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Flashcards by Connor Davies-Beare, updated more than 1 year ago
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| Question | Answer |
| What is the definition of accounting? | The recording, preparing and interpreting of business transactions |
| What is the main benefit of accounting? | Allows managers to monitor, plan and control activities of a business |
| What are the TWO main elements an accountant does day to day? | Records and summarises |
| What does the RECORDING element of accounting consist of? | Recording transaction as they occur Providing up-to-date information for management |
| What does the SUMMARISING element of accounting consist of? | Summarising the transactions over a certain time period (usually a month) Providing information about the company to interested parties |
| What are the FIVE main areas of accounting? | MAFFT 1. Management accounting 2. Auditing 3. Forensic accounting 4. Financial accounting & reporting 5. Taxation |
| What is financial accounting? | The production of summary financial statements for external users These statements are prepared annually and required by law |
| What are the FIVE main financial statements? | PCFCN 1. Statement of PROFIT or loss 2. Statement of CHANGES in equity 3. Statement of FINANCIAL position 4. Statement of CASH Flows 5. NOTES |
| Who are the SIX main users of financial statements? | SLICEG 1. Suppliers 2. Lenders 3. Investors 4. Customers 5. Employees 6. Government |
| What are NFPs? | Not For Profit organisations (NFPs) Making a profit is not the main objective, but instead they try to benefit society and satisfy needs of their audience {NHS, British Red Cross} |
| What is the GAAP? | Generally Accepted Accounting Practice (GAAP) The accounting rules and regulations which apply in a certain jurisdiction i.e. UK GAAP or US GAAP |
| What is the IASB? | International Accounting Standards Board (IASB) Provide standards to tell us how a transaction should be shown in the financial statements |
| What is the FRC? | Financial Reporting Council (FRC) Responsible for writing the accounting standards in the UK |
| What is the ASB? | The Accounting Standards Board (ASB) Responsible for controlling the creation of UK accounting standards (FRSs) |
| What are the FRSs? | Financial Reporting Standards (FRSs) The UK accounting standards, created by the ASB |
| Name the FOUR biggest accountancy bodies in the UK | ACCA, CIMA, ICAEW, CIPFA |
| What are the TWO elements of financial statements? | FPx2 Financial positions and financial performance |
| Which STATEMENT is related to the financial position element and what does it consist of? | The statement of financial position Consists of assets, liabilities and equity |
| Which STATEMENT is related to the financial performance element and what does it consist of? | The statement of profit and loss Consists of income and expenses |
| What is the statement of changes in equity? | Shows how the figure of equity in the Statement of Financial Position has changed between the start and the end of the year |
| What is an asset? | A resource controlled or owned by the company that hold economic value {machinery, inventory, cash, staff} |
| What are the TWO categories that accounting standards want us to separate assets into when presented? | Non-current and current assets |
| What is a non-current asset? | Assets that are used over a long time and not used for resale in the normal course of trading {Land, Labour, Buildings} |
| What is a current asset? | Assets that used over a short time and are expected to be used for resale in the normal course of trading {Cash, Inventory} |
| How are non-current assets listed in the statement of financial position? | From longest to shortest, in terms of how long the business will keep the asset {Land, vehicles, machinery} |
| How are current assets listed in the statement of financial position? | From least to most, in terms of the liquidity of the asset (how easy it is to turn into cash) {inventory, receivables, cash) |
| What is a liability? | Something an entity owes to another entity due to past events A payment of some sort is necessary to the outsiders in order to come up with a settlement |
| What are the TWO categories that accounting standards want us to separate liabilities into when presented? | Non-current and current liabilities |
| What is a non-current liability? | Liabilities that are able to be paid off 12 months after the reported date {Bank loans} |
| What is a current liability? | Liabilities that must be paid off within 12 months of the reported date {Trade payables, Bank overdraft} |
| What is equity? | Equity is the residual interest in the assets of the entity after deducting all of its liabilities E = A - L Equity can also be the amount that belongs to the owners of the entity |
| What is income? | Anything that increases equity. An increase in assets or a decrease in liabilities will count as income (other than contributions from equity participants) {Sales, Rental income, Bank interest} |
| What are expenses? | Anything that decreases equity. An increase in liabilities or a decrease in assets will count as expenses (other than distributions from equity participants) {Purchases, Rent, Depreciation, Wages} |
| What are the 6 steps we must take part in after a transaction? | TELTYF 1. Transactions occur 2. Effects recorded in ledger accounts 3. Ledger accounts balanced off 4. Trial balance 5. Year end adjustments made and ledger accounts closed off 6. Financial statements |
| How many ways does a transaction affect financial statements? | AT LEAST TWO There will always be an increase in one ledger and a decrease in another that should add to 0 {Purchase of a vehicle = increase in non-current assets and a decrease in cash} |
| What is the accounting equation? | E = A - L Equity = Assets - Liabilities |
| What are the THREE main facts about the accounting equation? | B DE DAC 1. The accounting equation should always BALANCE 2. DOUBLE ENTRY means that every transaction will affect at least two accounts in the general ledger 3. DUAL ASPECT CONCEPT - Every debit transaction should have an equal CORRESPONDING TRANSACTION as a credit and vice versa for credits |
| What is the extended accounting equation? | Assets = Equity + (-) Profit (loss) + Liabilities |
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