accounting theories

Question 1

accounting definition

Answer 1

information system that provides accounting information for stakeholders to make informed decisions regarding the management of resources and performance of the business

Question 2

business transaction definition

Answer 2

any activities carried out by the business
can also be classified into cash transaction(cheques included) or credit transactions

Question 3

monetary theory definition

Answer 3

Only business transactions or activities that can be expressed in monetary form will be recorded in the business’ book of accounts

Question 4

cash and credit transaction definition and difference

Answer 4

cash- payment is made at the same time or immediately during a sale or purchase
credit- payment is delayed or postponed during a sale or purchase
difference- the timing or the payment or receipt of cash/cheque

Question 5

types of businesses

Answer 5

service - offers service to earn income
trading - sells goods to earn income

Question 6

what are the forms of business ownerships

Answer 6

sole proprietor
limited liability partnership (LLP)
private limited company (PLC)

Question 7

what are the basic accounting theories

Answer 7

accounting entity
accounting period
historical cost
monetary theory

Question 8

accounting entity definition

Answer 8

the activities of the business are separate from the actions of the owner
all transactions are recorded from the point of view of the business

Question 9

accounting period definition

Answer 9

the life of the business is divided into regular time intervals
These regular time intervals are recorded in terms of their cost price at the time the transaction took place.

Question 10

what are the 5 accounting elements

Answer 10

assets
liabilities
equity
income
expense

Question 11

what accounting elements are related to equity

Answer 11

income and expenses

Question 12

assets definition and example

Answer 12

resources owned or controlled by a business that provides future benefits
examples:
- loan to employee
- income receivable
- trade receivable
- inventory
- cash at bank
- cash at hand
- prepaid expenses
- motor vehicles

Question 13

liability definition and example

Answer 13

obligations owed by a business to others that are expected to be settled in the future
examples:
- trade payables
- loan from XYZ bank
- mortgage loan
- bank overdraft
- income elegies in advance

Question 14

bank overdraft definition

Answer 14

money owed to the bank by the business when the total sought of money the business withdraws exceeds its available balance

Question 15

equity definition

Answer 15

the claim by the owner(s) on the net assets of a business
net assets - assets left over after deducting all its liabilities of the business

Question 16

income definition

Answer 16

amounts earned through the activities of the business
comprises revenue and other income
revenue - earnings from the main activities of the business

Question 17

expenses definition

Answer 17

costs incurred in the operation of a business to earn income in the same accounting period

Question 18

state the relationship between equity, income, and expenses

Answer 18

one component of owners equity is profit or loss for the period
equity is increased by profit and decreased by loss
equity is increased by income and decreases by expenses