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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

2 To what extent do the ‘key results’ meet the needs of users of financial statements?Meeting users’ needs Extracts from annual report 2008 (pp. 1 and 26)Key results (p. 1)Directors’
1 Who might be included in the stakeholders to whom the directors are responsible?Meeting users’ needs Extracts from annual report 2008 (pp. 1 and 26)Key results (p. 1)Directors’ responsibilities
3. State whether you think this transaction (the purchase of the warehouse) has affected the financial worth of Andrew's business. Briefly justify your answer.
2. Briefly justify the element you have chosen to debit in the journal entry above. Use the element definition and recognition criteria in your answer.
1. Prepare the journal entry to record the purchase of the warehouse by Focus Supplies.Your journal entry must clearly show the date that this transaction should be recognised in the general ledger.
The elements can be measured using different measurement bases. We should disclose to the user the measurement bases used in the financial statements.
A transaction can be recognised in the statement of comprehensive income and statement of financial position only if it has the characteristics of one of the elements and has met the recognition
All transactions can be allocated to groups of transactions with similar economic consequences. These are called elements. There are five elements: assets, liabilities, equity, income, and expenses.
Financial statements are prepared on the going concern assumption.
Financial statements are prepared on the accrual basis of accounting. This basis recognises the effects of transactions when the transactions happen and not when the related cash flow occurs. We
For the financial information to be useful to all the users it should have qualities of understandability, relevance, reliability and comparability.
The objective of financial statements is to provide information to a wide variety of users that is useful when making economic decisions. The information provided is about the financial position,
Understand the going concern concept.
Realise that information in financial statements should have certain qualities to help financial statements achieve their objective
Recognise a transaction in the accounting records using the recognition criteria
Know how to apply the definition of elements to different transactions
Appreciate that all transactions are recorded in the general ledger as one of the five elements:asset or liability, income or expense, and equity
Understand the two basic rules that underlie the preparation of all financial statements: the accrual basis of accounting and the going concern concept
Understand the objective of financial statements
Understand what is meant by generally accepted accounting practice
c) Why is the net profit part of the equity on the statement of financial position?
b) What is the purpose of the statement of comprehensive income?
a) What is the purpose of a statement of financial position?
3. Do you think that Judy should have a separate account for each type of stationery, for example, pens, invoice books, etc? Explain your answer.
2. Do you think that the general ledger of all businesses will have the same accounts? Explain your answer.
1. What accounts should Judy have in her general ledger?
3. Must the accounts be debited or credited?
2. Are the elements increasing or decreasing?
1. Which elements of the accounting equation will be affected (assets, equity or liabilities)?
Record information in specialised journals.
Understand the need for specialised journals
Recognise source documents and understand what transaction is being reflected on them
Record information in the general journal
Extract a trial balance at the end of the month
Balance ledger accounts
Record transactions in the general ledger
Process transactions
Understand the need for a processing system
We know how to prepare basic financial statements.
We have learnt what information is presented in the statement of cash flows.
We know about the assumptions that underlie the presentation of financial statements.
We have learnt what information is presented in the statement of comprehensive income.
We know how profit is calculated and how that calculation is presented.
We know how assets and liabilities are presented on the statement of financial position.
We have learnt what information is presented in the statement of financial position.
We know how the accounting equation (assets = equity + liabilities) is derived.
7. Would we include the personal clothing Judy purchased in the calculation of profit?Explain your answer.
6. Read through Judy's financial reports and identify any expenses and income that should be recognised in January X1.
5. Do you think that the invoice books and pens purchased on 12 January X1 are an asset on the statement of financial position at 31 January X1?
4. Should we recognise the R500 received from A. Browning on 16 January as sales income?
3. Do you think that the R120 received on 15 January should be recognised as sales income?
2. What was the cost of the inventory that the business had at the end of January?
1. What was the cost of the inventory purchased during the month?
Is he worth R100 000, because he now owns a house worth R100 000?
Do you think that the owner has become wealthier (in financial terms) by buying the house?
How much money is still owed on the house? R40 000
How much of the owner's own money was used to pay for the house? R60 000
How much did the house cost? R100 000
Prepare basic financial reports.
Identify income and expenses
Understand what information is communicated in the financial reports of a business
Understand how a business makes the owner wealthier
Understand the key types of decisions a business owner needs to make to enable a business to be successful
We know who needs accounting information and what information is needed.
We know how businesses are classified according to their function.
We have discovered what businesses are and how they are formed.
We have learnt how the business and accounting environment works.
We know something about the history of accounting.
Accounting is a financial measure of the decisions taken by the business.
Accounting is a system that communicates a message about the financial effects of all decisions made in a business in the past.
The total value of all resources controlled by the business.
How much profit has been generated
How much cash has flowed into and out of the business
The expenses incurred in order to earn that income.Financial analysts, investors, financial advisors, and financial institutions need information about:
How much income has been earned
How much is available in the business after paying all the costs of running the business.
How large the total interest expense is in relation to the income earned
What other loans the business has to pay back
What profit has been generated by the business
How much cash is available in the business.
What percentage of the total expenses the salary and wage bill makes up
What the total expenses of the business are
What profit has been generated by the business
The timing of cash flows.
What it costs to run the business
What resources need to be purchased in the future
How much money needs to be borrowed in the future
The cost of borrowing money
How successfully these resources have been managed to earn a profit (how much profit has been generated?)
What resources have been purchased
What activities generated the most cash flow.
What the money has been spent on
How much money is in the bank
What the business owes
What resources are controlled by the business
How well the business is doing (is the business making a profit, and how large is that profit when compared to the investment in the business made by the owner?)
What facilitates the flow of the resources (input) into productive output? Processes, time, money.
What are the common features of all the activities? They represent work that needs to be done to transform inputs into outputs.
What are the common features of all the outputs? They are all items that satisfy needs or wants.
What are the common features of all the inputs? They are all factors of production or resources.

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