Accounting as A System

Question 1

What is accounting as a system?

Answer 1

Assets and liabilities are shown on statements of financial position in a particular order

Question 2

What does the order corresponds to?

Answer 2

How long the asset will stay in the business and how quickly amounts due are likely to be repaid

Question 3

What are two ways the statement of financial position can be shown?

Answer 3

Two ways are order of permanence and order of liquidity

Question 4

What is the order of permanence?

Answer 4

It is the sequence used to list items on a balance sheet which begins with items which are likely to last the longest and ending with those likely to be the shortest lasting

Question 5

What is the order of liquidity ?

Answer 5

It is the sequence used to list items on a balance sheet which are likely to be the shortest lasting (can be easily converted to cash ) and ending with the longest lasting

Question 6

What is liquidity ?

Answer 6

It refers to assets in cash form

Question 7

Order of permanence vs order of liquidity

Answer 7

When items in the balance sheet are listed by permanence the order is reverse order of liquidity

Question 8

Order of assets in liquidity

Answer 8

Assets:
Cash in hand
Cash at bank
Prepaid expenses
Debtors
Stock

Fixed assets:
Motor vehicles
Furniture n fittings
Equipment
Computers
Machinery
Land n buildings

Question 9

Order of assets in permanence

Answer 9

Assets:
Land n buildings
Machinery
Computers
Equipemeny
Furniture n fitting
Motor vehicles

Fixed assets
Cash in hand
Cash at bank
Prepaid expenses
Debtors
Stock