Accounting Theory

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Table of Contents

Accounting Theory 6

What are the characteristics of good accounting information? 6

Why do farmers/clubs/firms/anyone prepare accounts? 6

What are accounting ‘concepts’? 6

Less significant concepts 7

What are accounting ‘bases’? 7

What are accounting ‘policies’? 7

Accounting Regulation 7

Budgets 9

Advantages of budgeting 9

Why are flexible budgets prepared and what do they show? 9

What is an adverse variance and what does it show? 9

Why might an adverse variance arise in direct materials? 9

Explain, with examples, ‘controllable’ and ‘uncontrollable’ costs. 9

What factors do a firm take into account when calculating their budgeted sales figure for the year? 9

Explain the ‘principle budget factor’. 9

Explain what is meant by a capital budget. 9

Define ‘cash budget’ and describe two of its advantages. 9

Explain how budgeting solves the problem of mixed costs. 10

Explain ‘budgetary control’. 10

Costing 11

What’s the difference between financial and management (cost) accounting? 11

Give three reasons for product costing. 11

What are the limitations of marginal costing (Cost-Volume-Profit Analysis)? 11

What’s the difference between marginal and absorption costing? 11

List and explain two assumptions of marginal costing. 11

Explain the difference between allocation and apportionment of costs. 12

Illustrate and explain what is meant by a step-cost. 12

Cash-Flow Statements 13

Why are cash-flow statements prepared? 13

What is a non-cash item? 13

Explain why profit does not always mean a corresponding increase in cash, and list two non-cash items. 13

Write a note on the Accounting Standards Board. In your answer refer to the main activity of the hoard and how it has influenced the preparation of cash flow statements. 13

Explain ‘solvency’. 13

Correction of Errors (Suspense Accounts) 14

State five errors not revealed by the trial balance. 14

Club Accounts 15

How might the club finance an extension? 15

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