Basics of Accounting

Question 1

What is Accounting?

Answer 1

• A process whereby accountants collect and record data
• They then process data to produce information
• This must be communicated to interested user groups

Question 2

What does an Accountant do?

Answer 2

• Monitors Money coming in and going out
• Reports activities and performance- thus supports decision making
• Helps assess benefits to society (CSR)
• Forms a basis for taxation

Question 3

What do Managers use accounting for?

Answer 3

Control over a Firm

Question 4

What do Investors use accounting for?

Answer 4

• Return on Investment

Question 5

What do Employees use accounting for?

Answer 5

• Job security and future planning

Question 6

What do Consumers use accounting for?

Answer 6

• Continuation of Supply

Question 7

What do Suppliers use accounting for?

Answer 7

• To guarantee payments

Question 8

What do Lenders use accounting for?

Answer 8

• To guarantee repayments

Question 9

What do Governments use accounting for?

Answer 9

• Monitors how much expected tax

Question 10

What do Competitors use accounting for?

Answer 10

• Assess the threat level that is posed

Question 11

What do Communities use accounting for?

Answer 11

• The ultimate good- societal wellbeing

Question 12

Name the 6 organisations that produce accounting information

Answer 12

• LLCs
• NPOs
• Sole Proprietorship
• Partners
• Clubs and Societies
• Public Sector

Question 13

Which 3 attempts to profit maximise?

Answer 13

• LLCs
• Sole Proprietorship
• Partners

Question 14

Which 3 financial organisations attempt to welfare maximise?

Answer 14

• NPOs
• Clubs and Societies
• Public Sector

Question 15

Main difference between Financial and Management Accounting

Answer 15

• Financial accounting is external, heavily regulated and is often just a general overview
• Whereas managerial is internal, less ‘scripted’ and is often much more specific for what a manager requires

Question 16

Name the 6 characteristics of Accounting (2 Vital)

Answer 16

• RELIABLE
• RELEVANT
• Comparable
• Understandable
• Not made up (Verifiable)
• Timeliness

Question 17

What are some limitations of accounting?

Answer 17

• Costly
• CSR goals are important
• Inexact science
• Financial accounts reflect the past
• Non-quantifiable variables
• Unstable currency and inflation can reduce reliability
• Inputs quality will affect outputs