Flashcards · 0452 · Topic 7

Accounting concepts and modern practice flashcards

21 cards on Topic 7, subtopics 7.1 to 7.3. Pick a subtopic or study them all.

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Business entity: The business is treated as separate from its owner. An owner’s personal bill paid by the business is recorded as drawings.
Consistency: The same methods (for example of depreciation) are used from year to year unless there is a good reason to change.
Duality: Every transaction has two aspects, a debit and a credit of equal value. It is the basis of double entry.
Going concern: The business is expected to carry on trading, so assets are shown at cost less depreciation, spread over their useful lives.
Historic cost: Assets are recorded at the price actually paid. A rise in market or replacement value is not recorded.
Matching / accruals: Costs and revenues are assigned to the period they belong to, not the period in which cash moves. The basis of accruals, prepayments and depreciation.
Materiality: Small items with little effect on decisions can be treated simply, for example a low-cost item written off as an expense.
Money measurement: Only items that can be measured in money are recorded. Staff skill or reputation is not.
Prudence: Expected losses are recognised now; gains only when earned. Profit and assets are not overstated. The basis of the allowance for irrecoverable debts and of the inventory rule.
Realisation: Revenue is recognised when it is earned: when the goods or services pass to the customer, even if payment comes later.

Why is ethical behaviour needed in accounting?: Others rely on figures they cannot check; there may be pressure to change profit; accountants see private information; a standard set in advance guides behaviour.
Integrity and objectivity: Integrity: being honest, giving no misleading figures. Objectivity: freedom from bias, conflicts of interest and pressure.
Professional competence and due care, confidentiality and professional behaviour: Competence and due care: keeping skills current and working carefully. Confidentiality: not disclosing or misusing information. Professional behaviour: following laws and protecting the profession’s reputation.
Draft profit $18,400 after a $640 personal holiday was charged to travel expenses. Correct treatment?: Business entity: it is drawings. Profit = 18,400 + 640 = $19,040 and drawings rise by $640. Leaving it as an expense to cut tax would breach integrity.
An accountant uses a client’s supplier prices to negotiate a deal for herself. Which principle is breached?: Confidentiality: information gained at work was misused for personal advantage.

Benefits and limitations of using digital applications for accounting records: Benefits: faster posting and totals, fewer arithmetic slips, easy searching, backup and reports. Limitations: cost, staff training, system failure, and one wrong input is carried through everywhere.
Name the four types of storage system for accounting records: Manual; data storage devices; cloud services; other digital services.
Cloud services for storing records: one advantage and one disadvantage: Advantage: remote access, and the provider keeps the equipment. Disadvantage: needs internet access, has a continuing cost and relies on a third party.
What does storing records safely mean?: Keeping them complete, accurate and available, and protected from loss and unauthorised access.
How can records be stored sustainably?: Print less, avoid duplicate copies, keep formats readable, and dispose of old devices responsibly once data is removed.
Risks of poor storage of accounting records: Data loss, hacking or fraud, exposure of confidential information, penalties, the cost of rebuilding records, loss of trust and waste.