Accounting test 1 (Theory)

Question 1

What is Accounting?

Answer 1

Accounting is the process of identifying , measuring and recording(book keeping) classifying and summarizing financial information and communicating this information to users . to help them make informed judgment and economic decisions.

Question 2

What is a Stakeholder?

Answer 2

All parties interested in looking at looking at a firm’s financial information

Question 3

Give 5 examples of stakeholders.

Answer 3

Manager
Government
Competitors
Investors
suppliers

Question 4

What is an Asset?

Answer 4

Assets are the resources owned by the business

Question 5

What is a Liability?

Answer 5

Liabilities are Money owed to others for assets bought. Business obligations to third parties (Outsiders)

Question 6

What is Capital?

Answer 6

The amount in $s of resources supplied to (invested in) the business by the owner

Question 7

What is another name for Capital?

Answer 7

Equity

Question 8

State the accounting equation.

Answer 8

Capital = Assets - Liabilities

Question 9

Rearrange the accounting equation so the Assets are the subject of the formula.

Answer 9

Assets = Capital + Liabilities

Question 9

What are 3 advantages of Double Entry?

Answer 9

1. Useful and convenient system of keeping financial records
2. Complete record of each transaction
3. Control of the business
4. Check the arithmetical accuracy of clerical work
5. Helps in the preparation of the Financial Statements

Question 10

What are the reasons for producing a Trial Balance?

Answer 10

Check Accuracy of a business’s bookkeeping

Identifies important accounting information

Prepare financial statements