Introduction to accounting Flashcards Preview

Principles Of Accounts theory > Introduction to accounting > Flashcards

Flashcards in Introduction to accounting Deck (16)
Loading flashcards...
1
Q

What is the definition of book-keeping? (Can be found in the POA terms deck)

A

It is the process of recording business transaction.

2
Q

What is accounting? (Can be found in the POA terms card deck)

A

The process of ‘recording, summarising, analysing, interpreting and reporting’ the financial information of a business. [Book-keeping is only recording while Accounting is recording + summarising + analysing + interpreting + reporting.]

3
Q

What are the two major roles of accounting?

A

Stewardship and Decision-making.

4
Q

What is the definition of Stewardship?

A

A steward does not own the business but is given the responsibility to manage its resources.

5
Q

What is the definition of Decision-making?

A

To help people who are interested in the business to make decisions relating to the business.

6
Q

Stakeholders can be grouped to two big categories, what are they?

A

Internal and External.

7
Q

Name the internal stakeholders, the financial information they are interested in and why they need it.

A

Sole proprietors and managers. They require all of the financial information, so as (to make decisions on how to plan, control, monitor and operate the business.)

Employees. They need to know the profit and cash information of the business. (As their main decision is to decide if they should continue working for the business or not. To see if business is profitable to evaluate career prospects with business and to see if they expect any bonuses. To see if business has sufficient cash to pay their salaries promptly.)

8
Q

There are 6 external stakeholders, name all 6 of them.

A

Shareholders and investors. Banks and other lenders. Suppliers, Customers, Government, Public and Competitors.

9
Q

Name the financial information that the shareholders and investors are interested in, the decisions made and why they require the financial information.

A

Financial nformation needed: Profit, assets and liabilities(P.A.L). The amount received in return for investment made.

Decisions made and why: Existing shareholders and investors evaluate whether they should maintain, increase or decrease their investment. Potential investors decide if they should invest in the business.

10
Q

Name the financial information that banks and other lenders are interested in, the decisions made and why they need it.

A

Financial information needed: Profit, assets and liabilities.

Decisions made and why: Lenders decide if they should grant the business loan. Based on the business profit, assets and existing debt amount, lender evaluates if the business will be able to repay the loan principle and pay interest.

11
Q

Name the financial information needed by suppliers, the decisions made and why.

A

Financial information needed: Profits, cash and liabilities.

Decisions made and why: To see if they should grant the business loans. Based on the business profits, cash and existing debts owed to the suppliers, they evaluate if the business is able to pay for its credit purchases.

12
Q

Name the financial information that customers is interested in, the decisions made and why.

A

Financial information needed: Profit.

Decisions made and why: Decide if they should buy from the business. Evaluate if business will be able to provide after-sales support. A profitable business is most likely to continue operating in the future, hence, provide the support.

13
Q

Name the financial information that the government are interested in, the decisions made and why.

A

Financial information needed: Income and profit

Decisions made and why: Decides how much tax to collect from the business.

14
Q

Name the financial information that the public are interested in, the decisions made and why.

A

Financial information needed: Income and profit

Decisions made and why: Business performance is an indication of how well the economy is doing. The better the business performance, more confident the public is. Affects public’s decision. (E.g: How their assets are invested, change jobs, take up a loan.)

15
Q

Name the financial information that Competitors are interested in, the decisions made and why.

A

Financial information needed: Income and profit

Decisions made and why: They compare their performance against the business to see how to improve their performance.

16
Q

Name the 2 important business ethics and the importance of doing so.

A

Integrity, straightforward and honest in all professional and business relationship. (Accountants or bookkeepers including all staff who prepare and communicate financial information should have integrity)

Objectivity, unbiased when making a professional judgement in the accounting process. Focuses on facts and not being influenced by personal life when deciding on recording financial information and how it is reported.