Accounting

Question 1

What is accounting?

Answer 1

a formal process of identifying, recording, measuring, communicating and interpreting financial information

Question 2

the first objective of accounting

Answer 2

Provide information to people who need to make decisions about the business

Question 3

the second objective of accounting

Answer 3

Ensure accountability

Question 4

the third objective of accounting

Answer 4

evaluate the performance of the business

Question 5

Accounting information and records must be:

Answer 5

• accurate
• reliable
• relevant

Question 6

what is the accounting equation?

Answer 6

OE=A-L

Question 7

other than OE=A-L, what are two other ways you can write this equation?

Answer 7

A=OE+L

L=A-OE

Question 8

assets

Answer 8

Items of value owned by the business

Question 9

Liabilities

Answer 9

Amounts owed by the business

Question 10

Owner’s equity

Answer 10

The value of the owners investment in a business, and therefore the amount that the business owes back to the owner

Question 11

capital

Answer 11

the name of the account used to record the owners contributions to a business

Question 12

drawings

Answer 12

the name of the account where businesses record that the owner has withdrawn assets from the business for personal use

Question 13

Balance sheet

Answer 13

a financial report summarising a businesses assets, liabilities and owners equity

Question 14

account reveivable

Answer 14

money that customers owe to the business

Question 15

accounts payable

Answer 15

amounts of money the business owes to others

Question 16

inventories

Answer 16

goods a business buys for resale to customers

Question 17

bank overdraft

Answer 17

a negative value in the business’ bank account

Question 18

mortgage on land

Answer 18

repayments made on a purchase that required a loan from the bank

Question 19

order of liquidity

Answer 19

how quickly the account can be converted to cash

Question 20

write assets in order of liquidity

Answer 20

• petty cash
• cash at bank
• accounts receivable
• inventories
• motor vehicle
• land

Question 21

accounting entity convention

Answer 21

distinguishes between the owner of the business and the business itself- treating them as 2 different identities

Question 22

accounts

Answer 22

individual records showing all increases and decreases to the financial value of each item in the business

Question 23

trading enterprise

Answer 23

a business that buys goods (inventories) and sells them as a higher price

Question 24

Service enterprise

Answer 24

a business that provides services to customers for a fee

Question 25

revenue

Answer 25

income earned by the business; sale revenue, interest revenue and rent revenue

Question 26

expense

Answer 26

costs incurred by a business in order to earn revenue and keep the business operating; wages, electricity, rent and supplies

Question 27

what can you determine from having the accounts revenues and expenses?

Answer 27

whether the business is making a profit or not

Question 28

the double-entry accounting

Answer 28

system of accounting which states that for every transaction there is a debit (DR) entry and a corresponding credit (CR) entry of equal value