EXAM

• What are the main types of business form? (4)

  Sole Trader

  Partnership

  Limited Liability Partnership

  Limited Liability Company (Private and Public)
• Accounting is concerned with ..., ... and ... financial info

  Collecting

  Analyzing

  Communicating
• What does the Statement of Financial Position shows?

  Position of accumulated wealth
• What does Income Statement show?

  Performance in creating wealth
• What does Statement of Cashflows show?

  Prospect in staying in business
• What does Balance Sheet include?

  Assets

  Liabilities

  Equity
• What does Income Statement Include?

  Revenue

  Expenses

  Profit
• What does Statement of Cashflows include?

  Cash Inflow

  Cash Outflow
• What are fundamental characteristics of accounting info?

  Relevance

  Faithful Representation
• What are the enhancing characteristics of accounting info?

  Comparability

  Verifiability

  Understandability

  Timeliness
• What does relevance mean?

  Accounting information has to have predictive and confirmatory value
• What does faithful representation mean?

  Accounting info has to be complete, neutral and unbiased, free from error
• What does comparability mean?

  Accounting info can be used to make valid comparisons
• What does verifiability means?

  Accounting info can be proven and there is evidence behind it
• What does timeliness mean?

  Accounting info is made available in time
• What does understandability mean?

  Accounting info should be presented in clear and concise way
• Underestimated liabilities lead to

  Overstated performance and overstated assets
• Expense is

  A decrease in economic benefits resulting in a decrease in equity
• Revenue is

  Economic benefit generated by a business
• Revenue Recognition


  Revenue should be recognized when control of goods has been transferred to the customer
• Accruals


  Revenues and expenses are recognized when earned or incurred
• Matching Principle


  Expenses should be matched to the revenues they help generate
• Going Concern


  Assumption that the business will operate in foreseeable future
• Consistency


  The measurement and presentation of similar transactions and other events is carried out in a consistent way each accounting period
• Prudence

  Gains and assets are not overstated and losses and liabilities are not understated
• Business Entity Principle

  Business and its owners are treated separately for accounting purposes
• Historic Cost Method

  Method of valuing assets and liabilities based on their original cost without adjustment to changing prices
• Dual Aspect

  Each transaction has 2 aspects both of which will affect the balance sheet
• Accrual is

  When expense is more than cash paid
• How accruals are recognized?

  Increase in expenses in Income Statement

  Increase in Current Liability in Balance Sheet
• Prepayment is

  When amount paid is more than the expense for the period
• How prepayment is recognized?

  Decrease in expense in Income Statement

  Increase in Current Assets in Balance Sheet
• Capital Expenditure is

  Expenditure to create, acquire or improve long-term assets (i.e., future benefits)
• Revenue Expenditure is

  Expenditure for trading purposes or long-term asset maintenance (i.e., no future benefit)
• Prime Costs is

  Total of direct costs
• What type of costs are superviser's wage

  Stepped cost
• Allocation is

  Assigning a whole item of cost to a single cost unit or centre
• Apportionment is


  Spreading costs over 2 or more cost units or centres
• Absorption is

  Attaching overhead costs to products or services
• Cost Centre is

  A production or service location, a function, an activity or an item of equipment for which costs are accumulated