1 - Introduction to accounting

Question 1

What is a business?

Answer 1

A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. Businesses can be for-profit entities or they can be non-profit organizations that operate to fulfill a charitable mission or further a social cause.

Question 2

What is accounting?

Answer 2

Accounting is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities. The financial statements used in accounting are a concise summary of financial transactions over an accounting period, summarizing a company’s operations, financial position, and cash flows.

Question 3

What are the factors affecting the complexity of the business environment?

Answer 3

1. Information explosion
2. Technological advances
3. Globalisation
4. Increased regulations
5. More complex business activities
6. Evolving forms of business

Question 4

How do information explosions impact the complexity of a business environment?

Answer 4

The information explosion is the rapid increase in the amount of published information or data and the effects of this abundance. As the amount of available data grows, the problem of managing the information becomes more difficult, which can lead to information overload.

Question 5

How do technological advances impact the complexity of a business environment?

Answer 5

Technological progress requires companies to continue to expand, develop and adapt to stay competitive in a rapidly changing market. Technology is changing not only the way a company does business but also the way people are valued by a company. As technology evolves, companies need to gain a competitive edge.

Question 6

How does globalisation impact the complexity of a business environment?

Answer 6

Globalization is the word used to describe the growing interdependence of the world’s economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information.

Globalization leads to increased competition. This competition can be related to product and service cost and price, target market, technological adaptation, quick response, quick production by companies, etc. When a company produces with less cost and sells cheaper, it is able to increase its market share.

Question 7

How do increased regulations impact the complexity of a business environment?

Answer 7

Increased regulation typically means a higher workload for people in financial services, because it takes time and effort to adapt business practices that follow the new regulations correctly.

While the increased time and workload resulting from government regulation can be detrimental to individual financial or credit services companies in the short term, government regulations can also benefit the financial services industry as a whole in the long term.

Question 8

How do more complex business activities impact the complexity of a business environment?

Answer 8

Business complexity is the condition of having several interdependent and interconnected stakeholders, information technology systems, and organizational structures. Stakeholders include employees, customers, partners, suppliers, regulators, investors, media, and competitors. Organizational structures include divisions, subsidiaries, and joint ventures.

Large businesses are inherently more complex because decisions involve more stakeholders. Managers and employees of complex organizations must learn more technologies and processes, adapt at the speed of the Internet, and expect and embrace change every day.

Question 9

How do evolving forms of business impact the complexity of a business environment?

Answer 9

Evolving forms of business complicate a business environment as they are cropping up in new businesses. For example, numerous variations of the simple business organisation (i.e. sole proprietorships, partnerships, and companies) now exist.

Question 10

What is e-commerce?

Answer 10

A method of conducting business where companies and consumers buy and sell goods and services online.

Question 11

What are the three main categories of business enterprise?

Answer 11

1. Service businesses
2. Merchandising buisnesses
3. Manufacturing businesses

Question 12

What is a service business?

Answer 12

A business that performs services or activities that benefit individuals or business customers.

Question 13

What is a merchandising business?

Answer 13

A business that purchases goods (sometimes referred to as merchandise or products) for resale to its customers.

Question 14

What is a manufacturing business?

Answer 14

A business that makes its products and then sells these products to its customers.

Question 15

What is capital?

Answer 15

Funds a business uses to operate or expand its operations.

Question 16

What is an entrepreneur?

Answer 16

Individual who is willing to risk the uncertainty of starting a business in exchange for the reward of earning a profit (and the personal regard of seeing the business succeed).

Question 17

What is entrepreneurship?

Answer 17

Entrepreneurship is a combination of three factors:

• the business owner’s idea
• the willingness of the business’s owner to take a risk
• the abilities of the owner and employees to use capital to produce and sell goods or services

Question 18

What is solvency?

Answer 18

A business’s long-term ability to pay off its debts.

Question 19

What are the three most common forms of business structures?

Answer 19

1. Sole Proprietorships
2. Partnerships
3. Companies/corporations

Question 20

What are sole proprietorships and their characteristics?

Answer 20

A business that is owned by one individual who is the sole investor of capital into the business.

Characteristics:

• Number of owner(s): Single owner
• Size of business: Small
• Examples: Small retail shop
• Business decision-maker(s): Owner
• Liability of owner: Unlimited
• Life of organisation: Limited

Question 21

What are partnerships?

Answer 21

A business owned by two or more individuals who each invest capital, time, and/or talent into the business and share in its profits and losses.

Characteristics:

• Number of owner(s): 2+
• Size of business: Small-large
• Examples: Law firms, family-owned businesses
• Business decision-maker(s): Depends on the partnership agreement
• Liability of owner: Unlimited
• Life of organisation: Limited

Question 22

What are companies/corporations?

Answer 22

A separate legal business entity that is independent of its owners and is run by a board of directors.

Characteristics:

• Number of owner(s): Numerous
• Size of business: Large-very large
• Examples: Manufacturing companies, etc.
• Business decision-maker(s): Board of directors
• Liability of owner: Limited
• Life of organisation: Continuous

Question 23

What does limited life mean?

Answer 23

A business that will cease when the business is sold or when a specific project is completed is said to have a limited life. For example, a sole proprietorship has a limited life because it ceases to exist if the business is sold.

Question 24

What is a partnership agreement?

Answer 24

Contract signed by partners of a partnership before the business begins operations.

Question 25

What is a partnership agreement?

Answer 25

Contract signed by partners of a partnership before the business begins operations.

Question 26

What is joint ownership?

Answer 26

The idea that all partners jointly own all the assets of a partnership.

Question 27

What is equity?

Answer 27

Claims by creditors and owner(s) against the assets of a business.

Question 28

What are shareholders?

Answer 28

Individuals who own shares (stock) in a company.

Question 29

Why is it necessary to have an understanding of business before trying to learn about accounting?

Answer 29

Accounting involves identifying, measuring, recording, summarising, and communicating economic information about a business for decision making. It focuses on the resources and activities of businesses. Therefore, it is important to understand businesses and the business environment in which they exist before trying to learn how to account for their resources and activities.

Question 30

What characteristics are needed to become a successful businessperson in a complex business environment?

Answer 30

The successful businessperson must be willing and able to adapt to change. Because of the dynamic and complex business environment, they must be:

• able to take change in their stride
• devoted to lifelong learning
• open to other viewpoints
• tolerant of differences
• willing to take educated and thoughtful risks
• able to anticipate environmental trends, and identify the potential problems and opportunities associated with these trends
• ready to abandon old plans and change course in light of new information

Question 31

What types of regulation do businesses face?

Answer 31

The most common regulatory issues faced by Australian businesses are local government issues, state/territory issues, federal issues, and international issues. Types of business regulations that companies face are:

* Consumer protection
* Environmental protection
* Employee safety
* Employment practices
* Taxes

Question 32

What is accounting?

Answer 32

Accounting is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities.

The financial statements used in accounting are a concise summary of financial transactions over an accounting period, summarizing a company’s operations, financial position, and cash flows.