poa theory notes

POA THEORY QUESTIONS (EXPRESS) CHAPTER 1: INTRODUCTION TO ACCOUNTING State the role of accounting. Accounting provides accounting information for decision-making by business owners and other stakeholders to make informed decisions regarding the management of resources and performance of businesses. State the role of accountants. Accountants act as stewards of businesses through preparing and providing accounting information for stakeholders’ decision-making. Stewards are responsible for managing the resources of the business on behalf of the owner(s). Define integrity and objectivity. Integrity - being straightforward and honest in all professional and business relationships Objective - not letting bias, conflict of interest or undue influence of others override professional judgement Explain the importance of having integrity and objectivity in preparing and presenting accounting information. Accountants must adhere to professional ethics, uphold integrity and be objective so that stakeholders can place trust in the information provided. State the stakeholders who are interested in the affairs of the business and make use of the accounting information for decision-making. Explain why stakeholders of a business are interested in accounting information. Stakeholder Why the stakeholder is interested Owners Whether to continue to invest in the business or sell the business, depending on the risks and returns related to the business. Managers Whether to consider ways to improve the performance of the business. Employees Whether to continue working for the business. Lenders Whether to grant loans to the business, depending on the business’ ability to repay the loan principal and pay interest. Suppliers Whether to sell to the business on credit, depending on its ability to pay. Customers Whether to buy from the business, depending on the business’ ability to provide the goods and services that they need and good after-sales service. Government Whether the business complies with the tax regulations and decides the amount of tax to collect from the business. Competitors Whether they are comparable to the business and how to improve their own performance.

Define each accounting theory. 1) Accounting Entity Accounting Entity theory requires that the activities of a business are separate from the actions of the owner. All transactions are recorded from the point of view of the business. 2) Accounting Period Accounting period theory divides the life of a business into regular time intervals. 3) Accrual basis of accounting Accrual basis of accounting theory requires the recording of all business activities which have occurred, regardless of whether cash is paid or received in that accounting period. 4) Matching Matching theory states that expenses incurred in a given period must be matched against income earned to determine the profit and loss for that period. 5) Consiste