nguyp035's version from 2016-05-21 15:12

Section 1

Question Answer
What is financial accounting?concerned with recording each and every one of the business activity as outlined (each activity recorded on equity or cash account) and summarizing the information to produce statements
We use which system to record transactions?double entry book keeping

Section 2

Question Answer
Types of business entity
Sole traderOne person alone , not LIMITED company
PERSONALLY LIABLE for all liabilities
accounts are PRIVATE, no distinction in law (owner and business is same
accounting purpose treat business separate from owner
Limited Liability companybusiness & owner are separate in law as well as accounting
LIMITED LIABILITY separate entity concept (business and owner separate) - Accounts are PUBLIC
Partnershipssame as sole trader but 2 or more in business - share profits/losses - owners personally liable for anything owing

Section 3

Question Answer
Users of accounting information
Managementensure that business resources are protected, control cost, establish strategies, plan activities
Shareholdersprotection of investment, determining performance, estimate future prospects
Investorslooking to invest , dividend payments, capital growth
Lendersability to pay back, cash flow
Employeesjob security, promotions?
Governmentcollect taxes, collect info
Publicinteraction with soc, environment issues?

Section 2

Question Answer
What is a company..?a legal entity formed by registration under companies act
Features of a companies...
Legal entityseparate from owners (shareholders)
Continueseven if shareholders change
Limited liabilitiesshareholders not responsible for company debts
Ownership separate from controlshareholders own, directors control


Question Answer
Companies must keep accurate...accounting records - accounts must include (I/S B/S Audit report, rep of directors)
Accounts must be sent to...shareholders & registar before AGM
Question Answer
Limited Companies
Reservesname given to anything owed to the shareholder apart from share capital e.g. share premium (owed to shareholder but on B/S separate from share capital / retained earnings
Share Capitalcapital paid in by owners (SH get certificate which states how much shares they hold - each share has nominal value (minimum price share may be issued)
Share premiumis the excess paid when shares are issued
Types of shares
Question Answer
Ordinary shares (equity shares) are..normal shares - gives owners right to vote and received dividends
Preference shares carry..a fixed rate of dividend - must be paid before ordinary dividends - if not enough profits, preference gets whatever there is.
Question Answer
Issues of sharescompany can issue shares at any price it wants provided not less that nominal value - if issued at higher = share premium
total raised is capital but known as separately share capital (nominal) and share premium (excess)
example company issues 10,000 £1 shares at £1.20 each
share capital = 10000 x 1
share premium = 10000 x 0.20
Public issueissues shares to general public - advertised on newspapers - wish to raise large amounts of money (must have permission and be plc)
Rights issueoffer of shares to existing shareholders - usually at DISCOUNTED price to current value - must offer all existing shareholder same ratio e.g. 1 for 4 i.e. every 4 shares owned = purchase 1 at discounted

if 10,000 issued and rights issue was 1 for 5 (£3 per share)
no. of shares = 10,000/5 = 2000
Share capital = 2000 x 1 = 2000
Share premium = 2000 x 3 = 4000
Find total
Bonus issueissue of free shares to existing shareholders in proportion to their existing share holdings. - financed using reserves in company -


Question Answer
Re-evaluation reservewhere a non-current asset is revalued to bring it in line with current values e.g. land and buildings (If revaluation is in excess of NBV of asset on B/S (cost-cumulative dep) then difference is credited to revaluation reserve & debit non CA
exampleLand and building £1m 5 years ago, Dep was £400,000 and valuation is £3m
Revaluation =New value - NBV
£3m - (£1m - £400,000) = £2.4m