ACCOUNTING

Question 1

what is accounting?

Answer 1

the collecting and recording of financial data to produce and report financial information to assist business owners and other users of it with planning and decision-making

Question 2

what is financial data?

Answer 2

the raw facts and figures (source documents) upon which financial information is based

Question 3

what is financial information?

Answer 3

the financial data that has been sorted, classified and summarised into a more useable and understandable form (reports)

Question 4

what is a stakeholder?

Answer 4

a person or organisation that has an interest in the performance of the business and can affect operations or be affected by them

Question 5

what is a statement of receipts and payments?

Answer 5

an accounting report that lists cash receipts and payments during a reporting period, the change in the bank balance, and the opening and closing bank balance.

Question 6

what is a cash surplus?

Answer 6

an excess of cash receipts over cash payments, leading to an increase in a positive bank balance or a decrease in a bank overdraft

Question 7

what is a cash deficit?

Answer 7

an excess of cash payments over cash receipts, leading to a decrease in a positive bank balance or an increase in a bank overdraft

Question 8

what is an income statement?

Answer 8

an accounting report that reports revenues earned, expenses incurred and the overall net profit/loss for a reporting period

Question 9

what is an asset?

Answer 9

a present economic resource controlled by the business as a result of past events that has the potential to produce future economic benefits.

Question 10

what is a liability?

Answer 10

a present obligation of a business to transfer an economic resource as a result of past events

Question 11

what is owners equity?

Answer 11

the residual interest in the assets of the entity after deducting all its liabilities

Question 12

what is the purpose of accounting?

Answer 12

to provide business owners with financial information that will assist them in making decisions about the activities of their firm.

Question 13

what are examples of stakeholders?

Answer 13

• accounts receivable and other customers
• accounts payable and other suppliers
• banks and other financial institutions
• employees
• prospective owners
• The Australian Tax Office (ATO)

Question 14

what are types of business operations?

Answer 14

• Trading (also known as merchandising or retail)
  -This type of business purchases finished goods for the sole purpose of resale. inventory is purchased from wholesalers/manufacturers at a cost price, and then sold to consumers through a retail outlet at a marked-up selling price.
• service
  -This type of business performs a service for the customer so in fact what is being sold is the time, labour and expertise of the business. there is no physical exchange of goods.
• manufacturing
  -This type of business actually produces the goods it sells, using a production process to transform raw materials into a finished product. many of these manufacturers sell predominantly to trading businesses, but an increasing number of factory outlets sell directly to the public.
• mixed businesses
  -A business can combine one or more types of operation

Question 15

what is the accounting process?

Answer 15

• the process of turning financial data into financial information is facilitated by what is known as the accounting process

stage 1: source documents

• the business collects the source documents relating to its transactions. they provide evidence that a transaction has happened and the details of the transaction itself.

stage 2: recording

• once the source documents have been collected, the information they contain must be recorded. recording involves sorting, classifying and summarising the information contained in the source documents so that it is more usable.

stage 3: reporting

• this stage involves taking the information that has been recorded in the accounting journals and reporting that financial information to the owner of the business in a form that he or she can understand. reporting involves the preparation of financial statements that communicate financial information to the owner so that decisions can be made.

stage 4: advice

• an accountant should be able to make some suggestions on an appropriate course of action. without proper advice, the information in the reports is as good as useless, but if the reports are explained carefully and the accountant provides the owner with a range of options, a more informed decision and a better outcome for the business should occur.

Question 16

what are revenues?

Answer 16

• inflow of economic benefits in the form of an increase in assets that result in increases in owner’s equity (ie profit), that have arisen in the course of ordinary business activities, excluding contributions from the owner
• examples: cash/credit fees, interest revenue, discount revenue, commission revenue

Question 17

what are expenses?

Answer 17

• outflow of economic benefits in the form of a decrease in assets that result in a decrease in owner’s equity (ie profit) that have arisen in the course of ordinary business activities, excluding drawings
• examples: wages, interest expense, discount expense, advertising, rent, bad debts, cost of sales, packaging, inventory loss

Question 18

what are the assets?

Answer 18

• a current asset is a present economic resource controlled by the business as a result of past events that is reasonably expected to provide an inflow of future economic benefits within 12 months.
• a non current asset is a present economic resource controlled by the business as a result of past events that is reasonably expected to provide an inflow of future economic benefits for more than 12 months

Question 19

what are the liabilities?

Answer 19

• a current liability is a present obligation of the business to transfer an economic resource as a result of past events that is expected to be settled within 12 months
• a non current liability is a present obligation of the business to transfer an economic resource as a result of past events that is not required to be settled within 12 months