ch-1 Flashcards
To learn all the definitions
What is accounting?
Accounting is a systematic process of identifying, measuring, collecting,recording, classifying ,summarising , analysing and communicating financial information to the users.
What is book-keeping? What does it involve?
Book-Keeping is the process of recording financial transactions in a systematic manner and classifying them into ledgers.
Book-Keeping involves :
1.identifying financial transactions and events
2.Measuring them in terms of money
3.recording the identified financial transactions and events in the books of account
4.Classifying i.e posting in the ledgers
Define accountancy?
Accountancy is a systematic knowledge of accounting.
Define income statement? What is the other name for income statement?
Trading and profit and loss account (statement of profit and loss,incase of companies) (Income statement) shows the profit earned or loss incurred by the enterprise during the accounting year
Define position statement?
Balance sheet /position statement is the statement which shows the financial position of the enterprise on the particular date.
Define Accounting information
Accounting information is used for forecasting, comparing and evaluating financial performance and position.
What is double entry system of accounting?
It is a system of accounting where both the debit and credit aspects of a transactions are recorded.
What is single entry system?
It is a system in which both the aspects of the transactions are not recorded in all the cases.In some cases, both t he aspects are recorded, while in others either 1 aspect is recorded or a transaction is not recorded at all.
Is accounting a science or an art?
Accounting is an art of recording, classifying and summarising financial transactions. It helps us in knowing the profitability and financial position of the business.
It is also a science as it is an organised knowledge based on certain basic principles.
What is the process of accounting?
- Financial transactions or events
- Recording
- Journal
- Posting in ledger
- Summarising (a.Trial balance, b.Income statement ,c.Position statement)
- Analysis and Interpretation
- Communicating to users
What is financial accounting? What does it determine?
It is that branch of accounting which records financial transactions and events ,Summarises and interprets them before communicating the results to the users.
It determines the income statement and financial position .
What is cost accounting? What is its objective?
This branch of accounting is concerned with ascertaining cost of products, operations, processes or activities.
Its main objective is ascertaining, reducing and controlling costs.
What is management accounting?
It is concerned with generating accounting information related to funds, costs profits, etc. as it enables the management in decision making.
What are the objectives of accounting?
- Maintaining accounting records
- Determining profit or loss
- Determining financial position
- Facilitating management
- Providing accounting information to users
- Protecting business assets
What are the functions of accounting?
- Maintaining systematic accounting records
- Preparation of financial statements
- Meeting legal requirements
- Communicating the financial information
- Assistance to management
What are the advantages of accounting?
- Financial information about business
- Assistance to management
- Replaces memory
- Facilitates comparative study
- Facilitates settlement of tax liabilities
- Facilitates loans
- Evidence in court
- Facilitates sale of business
- Assistance in the event of insolvency
- Helpful in partnership accounts
- Helps in decision making
What is the role of accounting in business?
- Maintenance of systematic records
- Assistance to management
- Facilitates comparative study
- Evidence in court
What are the limitations of accounting?
- Accounting is not fully exact
- Unrealistic information
- Accounting ignores the qualitative information
- Accounting ignores the effect of price level changes
- Accounting may lead to window-dressing
What are the types of accounting?
- Information relating to profit or surplus-Income statement
- Information relating to financial position- Position statement
- Information about cash flow
What is cash flow statement?
It is a statement that shows flow, both inflow and outflow of cash during a specific period
Who are the users of accounting information?
INTERNAL USERS 1.Owners 2.Management 3.Employees and Workers EXTERNAL USERS 1.Banks and financial institutions 2.Investors and Potential Investors 3.Creditors 4.Government and its authorities 5.Researchers 6.Consumers 7.Public
What are the qualitative characteristics of accounting information?
- Reliability
- Relevance
- Understandability
- Comparability
What are the features of double entry system?
- Maintains complete record of each transaction
- Recognizes 2 fold aspect
- 1 aspect is debited while the other aspect is credited
- Helps in establishing arithmetical accuracy by preparing trial balance
What are the advantages of double entry system?
- Scientific system
- Complete record of transactions
- Arithmetical accuracy of accounts is ensured
- Determining profit or loss
- Knowledge of financial position
- Full details for purposes of control
- Comparative study is possible
- Helps management in decision making
- Detection of frauds and misappropriation