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46 Cards in this Set
- Front
- Back
Accounting
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the process of identifying, measuring and communicating information to permit informed judgements and decisions by users of the information
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What does accounting provide?
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a method of systematically recording and evaluating business activities
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What two distinct roles does accounting fill?
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- Stewardship
- Decision Usefulness |
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Stewardship
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the more traditional role of providing accountability reports of transactions for a given period
i.e. position at the beginning, during and at the end of a time period |
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Decision Usefulness
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the more recent role of assisting users with making informed choices about the allocation of scarce resources
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Which two main type of people use accounting information?
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- External user
- Internal user |
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Internal User
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those who work within the business or entity and have access to all (or most) of the business records
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External User
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those who are outside the business or entity but may still be affected by the operations of the business
e.g. customer |
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What sort of system can we view accounting as?
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An information system
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Accounting as an information system
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We can view accounting as an information gathering, processing and communication system
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What does an information system involve?
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- Identifying and capturing relevant economic information
- Recording the information collected in a systematic manner - Analysing and interpreting the information collected - reporting the information in a manner that suits the needs of users |
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What other function can accounting have?
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A service function
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How can accounting be a service function?
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Accountants supply financial information to clients and thus provide a service
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What key qualitative characteristics must this information have?
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- Relevance
- Reliability - Comparability - Understandability - Cost vs. Benefit - Materiality |
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Relevance
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Must be able to influence decisions. May be relevant for predicting future events or confirming past events
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Reliability
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Free from material error or bias
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Comparability
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Items that are basically the same should be treated in the same manner for measurement and presentation purposes
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Understandability
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Clarity and readability of presentation. Able to be understood?
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Cost vs. Benefit
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Does the benefit outweigh the cost?
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Materiality
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Significance
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What two key parts is accounting divided into?
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Financial and Management accounting
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Financial Accounting
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the process that results in the preparation and reporting of financial statements for an entity
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Where is the primary focus of financial accounting?
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External
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What is financial accounting concerned with?
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the historical results of an entity's performance
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What do financial statements reflect and what can they then be used for?
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They reflect what has happened in the past and can then be used to predict future results
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How is reliability achieved?
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Through following accounting standards
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Management Accounting
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Concerned with the use of economic and financial information to plan and control many of the activities of the entity and to support the management decision-making process.
Concerned with providing managers with the information they require for day-to-day running of the organisation. |
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Where is the primary focus of management accounting?
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Internal
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Financial vs. Management
Nature of reports |
General purpose vs. specific purpose
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Financial vs. Management
Level of detail |
Broad overview vs. Quite detailed
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Financial vs. Management
Restrictions |
Accounting standards and other regulations vs. No restrictions
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Financial vs. Management
Reporting Interval |
Mainly semi-annual and annual vs. whenever required
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Financial vs. Management
Time Horizon |
Mainly historical vs. both past and future
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Financial vs. Management
Range of Info |
Quantifiable ($), objective and verifiable data vs. also non-financial info, less objective and verifiable data
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What are the four main financial statements?
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- The statement of cash flows (a.k.a cash flow statement
- The statement of comprehensive income (a.k.a income statement) - The statement of changes in equity (a.k.a the statement of changes in owners' equity) - The statement of financial position (a.k.a balance sheet) |
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The statement of cash flows
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a.k.a cash flow statement
- the statement which shows the sources and uses of cash for a period |
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The statement of comprehensive income
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a.k.a income statement
- the statement which measures and reports how much wealth (profit) has been generated in a period |
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The statement of changes in equity
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a.k.a the statement of changes in owners' equity
- the statement which shows all changes in the owners' interest in the net assets of the business as a result of transactions and events during a period |
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The statement of financial position
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a.k.a balance sheet
- a statement of financial position which shows the assets of a business and the claim on those assets |
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What is the main part of management accounting?
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Cost accounting
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Cost accounting
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the determination and accumulation of product, process or service costs
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Audit
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A review by an independent third party involving checking over the accounting process, going through paperwork and ensuring there is no deception
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What standards are checked through an audit?
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NZ International Accounting Standards (NZIAS) and the Financial Reporting Act
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What qualifications can an auditors opinion be?
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Unqualified = everything is okay
Qualified = auditor has found something wrong in the report |
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Internal auditors
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Professional accountants who perform functions much like those of an external auditor. However, internal auditors are employed in industry rather than public accounting and often their functions are more specific and detailed
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Income Tax Accounting
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Tax practitioners deal with Income Tax laws and also IRD. They often develop specialties in the taxation of individuals, partnerships, companies, trusts and estates, or international tax law issues
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