Accounting: Definitions (Chap 1, 2, 4)

Question 1

Definition of Assets (dr)

Answer 1

anything owned by a business

Question 2

Definition of Liabilities (cr)

Answer 2

anything owed by a business

Question 3

Definition of Capital/ Owner’s Equity (cr)

Answer 3

the total resources put into the business and represents the amount the business owes the owner

Question 4

Definition of Trade Receivables(dr)

Answer 4

the amount owed to the business by a credit customer

Question 5

Definition of Trade Payables(cr)

Answer 5

the amount a business owes to the credit supplier

Question 6

Definition of Inventory(dr)

Answer 6

goods that are purchased for resale (Stocks)

Question 7

Definition of Book keeping

Answer 7

detailed recording of the business’s financial transactions

Question 8

Definition of Accounting

Answer 8

using book-keeping records to prepare financial statements and to assist in decision making

Question 9

What is the Purpose of Accounting?

Answer 9

The owner of the business needs to know whether the business is making profit or loss

Question 10

What is the accounting equation?

Answer 10

Assets = Liabilities + Capital

Question 11

What sources of finance are used by owners to start a business?

Answer 11

Capital / Loan

Question 12

Give Examples of Assets

Answer 12

Inventory, Equipment, Banks, Machinery, Motor Vehicles, Trade Receivables, Premises

Question 13

Give Examples of Liabilities

Answer 13

Loan, Trade Payables, Capital, Bank Overdraft

Question 14

Definition of drawings (Less: capital)

Answer 14

any value taken from the business by the owner of that business

Question 15

Definition of Double Entry book keeping

Answer 15

process of making a debit entry and credit entry for each transaction

Question 16

Advantages of maintaining full set of accounting

Answer 16

-organised and easier to access
-to know how much the company owns and owes
- know the exact transactions made (more detailed)

Question 17

Disadvantage of maintaining a full set of accounting

Answer 17

time consuming
costly

Question 18

What is the difference between a two and three column cash book?

Answer 18

3 column: has discount allowed and discount received
2 column: only have cash and bank column

Question 19

list 3 reasons for a dishonoured cheque

Answer 19

• amount written in cheque doesn’t match
• no name/ no signature one cheque
• not enough money in account

Question 20

State one reason why business allow customers trade discount

Answer 20

This encourages customer to buy multiple items at once (bulk)

Question 21

Advantages of applying for a bank loan

Answer 21

• can settle bank overdraft
• money can be used to upgrade business

Question 22

Disadvantages of applying for a bank loan

Answer 22

• increases liability and chances of bankruptcy (debtor)
• affects business profile, directly hinders business opportunities