Accounting

Short answers

1 the concept and nature of the conceptual framework, advantages and
disadvantages

The conceptual framework is a set of fundamental principles that support
financial accounting in order to establish a basis upon which new financial
reporting practices can be developed. In essences, it is an attempt to derive a
theory for determining the information to be provided in financial reports.
The objectives of conceptual framework are to enable regulators to:
1. develop standards that were consistent and logically formulated
2. provide guidance to accountants in areas where no standards exist
3. enhance the understanding of users of financial reports on the standards

Advantages:
Enhance comparability of financial statements
Enhance the credibility of financial reporting
Provide a consistence approach in the making of decisions concerning the choice
of accounting practices, methods and in assisting the setting of accounting
standards.
Disadvantages:
Timely and costly: time consuming and expensive to set up and
operate.
Rigi di ty: the CF may provi de too much guidance
Conflict between CF and existing accounting standards
Conceptual framework may benefit only some of the groups identified as users.


2. Distinguish cash flows from operating/investing/financing activities. Explain
why it is important to identify these 3 activities for financial statements readers.

Answer:
Cash flows from operating activities are those cash flows derived from the
principal revenue-producing activities of the entity and other activities that are
not investing or financing activities.
CFOA are regarded as very important because they represent cash flows
generated by the entitys major business operations. A high level and constant
stream of these generally indicate an entitys capacity to generate cash in order
to carry on as a going concern and its flexibility to change even the nature of its
activities.
Cash flows from investing activities are those cash flows originated from the
acquisition and disposal of long-term assets and other investment.
CFIA are very important as they measure an entitys capacity to liquidate and
transfer the non-current asset into cash. Further it implies the long-term
development of the entity as a high level of outlay suggests the entity focuses on
future.
CFFA are those cash flows that relates to changes in the size and composition of
the equity and borrowings of an entity.
CFFA can be regarded as the ability of an entity to obtain external financing and
it reveals the distribution of the profit at the same time. Further, it monitors the
changes in entitys financial position as the outflows clearly show the issue or
redemption of shares and debts.

3.Since all the necessary detail is recorded in subsidiary ledgers, the control
accounts in the general ledger could be dispensed with. Do you agree? Explain
your answer.

No, I cannot agree. A control account is a summary account in the general ledger.
The details that support the balance in the summary account are contained in a
subsidiary ledgera ledger outside of the general ledger.
The vital purpose of the control account is to keep the general ledger free of
details, yet reduce the likelihood of errors and correct balance for the financial
statements. For example, the Accounts Receivable account in the general ledger
could be a control account. If it were a control account, the company would
merely update the account with a few amounts.
The details on each customer and each transaction would not be recorded in the
Accounts Receivable control account. Rather, these details of the accounts
receivable activity will be in the Subsidiary Ledger. This works well because the
employees working with the general ledger probably do not need to see the
details. However, the sales manager and the credit manager will need to know
detailed information. The company can provide these individuals with access to
the Subsidiary Ledger and can keep the general ledger free of a tremendous
amount of detail.