Who are the key users of financial statements?
Shareholders
Shareholders rely on financial statements to make informed decisions about their investments.
Define accruals in accounting.
Earnings/payments during the year not when paid/received
This contrasts with cash basis accounting.
What does the going concern concept assume?
Continued trading for the foreseeable future
This concept is fundamental for preparing financial statements.
Explain the separate entity concept.
Accounting is kept separate even if entities are legally intertwined
This ensures clarity in financial reporting.
What is materiality in accounting?
No information that would influence decisions is omitted
Materiality ensures that financial statements are relevant to users.
What does consistency refer to in accounting?
Treat similar items the same for fair comparison
Consistency aids in comparing financial statements over time.
Define prudence in accounting.
Exercising caution and not overstating assets/income
Prudence helps in understanding expenses/liabilities accurately.
What is the money measurement concept?
Assume verifiable monetary value
This excludes intangible assets from financial statements.
List the fundamental qualitative characteristics of financial information.
- Relevance
- Faithful representation
These characteristics ensure that financial information is useful to users.
What does relevance in financial reporting mean?
Affected by nature and materiality; predictive and confirmatory
Relevant information helps users make informed decisions.
Define faithful representation.
Complete, neutral, free from error
This characteristic ensures that financial statements accurately reflect the entity’s financial position.
Name the enhancing qualitative characteristics.
- Comparability
- Verifiability
- Timeliness
- Understandability
These characteristics improve the usefulness of financial information.
What does integrity mean in ethical accounting?
Straightforward and honest
Integrity is crucial for maintaining trust in financial reporting.
Define objectivity in the context of accounting ethics.
Fair and unbiased
Objectivity ensures that financial information is presented without personal bias.
What is meant by professional competence and due care?
Correct professional knowledge
This ensures that accountants perform their duties to a high standard.
What does confidentiality entail in accounting ethics?
Respect confidential information unless legal/professional duty to disclose
Confidentiality is vital for protecting sensitive information.
What is the role of professional behaviour in accounting?
Maintaining a good reputation
Professional behaviour fosters trust and credibility in the profession.
List the books of prime entry.
- Sales day book
- Sales return day book
- Purchase day book
- Purchase return day book
- Cash book receipts
- Cash book payments
- Discounts allowed day book
- Discounts received day book
- Journal book
- Petty cash book
These books are essential for recording initial transactions.
What does the Statement of Financial Position (SOFP) include?
- Assets
- Drawings
- Liabilities
- Capital
The SOFP provides a snapshot of an entity’s financial position at a specific point in time.
What are the components of the Statement of Profit and Loss (P&L)?
- Expenses
- Income
The P&L statement summarizes revenues and expenses over a period.
Define receivables in accounting.
Owed by creditors (ASSET)
Receivables represent money that is expected to be received.
What are payables?
Owed to suppliers (LIABILITY)
Payables represent obligations to pay for goods or services received.
Differentiate between current and non-current assets.
- Current: Owned for less than 1 year
- Non-current: Owned for more than 1 year
This classification affects liquidity and financial analysis.
Differentiate between current and non-current liabilities.
- Current: Owed for less than 1 year
- Non-current: Owed for more than 1 year
This classification helps in assessing the financial health of an entity.
