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Role of accounting
Information system for stakeholders' resource management decisions.
Role of accountant
Prepares information and sets up accounting systems.
Professional Ethics (Integrity)
Accountants must be honest in all relationships.
Professional Ethics (Objective)
Accountants avoid biases in professional judgments.
Going concern Theory
Assumes indefinite business life unless evidence suggests closure.
Objectivity Theory
Requires verifiable evidence for recorded accounting information.
Accounting Entity Theory
Business activities are separate from owner's actions.
Historical Cost Theory
Records transactions at their original cost.
Monetary Theory
Records only activities expressed in monetary terms.
Revenue recognition theory
Revenue recognized when goods/services are delivered.
Accrual basis of accounting
Records activities regardless of if cash paid in relevant accounting period.
Accounting period theory
Divides business life into regular intervals.
Receipt
Acknowledgment of payment from customers.
Invoice
Notifies customers of amounts owed post-sale.
Remittance Advice
Informs supplier of payment made for invoice.
Payment voucher
Processes supplier payments with original invoice by authorised personnel
Debit note
Increases amount owed by undercharged customer.
Credit note
Decreases amount owed by overcharged customer.
Cash transaction
Payment made immediately during sale or purchase.
Credit transaction
Payment postponed during credit sale or purchase.
Assets
Resources owned expected to provide future benefits.
Liability
Obligations owed to others, settled in future.
Equity
Owners' claims on net business assets.
Capital
Resources contributed by owners for business use.
Expense
Costs incurred to earn income in the period.
Income
Amount earned from business activities.
Drawing
Assets taken from business for personal use.
Source document
Details needed for recording business transactions.
Stakeholders
Individuals concerned with business performance and decisions.
Sales revenue
Contra-income account for sales returns.
Ledger
Consolidation of transactions for specific accounts.
Trade discount
Reduction on list price to encourage bulk purchases.
Cash discount
Reduction for early payment within specified timeframe.
Discount allowed
Discount given to credit customers for early payment.
Discount received
Discount received from suppliers for early payment.
Trial balance
Ensures arithmetic accuracy in accounting records.
Financial statements
Prepared regularly to inform stakeholders.
Statement of financial performance
Shows income earned and expenses incurred over time.
Statement of financial position
Details resources and claims on net assets.
Current assets
Benefits used within one financial year.
Non-current assets
Benefits lasting beyond one financial year.
Current liabilities
Obligations due within one financial year.
Non-current liabilities
Obligations due beyond one financial year.
Service fee revenue
Recognized when services have been provided.
Income receivable
Earned but not yet received income recorded.
Income received in advance
Recognized when earned, not when received.
Matching theory
Expenses matched against income in the same period.
Cost of sales
Costs incurred in purchasing sold inventory.
Other expenses
Costs incurred to earn income, matched with income.
Expenses payable
Services used but not yet paid for.
Prepaid expenses
Expenses paid in advance before services used.
Cheque
Written instruction to bank for payment.
Cash at bank
Cash deposited with the bank.
Cash in hand
Physical cash kept by the business.
Dishonoured cheque reasons
Inconsistent, incomplete, expired, post-dated, or frozen account.
Purpose of internal control
Safeguard assets, ensure accuracy, comply with laws.
Examples of internal control
Segregation of duties, custody of cash, authorization.
Bank reconciliation
Compare business and bank records for discrepancies.
Timing differences
Differences in ending balances due to timing.
Purpose of bank reconciliation
Identify discrepancies and calculate accurate bank balance.
Direct deposit
Funds deposited directly into business bank account.
Direct payments
Bank transfers funds directly to suppliers.
Cheques not yet presented
Issued cheques not yet cashed by suppliers.
Deposits in transit
Deposited cheques not yet processed by bank.
Dishonored cheques
Bank rejects a previously deposited cheque.
Inventory
Goods bought for resale by a business.
Excessive inventory
Leads to high storage costs and obsolescence risk.
FIFO
First goods purchased are assumed sold first.
Net realizable value
Selling price minus costs to sell inventory.
Prudence Theory
Inventory valued at lower of cost or net realizable value.
Trade receivables
Amounts owed by customers for credit purchases.
Credit risk
Risk of uncollectible debts from credit customers.
Writing off debts
Removing uncollectible debts from accounts.
Allowance for impairment
Estimated uncollectible debts based on Prudence Theory.
Impairment loss
Change in allowance for uncollectible trade receivables.
Capital expenditures
Costs to acquire and enhance non-current assets.
Revenue expenditure
Costs for operating and maintaining non-current assets.
Materiality Theory
Relevant info recorded in financial statements if it makes a diff to decision making
Depreciation
Allocation of asset cost over its useful life.
Causes of depreciation
Usage, wear and tear, obsolescence, legal limits.
Net Book Value
Cost minus accumulated depreciation of an asset.
Straight-line method
Equal depreciation expense each year.
Reducing-balance method
Higher depreciation in earlier years, decreasing over time.
Consistency Concept
Accounting methods must remain consistent over time.
Trade payable
Amounts owed to suppliers for credit purchases.
c. Therefore, there is an equal amount of depreciation recorded every year
c. Therefore, a higher amount of depreciation is recorded in the earlier years and reduces as times goes by
Note 
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