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Accounting /POA Sec 3 Chap 1: Role of Accounting and Accounting Principles Part 1

POA Sec 3 Chap 1: Role of Accounting and Accounting Principles Part 1

Accounting25 CardsCreated 2 months ago

This deck covers the fundamental concepts of accounting, including bookkeeping, the roles and responsibilities of accounting, the accounting information system, stakeholders, and types of business entities.

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What is Bookkeeping?

It refers only to the recording process of business transactions
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Key Terms

Term
Definition
What is Bookkeeping?
It refers only to the recording process of business transactions
What is accounting?
It involves recording, summarising, analysing, interpreting and communciation of the financial information
What is the roles of accounting and the accounting information system?
Stewardship and Decision making
What is stewardship?
To be responsible to provide financial information to help owners make decisions on how to manage the business
What is decision making?
Accounting provides financial information to interested parties to help them make decisions relating to business
What is the accounting information system?
A system to collect, record and report the financial information
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POA Sec 3 Chap 1: Role of Accounting and Accounting Principles Part 1
TermDefinition
What is Bookkeeping?
It refers only to the recording process of business transactions
What is accounting?
It involves recording, summarising, analysing, interpreting and communciation of the financial information
What is the roles of accounting and the accounting information system?
Stewardship and Decision making
What is stewardship?
To be responsible to provide financial information to help owners make decisions on how to manage the business
What is decision making?
Accounting provides financial information to interested parties to help them make decisions relating to business
What is the accounting information system?
A system to collect, record and report the financial information
Who are the internal stakeholders?
Owners and managers Employees
Who are the external stakeholders?
Shareholders and investors Banks, suppliers and lenders Competitors Customers Government Public
How is accounting information used by Owners and managers for decision making?
They need all information to monitor, analyse, control and plan the performance of the company
How is accounting information used by employees for decision making?
They want to know the profits and cash to consider the company’s prospects and ability of the company to pay their salaries promptly
How is accounting information used by Shareholders and Investors for decision making?
They want to know the profit, assets, liabilities and potential returns on investments to decide on their investment plans
How is accounting information used by Banks, suppliers and lenders for decision making?
They want to know the profit, cash and liabilities to evaluate if the business is able to pay the debts and service the interest
How is accounting information used by Competitors for decision making?
They want to know the income and profit to compare their performance
How is accounting information used by Customers for decision making?
They want to know the profit to evaluate the stability and continuity of the business
How is accounting information used by Government for decision making?
They want to know the income and profit for tax purpose
How is accounting information used by Public for decision making?
They want to know the income and profit to assess the economic situation
What is a cash transaction?
It is for which immediate payment is made
What is a credit transaction?
It is for which payment is postponed to a future date
What is the difference between a trading business and a service business
A trading business is like a retail shop whilst a service business is like a hair salon. The main difference is in financial statements, as a trading business would include records of inventory and the trading portion of the income statement
What are the types of business entities that can be registered?
Sole-proprietorship Partnership Limited Company
Between a sole proprietorship and limited company, which is easier to set up and why?
Sole proprietorship, as it is less expensive and one owner makes all the decisions
Between a sole proprietorship and limited company, which is easier to raise funds and why?
Limited Company as it’s easier to borrow from banks and can issue shares to raise funds
Between a sole proprietorship and limited company, what is the rewards and risk?
Sole proprietorship takes all profits and all losses Limited partnership shares profits but only loses amount invested
Between a sole proprietorship and limited company, which is easier to transfer ownership up and why?
Limited company as its easier for shareholders to sell their share ownership
Between a sole proprietorship and limited company, which is easier to prepare financial statements and why?
Sole proprietorship as limited companies have to follow strict regulations for audit purpose