lOMoAR cPSD| 49511909
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, lOMoAR cPSD| 49511909
FAC1502 REVISION QUESTIONS
Discuss the nature of accounting.
The nature of accounting: accounting is a
specialised means of communication which is
used to convey a specialised message about an
entity’s finances. The recipient of this specialised
message (the user of financial information) must
understand it otherwise the information that is
conveyed has no value. Accounting is therefore a
language.
What is the common unit of measurement in
accounting?
The common unit of measurement in accounting
is money.
Name the four main forms of ownership.
Sole trader, Partnership, Close Corporation,
Company
Discuss the different users of financial
information.
- Investors: these are the providers of capital.
They are concerned with the risk involved in
their investment and the return (interest or
dividends) they will receive on their
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, lOMoAR cPSD| 49511909
investment. They need information to decide
whether they should invest (buy), hold or
withdraw (sell) share.
- Employees: employees are interested in
information about the stability and
profitability of the business. They also want
to know if the entity will be able to pay
remuneration and retirement benefits, and
whether there are any employment
opportunities.
- Lenders: lenders need information to
determine whether their loans and the
interest on the loan will be paid on due dates.
- Suppliers and other trade creditors: these
users need information that will assure them
that amounts owed to them will be paid when
due.
- Customers: they want to know if the
business will continue to exist, especially
when they are involved for a long time or
when they are dependent on the entity.
- Government and their agencies: they are
interested in the allocation of resources and
therefore in the activities of the entity. They
also need information in order to regulate the
activities of entities, determine taxation
policies and use the information as a basis
for national income and similar statistics.
- Public: members of the public are affected in
several ways. Entities often contribute to the
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, lOMoAR cPSD| 49511909
local economy by employing people and
supporting local suppliers.
Differentiate between financial accounting and
management accounting.
- Financial accounting o Financial accounting
deals primarily with the external users of
financial information. External users are
people and institutions who exist outside the
entity and who are not directly involved in
the management and day-to-day operations
of the entity. Specific set of standards
governing how transactions are recorded and
reported for users.
- Management accounting o Management
accounting caters mainly for the internal
users of financial information of the entity.
These users may include the internal
management and operational personnel of the
entity, who requires a wide variety of
financial information in order to manage the
entity on a day-to-day basis. Less rule-based.
Explain the following 2 accounting principles.
Consistency and materiality
The consistency principles states that, once you
adopt an accounting principle or method, continue
to follow it consistently in the future accounting
Downloaded by Vincent master ()
Downloaded by Vincent master ()
, lOMoAR cPSD| 49511909
FAC1502 REVISION QUESTIONS
Discuss the nature of accounting.
The nature of accounting: accounting is a
specialised means of communication which is
used to convey a specialised message about an
entity’s finances. The recipient of this specialised
message (the user of financial information) must
understand it otherwise the information that is
conveyed has no value. Accounting is therefore a
language.
What is the common unit of measurement in
accounting?
The common unit of measurement in accounting
is money.
Name the four main forms of ownership.
Sole trader, Partnership, Close Corporation,
Company
Discuss the different users of financial
information.
- Investors: these are the providers of capital.
They are concerned with the risk involved in
their investment and the return (interest or
dividends) they will receive on their
Downloaded by Vincent master ()
, lOMoAR cPSD| 49511909
investment. They need information to decide
whether they should invest (buy), hold or
withdraw (sell) share.
- Employees: employees are interested in
information about the stability and
profitability of the business. They also want
to know if the entity will be able to pay
remuneration and retirement benefits, and
whether there are any employment
opportunities.
- Lenders: lenders need information to
determine whether their loans and the
interest on the loan will be paid on due dates.
- Suppliers and other trade creditors: these
users need information that will assure them
that amounts owed to them will be paid when
due.
- Customers: they want to know if the
business will continue to exist, especially
when they are involved for a long time or
when they are dependent on the entity.
- Government and their agencies: they are
interested in the allocation of resources and
therefore in the activities of the entity. They
also need information in order to regulate the
activities of entities, determine taxation
policies and use the information as a basis
for national income and similar statistics.
- Public: members of the public are affected in
several ways. Entities often contribute to the
Downloaded by Vincent master ()
, lOMoAR cPSD| 49511909
local economy by employing people and
supporting local suppliers.
Differentiate between financial accounting and
management accounting.
- Financial accounting o Financial accounting
deals primarily with the external users of
financial information. External users are
people and institutions who exist outside the
entity and who are not directly involved in
the management and day-to-day operations
of the entity. Specific set of standards
governing how transactions are recorded and
reported for users.
- Management accounting o Management
accounting caters mainly for the internal
users of financial information of the entity.
These users may include the internal
management and operational personnel of the
entity, who requires a wide variety of
financial information in order to manage the
entity on a day-to-day basis. Less rule-based.
Explain the following 2 accounting principles.
Consistency and materiality
The consistency principles states that, once you
adopt an accounting principle or method, continue
to follow it consistently in the future accounting
Downloaded by Vincent master ()
