entry?

Answer 1

• Sales Day Book (credits sales)
• Purchase Day Book (credits purchases)
• Cash Book (records all cash sales and purchases plus any other items that affect the bank account)
• Purchase Book (records all journal entries made. These deal with corrections of errors or items not covered by any of the other books of prime entry)

Entries will be posted regularly from these books to the nominal ledger

Question 2

What are the accounting Records?

Answer 2

All books of prime entries → Nominal Ledger → Trial Balance → Financial Statements

Question 3

What are measurement principles?

Answer 3

• Going Concern (assuming business is going to trade business for more than 12 months)
• Accurals (matching principles, incomes and expenses against accounting period)
• Consistency (consistent with same policy all year round, consistency across different businesses)
• Prudence (Financial statements should be prepared with a degree of caution when exercising judgements)

Question 4

What does faithful representation need to be?

Answer 4

Financial reports represent economic phenomena in words and numbers. To be useful, financial information must faithfully represent the substance of the phenomena that it purports to represent. To be perfectly faithful representation it would need to be complete, neutral and free from error.

Question 5

What is the argument against regulation?

Answer 5

There are economic incentives to disclose credibly, arising from agency theory; market for lemons perspective- no information viewed as bad news; costs may exceed benefits

Question 6

What are forces for change?

Answer 6

• Development information technology have led to the globalization of the words capital market i.e.:
• Companies operate globally/seek finance outside national borders
• Investors want to invest worldwide
• Yet each county has it own national accounting standards, so accounting information is not comparable across border
• This is a major barrier to greater investment and increases the cost of capital

Question 7

What are regulation provided by?

Answer 7

Companies most regulated as result of being most privileged
Regulation provided by:
-Uk Companies Act
-Financial Reporting Standards it IFRS or IAS
-Other elements (e.g. stock exchange)

Question 8

What does regulation cover?

Answer 8

Regulation covers:

• existence and formation of company
• directors and responsibilities
• accounting and financial statements
• statutory audit(ors)