Accounting & Economics Exam
Q&A
Accounting - answer-The process of collecting, recording and reporting financial information to
assist business owners in decision making
Factors influencing success of a business - answer-- Climate/weather
- Location
- Consumer preferences
- Competition
- Quality of staff
Why business owners use accountants - answer-- Calculation of profit & how to increase profit
- Organisation
- Advice
Users of accounting information - answer-Owner - return on investment
Suppliers/creditors - will they get paid?
Employees - keeping their jobs & how much they get paid
Tax office - they want to tax you on the profit
Financial data - answer-Raw facts and figures on which financial information is based
Financial information - answer-Data that has been sorted, classified and summarised into a
more usable and understandable form
,The accounting process - answer-1. Source documents (receipts)
2. Records (journal, ledger, stock card)
3. Reports (income statements, balance sheets, statement of receipts & payments)
4. Advice
Accounting principles - answer-Are rules that accountants follow to govern the way accounting
information is recorded. Following the principles means there is a standard accepted procedure
for situations where more than one approach is possible. There are seven principles (CHER
MCG)
CHER MCG - Accounting principles - answer-~ CONSISTENCY (accounting methods should be
applied in a consistent manner, so reports can be compared between periods of time)
~ HISTORICAL COST (transactions should be reported at their original cost/value, because
there is a source document to prove the value of the transaction)
~ ENTITY (the business and the owners financial affairs are not mixed)
~ REPORTING PERIOD (must divide the life of the business into periods of time to allow
reports to be prepared)
~ MONETARY UNIT (all items must be recorded and reported in the currency of the location)
~ CONSERVATISM (worst case scenario approach, losses should be recorded when probable)
~ GOING CONCERN (assumes life of the business is continuous-records are kept on that
basis, allows us to record transactions that will have an effect on the future)
Qualitative characteristics - answer-Accounting principles guide the recording process.
Qualitative Characteristics of Financial Information outline the attributes that financial reports
should possess once they are prepared.
CRUR - Qualitative characteristics - answer-~ COMPARABILITY (reports should be comparable
over time and between different companies. This is why consistent procedures must be used -
consistency principle)
~ RELEVANCE (Reports should include all information that is useful for decision making. Ties in
with Entity and Reporting Period principles)
~ UNDERSTANDABILITY (Reports should be presented in a manner that is 'user friendly' -
easily understood. Consistency also ties in here - consistent format for reports)
, ~ RELIABILITY (Reports must contain information that is free from bias and can therefore be
relied on for its accuracy. Amounts used in reports should also be reliable - no estimates. Ties in
with Historical Cost)
Recording - answer-Sorting, classifying and summarising information contained in the source
documents so that it is more useful
Reporting - answer-The preparation of financial statements that communicate financial
information to the owner, so decisions can be made
Source documents - answer-Pieces of paper that provide evidence the transaction occurred as
well as the details of the transaction
Liabilities - answer-A present obligation of the entity (as a result of past events), the settlement
of which is expected to result in an outflow of economic benefits.
- eg. Loan, creditors
Current assets - answer-A resource controlled by the entity (as a result of past events), from
which future economic benefits are expected for 12 months or less.
Asset - answer-A resource controlled by the entity (as a result of past events), from which future
economic benefits are expected.
- eg. Vehicle, bank, stock, debtors, equipment
Non-current liabilities - answer-A present obligation of the entity (as a result of past events), the
settlement of which is expected to result in an outflow of economic benefits sometime after the
next 12 months
Owner's equity - answer-A residual interest in the assets of the entity after the liabilities are
deducted
Current liabilities - answer-A present obligation of the entity (as a result of past events), the
settlement of which is expected to result in an outflow of economic benefits in the next 12
months
Q&A
Accounting - answer-The process of collecting, recording and reporting financial information to
assist business owners in decision making
Factors influencing success of a business - answer-- Climate/weather
- Location
- Consumer preferences
- Competition
- Quality of staff
Why business owners use accountants - answer-- Calculation of profit & how to increase profit
- Organisation
- Advice
Users of accounting information - answer-Owner - return on investment
Suppliers/creditors - will they get paid?
Employees - keeping their jobs & how much they get paid
Tax office - they want to tax you on the profit
Financial data - answer-Raw facts and figures on which financial information is based
Financial information - answer-Data that has been sorted, classified and summarised into a
more usable and understandable form
,The accounting process - answer-1. Source documents (receipts)
2. Records (journal, ledger, stock card)
3. Reports (income statements, balance sheets, statement of receipts & payments)
4. Advice
Accounting principles - answer-Are rules that accountants follow to govern the way accounting
information is recorded. Following the principles means there is a standard accepted procedure
for situations where more than one approach is possible. There are seven principles (CHER
MCG)
CHER MCG - Accounting principles - answer-~ CONSISTENCY (accounting methods should be
applied in a consistent manner, so reports can be compared between periods of time)
~ HISTORICAL COST (transactions should be reported at their original cost/value, because
there is a source document to prove the value of the transaction)
~ ENTITY (the business and the owners financial affairs are not mixed)
~ REPORTING PERIOD (must divide the life of the business into periods of time to allow
reports to be prepared)
~ MONETARY UNIT (all items must be recorded and reported in the currency of the location)
~ CONSERVATISM (worst case scenario approach, losses should be recorded when probable)
~ GOING CONCERN (assumes life of the business is continuous-records are kept on that
basis, allows us to record transactions that will have an effect on the future)
Qualitative characteristics - answer-Accounting principles guide the recording process.
Qualitative Characteristics of Financial Information outline the attributes that financial reports
should possess once they are prepared.
CRUR - Qualitative characteristics - answer-~ COMPARABILITY (reports should be comparable
over time and between different companies. This is why consistent procedures must be used -
consistency principle)
~ RELEVANCE (Reports should include all information that is useful for decision making. Ties in
with Entity and Reporting Period principles)
~ UNDERSTANDABILITY (Reports should be presented in a manner that is 'user friendly' -
easily understood. Consistency also ties in here - consistent format for reports)
, ~ RELIABILITY (Reports must contain information that is free from bias and can therefore be
relied on for its accuracy. Amounts used in reports should also be reliable - no estimates. Ties in
with Historical Cost)
Recording - answer-Sorting, classifying and summarising information contained in the source
documents so that it is more useful
Reporting - answer-The preparation of financial statements that communicate financial
information to the owner, so decisions can be made
Source documents - answer-Pieces of paper that provide evidence the transaction occurred as
well as the details of the transaction
Liabilities - answer-A present obligation of the entity (as a result of past events), the settlement
of which is expected to result in an outflow of economic benefits.
- eg. Loan, creditors
Current assets - answer-A resource controlled by the entity (as a result of past events), from
which future economic benefits are expected for 12 months or less.
Asset - answer-A resource controlled by the entity (as a result of past events), from which future
economic benefits are expected.
- eg. Vehicle, bank, stock, debtors, equipment
Non-current liabilities - answer-A present obligation of the entity (as a result of past events), the
settlement of which is expected to result in an outflow of economic benefits sometime after the
next 12 months
Owner's equity - answer-A residual interest in the assets of the entity after the liabilities are
deducted
Current liabilities - answer-A present obligation of the entity (as a result of past events), the
settlement of which is expected to result in an outflow of economic benefits in the next 12
months
