Lesson 1 - Introduction To Financial Accounting

Question 0

What is the public sector?

Answer 0

The part of the economy owned, financed and controlled by the State.

Question 1

How many sectors is the UK economy made up of, and what are they?

Answer 1

Two - the public sector and the private sector.

Question 2

What is the private sector?

Answer 2

The part of the economy where business activity is organised by private individuals operating on their own or in groups.

Question 3

What types of business entities operate in the private sector?

Answer 3

1. Sole traders
2. Partnerships
3. Limited companies

Question 4

What is a sole trader?

Answer 4

A business entity owned by one person.

Question 5

What is an unincorporated business?

Answer 5

One which in the eyes of the law there is no distinction between the business and the owner, who has unlimited liability.

Question 6

What is unlimited liability?

Answer 6

Being personally responsible for all debts of the business, where private funds as well as those invested in the business are at stake.

Question 7

What is a partnership?

Answer 7

A business entity owned by 2 or more people who carry on business together with the aim of making a profit.

Question 8

Is a partnership incorporated or unincorporated?

Answer 8

Unincorporated, therefore the partners have unlimited liability.

Question 9

In what circumstances can a partner limit their liability?

Answer 9

When the partner only invests funds in the business and is not allowed to be directly involved in the management of the business.

Question 10

What can be used to set out the rights and responsibilities of partners?

Answer 10

A deed of partnership.

Question 11

What is a deed of partnership sometimes referred to as?

Answer 11

A partnership agreement.

Question 12

If no deed of partnership is drawn up, what governs the arrangement?

Answer 12

The Partnership Act 1890.

Question 13

What does the Partnership Act 1890 state?

Answer 13

The profits or losses of a partnership are shared equally between partners irrespective of capital invested, hours worked or responsibilities.

Question 14

Who owns limited companies?

Answer 14

Shareholders.

Question 15

What does incorporated mean?

Answer 15

A company has its own legal identity separate from that of its owners. It can enter into contracts, sue and be sued in its own name.

Question 16

How many types of limited company are there, and what are they called?

Answer 16

Two - private limited company and public limited company.

Question 17

Which type of limited company can offer shares for sale to the public?

Answer 17

Public limited company.

Question 18

How much authorised share capital must a public limited company have as a minimum?

Answer 18

£50,000.

Question 19

What does limited liability mean?

Answer 19

Liability for the business’s debts is limited to the extent of an individual’s personal investment in the company.

Question 20

What legislation regulates limited companies?

Answer 20

The Companies Act 2006.

Question 21

What does the Companies Act 2006 govern?

Answer 21

1. The formation and registration of a limited company
2. Responsibilities of the company, it’s directors and company secretaries
3. Requirements for financial record keeping and preparation and presentation of financial statements.

Question 22

What is financial accounting?

Answer 22

Keeping financial records, and using information from financial records to prepare financial statements.

Question 23

What types of business are required to keep financial records and prepare financial statements?

Answer 23

All types, no matter how large or small.

Question 24

What is management accounting?

Answer 24

The process of internal accounting for the purpose of providing financial information at a time and in a format suitable for planning and controlling the business.

Question 25

Management accounting is a legal requirement - true or false?

Answer 25

False.

Question 26

What is the system of bookkeeping called where a spreadsheet is used to record receipts and payments?

Answer 26

Single entry system.

Question 27

What type of bookkeeping system do medium and larger businesses use?

Answer 27

Double entry system.

Question 28

What information is held by a bookkeeping system?

Answer 28

Assets
Liabilities
Claims (on assets by the owners, or equity by shareholders)
Income
Expenses

Question 29

What does the mnemonic LACIE refer to?

Answer 29

The types of information held by a bookkeeping system: liabilities, assets, claims, income, expenses.

Question 30

What types of source data support transactions?

Answer 30

Sales invoices/credit notes issued to customers
Purchase invoices/credit notes received from suppliers
Receipts issued or received, or till roll readings
Bills - utility companies
Vouchers - eg petty cash vouchers
Statements of account - eg bank statements
Chequebook stubs

Question 31

What sources can be used to extract data to support transaction records?

Answer 31

Register of payments by standing order or direct debit
Payroll
The journal

Question 32

How can financial records be kept safe and secure?

Answer 32

Not talking about financial information public ally
Only giving information to authorised people
Respecting client confidentiality
Locking information away
Using passwords

Question 33

What law protects personal data?

Answer 33

The Data Protection Act says personal data should be kept safe and secure.

Question 34

What types of filing system are there?

Answer 34

Alphabetical
Numerical
Chronological
Geographical

Question 35

How long must source documents and records from which financial information is processed be kept?

Answer 35

Legal requirement is 6 years minimum.

Question 36

What is accounting?

Answer 36

The use of financial information from a bookkeeping system to prepare financial statements on behalf of a business entity.

Question 37

Name two financial statements.

Answer 37

Statement of profit or loss

Statement of financial position