BASIC PRINCIPLES OF ACCOUNTING Flashcards
DEFINE ACCOUNTING
THE CLASSIFYING, SUMMARISING AND RECORDING OF THE FINANCIAL TRANSACTIONS OF A BUSINESS ENTERPRISE IN MONETARY TERMS
DEFINE BOOKKEEPING
THE KEEPING RECORD OF THE FINANCIAL AFFAIRS OF A BUSINESS
OBJECTIVES OF ACCOUNTING
-PROVIDES THE KNOWLEDGE NEEDED IN THE PREPERATION AND EVLUATION OF ACCOUNTING STATEMENTS
-PROVIDE A MEANS OF DEVELOPING A CRITICAL AND ANALYTICAL APPROACHTO QUANTITATIVE PROBLEMS, AND THE NUMERATE SKILLS REQUIRED FOR ACCOUNTING
~KNOWLEDGE OF ACCOUNTING HELPS IN FINANCIAL DECISION MAKING
DEFINE INTERNAL USERS OF ACCOUNTING INFORMATION AND NAME THEM
THESE ARE THE USERS OF FINANCIAL STATEMENTS; NORMALLY PEOPLE EMPLOYED BY THE BUSINESS AND RESPONSIBLE FOR ITS MANAGEMENT
-OWNER’S
~ INTERESTED IN FINDING OUT IF HIS/HER INVESTMENT IS YIELDING ANY RETURN OR THEY SHOULD CLOSE DOWN AND VENTURE IN OTHER ACTIVITIES
-EMPLOYEES
~INTERESTED TO FIND OUT THE FINANCIAL PERFORMANCE OF THE BUSINESS AS IT COULD IMPACT THEIR JOB SECURITY, SALARIES AND OTHER PERKS
DEFINE EXTERNAL USERS OF ACCOUNTING INFORMATION AND NAME THEM
- THESE ARE THE USERS OF FINANCIAL STATEMENTS; PERSONS NOT DIRECTLY CONCERNED WITH MANAGEMENT OF THE BUSINESS
-BANKS AND OTHER FINANCIAL INSTITUTIONS
-POTENTIAL INVESTORS
-GOVERNMENT
-SUPPLIERS
-COMPETITORS
-ECONOMIC ANALYSIS
- COMMUNITY
-GENERAL PUBLIC
DEFINE THE DIFFERENT EXTERNAL USERS OF ACCOUNTING INFORMATION
*BANKS AND OTHER FINANCIAL INSTITUTIONS
- TO FIND OUT IF THE FINANCIAL STATUS OF THE BUSINESS IS OF A LIQUID AND SOLVENT NATURE TO RAPY ;OANS BORROWED. THE BANKS OTHER FINANCIAL INSTITUTIONS ALSO USE ACCOUNTING INFORMATION TO MAKE DECISION ON WHETHER TO LEND MONEY TO THE BUSINESS
*POTENTIAL INVESTORS
-AN INVESTOR WANTS TO MAXIMISE HIS RETURN ON INVESTMENT. THEY NEED ACCOUNTING INFORMATION TO MAKE DECISIONS ON WHETHER THE INVESTMENT IN THE BUSINESS WILL RBING FORHT RETURNS OR AS THE SHOULD INVEST ELSEWHERE INSTEAD
*GOVERNEMNT
- INTERESTED IN THE FINANCIAL AFFAIRS OF THE BUSINESS IN ORDER TO DETERMINE THE AMMOUNT OF TAX COLLECTIBLE FROM THE BUSINESS
*SUPPLIERS
- THEY WANT TO FIND OUT IF THERE ARE ANY RISKS OF NON-PAYMENT DUE TO INSOLVENCY INVOLVED IN SUPPLYING GOODS TO THE BUSINESS ESPECIALLY WHEN CREDIT IS REQUESTED
*COMPETITORS
- USE THE BUSINESS’S FINANCIAL RESULTS AS A BENCHMARK FOR TEH PERFORMANCE OF THEIR OWN BUSINESS
*ECONOMIC ANALYSIS
- USE THE ACCOUNINT INFORMATION WHEN THEY WANT TO EXAMIN THE COLLECTIVE PERFORMANCE OF A SECTOR/ INDUSTRY AND HOW IT MAY IMPACT THE COUNTRY’S ECONOMY IN GENERAL
*COMMUNITY
- ARE INTERSTED IN FINDING OUT IF THE FINANCIAL PERFORMANCE OF THE BUSINESS COULD CREATE MORE JOBSFOR THE LOCAL PEOPLE
*GENERAL PUBLIC
- ARE CONCERNED ABOUT THE ENVIRONMENT EFFECTS AND ARE KEEN TO FINDING OUT IN THE ACCOUNTING INFORMATION OF THE BUSINESS HAS MADE PROVISION IN ADDRESSING THESE EFFECTS
BRANCHES OF ACCOUNTING
1) FINANCIAL ACCOUNTING
- THIS BRANCH OF ACCOUNTING PROVIDES ACCOUNTING INFORMATION THAT ARE NEEDED BY THE EXTERNAL USERS
2) COST AND MANAGEMENT ACCOUTNING
- THIS BRANCH OF ACCOUNTING PROVIDES ACCOUNTING INFORMATION NEEEDED BY THE INTERNAL USERS FOR DECISION MAKING
3) AUDITING
-THIS BRANCH OF ACCOUNTING SEEKS TO VERIFY THAT RECORDED INFORMATION REPRESENTS THE BUSINESS TRANSACTIONS THAT TOOL PLACE AND ALSO IF THEY ARE RECORDED IN ACCORDANCE WITH THE ESTABLISHED GUIDELINES
DEFINE BUSINESS ENTITY PRINCIPLE
- AN ACCOUNTING PRINCIPLE THAT STATES THAT THE BUSINESS TRANSACTIONS AND THE OWNER’S TRANSACTIONS SHOULD BE KEPT SEPERATE; THEY ARE TWO SEPERATE ENTITIES
DEFINE MONEY MEASUREMENT PRINCIPLE
- AN ACCOUNTING PRINCIPLE THAT STATES THAT ONLY TRANSACTIONS WHICH CAN BE EXPRESSED IN MONETARY TREMS IS RECORDED
DEFINE ETHICS IN A JOB
ETHICS DEAL WITH THE FUNDAMENTAL PRINCIPLES OF MORALITY. IT IS CONCERNED WITH THE BASIC PRINCIPLES OF WHAT IS UNIVERSALLY ACCPETED TO BE RIGHT AND WRONG FOR PEOPLE TO DO
DEFINE FRAUD
IT IS A DELIBERATE UNLAWFUL ACT INTENDED TO GIVE AN UNFAIR PERSONAL OR FINANCIAL GAIN TO AN INDIVIDUAL
DISCUSS DIFFERENT WAYS TO COMABT FRUAD
1) ESTABLISHING AND MAINTAINING SPECIFIC INTERNAL CONTROLS INTENDED TO COMBAT FRAUD
2) ESTABLISHING SAFE HIRING PROCEDURES BY CONDUCTING A THOROUGH BACKGROUND CHECK ON ALL PROSPECTIVE EMPLOYEES
3) INVEST ON HIRING EXPERTS WHO SPECIALISE IN FRAUD MANAGEMENT AND PREVENTION
NAME AND DEFINE THE DIFFERENT FINANCIAL RISK MANAGEMENT
1) MARKET RISK - CAUSED BY UNEXPECTED MOVEMENT IN MARKET PRICES OF FINANCIAL INSTRUEMENTS
2)CREDIT RISK - WHEN A DEBTOR FAILS TO HONOUR THE DEBT OF THE BUSINESS
3) LIQUIDITY RISK - THIS IS WHEN THE BUSINESS HAS A NEGATIVE WORKING CAPITAL, INABILTY OF THE BUSINESS TO MEET ITS SHORT-TEMR OBLIGATION AND THE DAY-TO-DAY RUNNNING OF THE BUSINESS
NAME AND DISCUSS THE DIFFERENT APPLICATIONS OF COMPUTERS IN ACCOUNTING RECORDS AND THEIR USEFULNESS IN BUSINESS SITUATIONS
1) COMPUTERISED LEDGERS
- THIS APP IS IN VARIOUS ACCOUNTING SOFTWARE AND IT AUTOMATICALLY SUMMARISES THE DIFFERENT INFO IN THE RESPECTIVE ACCOUNTS IMMEDIATELY AS EACH TRANSACTION OCCURS
2) SPREADSHEETS
- MICROSOFT EXCEL IS THE COMMON SPREADSHEET APP AND IS USED TOORGANISE AND ANALYSE INFORMATION IN TABULAR FASHION AND CAN BE USED AS A CALCULATOR
3)DATABSE
- THESE APPS ARE USED BY THE BUSINESS TO MANAGEMENT THE HUMAN RESOURCES (EMPLOYEES), ASSETS AND PROJECTS EASILY
DISCUSS THE IMPORTANCE OF COMPUTERS
-THEY HELP US IN RECORDING AND CONTROLLING INVETNRORY
-THEY HELP IN PREPARING FINANCIAL REPORTS
-USED FOR ELECTRONIC BANKING PAYMENTS
-USED TO PREPARE SOURCE DOCUMENTS
-INVENTORY AND ORDERING PROCESS
DISCUSS THE ADVANTAGES OF A COMPUTERISED SYSTEM VS A MANUAL SYSTEM
-IT IS FASTER TO PREOCESS INFO WITH COMPUTERISED SYSTENS THAN WITH MANUAL SYSTEMS
-IT IS VERY FAST TO RETRIEVE SPECIFIC DOCUMENTS THAT MAY BE NEEDED IN A COMPUTERISED SYSTEM THAN IN A MANUAL SYSTEM
DISCUSS ADVANTAGES OF COMPUTERS AS A TOOL FOR COMMUNICATION TECHNOLOGY
-COMPUTERS MAKE COMMUNICATION BETWEEN PEOPLE FAST THROUGH EMAIL ESPECIALLY WHEN MAKING ORDERS FOR INVENTORY
- ELECTRONIC PAYMENTS COULD BE DONE FASTER THROUGH BUSINESS COMPUTERS
