accounting exam

Qualitative Characteristics

Features or Qualities

  • Qualitative characteristics are features or qualities that make financial reports useful for those reading them.

  • It concerns how information is presented.

Relevance

  • Information should be helpful for decision-making.

Faithful Representation

  • Complete: Includes all necessary information.

  • Unbiased: Free from any manipulation or slant.

  • Accurate: Correct and reliable.

Comparability

  • Information should be comparable across different time periods or between different businesses.

Verifiability

  • Information can be confirmed with evidence.

Timeliness

  • Information should be provided quickly.

Understandability

  • Information should be clear and easy to interpret.

ACCOunting Assumption -rules for how reports are prepared

Entitiy- business is sperate from owners

Accrual basis- revenue and expenses when they are earned or used not when cash is paid or received

Going concern- assume business will keep going and wont shut down

Period- reports are made for set period/time (monthly, yearly)

What are the four stages of the accounting process?

  1. Identify and Recording transactions- Find financial events and write them down in source documents

  2. Classifying transactions- Sort them into categories: revenue, expense, asset, liability, equity.

  3. Summarising transactions into reports such as balance sheets and income statements

  4. Interpreting and reporting financial information-Analyse reports using ratios and give feedback or make decisions.

Define Accounting: Accounting is the process of recording, reporting, and analysing financial transactions of a business to help people make informed decisions.

Current assets: Expected to be used or turned into cash within a year

Non Current asset: Held or used for more than a year

Current liability: Something owed within the next year (365 days)

Non Current Liability: Something owed that is due after 365 days

Revenue: Income earned by the business from its operations

Expense: Costs the business pays to earn revenue

Asset: Anything the business owns or controls that provides future value

Liability: Debts the business owes

Owners Equity: The owner’s investment into the business

RATIOS

Net profit ratio- how much profit is kept after expenses, imrooved by reducing expenses, reduceing cost of goods sold, increasing revenue

Gross profit ratio- how much profit a business makes from selling goods before expenses, improce by decreasing cost of goods sold or increasing prices

Debt ratio- how much of the business is funded by debt, improved by paying off loans faster, avoid taking more loans, increase owner investmnet

Who is accounting reports made for (income statement and balance sheet)

Internal- business owners and managers

External- banks, ivestors, suppliers

Source documets

Recepits- proof of receiving cash

Invoice- proof of a credit sale

Credit note- proof of a return/ reduction in amount owed

Cheque Butt/ bank statment - proof of payment made

EFT receipt- electronic transfer evidece

Memo- internal note for non cash transactions (owner withrawal)