Accounting 1

Question 1

What is accounting

Answer 1

Accounting is the measuring, classifying, analyzing, and communicating of financial information to help people inside and outside a company make good financial decisions.

Question 2

Bookkeeping

Answer 2

is basically the recording of a firm’s financial transactions

Question 3

Controller

Answer 3

Controller – an individual who manages a firm’s financial activities

Question 4

Stakeholders

Answer 4

People with a financial interest in the company

Question 5

Who uses accounting information (4)? What other groups would be interested in accounting information?

Answer 5

Managers
Shareholders
Employees
Creditors (people/company lending money)

Revenue Canada, the news media, competitors and suppliers

Question 6

GAAP abbreviation

Answer 6

generally accepted accounting principles

Question 7

GAAP information

Answer 7

Accounting relies on standards known as generally accepted accounting principles (GAAP) to ensure that financial statements are relevant, reliable, consistent, and comparable.

Question 8

The accounting process involves six activities that may be summarized as:

Answer 8

collect, record, classify, summarize, report, and analyze

That is, find and sort records, put daily transactions in journals, put journal entries in categories in a ledger, test the accuracy of the ledger by running a trial balance, issue financial statements, and assess the firm’s financial condition, using ratio analysis.

Question 9

Three basic financial statements:

Answer 9

Balance Sheet (also called Statement of Financial Position)
Income Statement
Statement of Cash Flows (will not be covered)

Corporations with publicly held stock must publish quarterly annual reports including all three statements

Question 10

Balance sheet

Answer 10

WHAT DO WE OWN AND HOW DID WE GET IT?
Summarizes a firm’s financial position at a specific point in time.

Assets, liabilities, owner’s equity

Assets = Liabilities + Owner’s equity (accounting equation)

Question 11

Assets

Answer 11

things of value that the firm owns

Question 12

Liabilities

Answer 12

indicates what the firm owes to non-owners (creditors)

Question 13

Owner’s equity

Answer 13

is the amount of your investment plus earnings (owner’s investment)

Question 14

Example of balance sheet : Purchase of a house with part cash down
payment and part loan at the bank

Identify assets, liabilities and owner’s equity

Answer 14

Assets – value of the house that you own $300,000
Liabilities – What you owe to the bank (mortgage) $200,000
Owner’s Equity – Your investment In the house $100,000

Question 15

Study balance sheet sample pictures

Answer 15

See picture