CHAP 1

Question 1

Book keeping

Answer 1

process of recording financial transactions in accounting records of an entity

Question 2

Accounts

Answer 2

all transacions are analysed into different types and then recorded in individual records called accounts.

Question 3

double entry book keeping

Answer 3

it is used to record the dual aspect of the transaction in the systems designed to allow the management of business, to monitor progress and produce periodical financial statement and performance report.
or
any transaction that affects assets, liabilities, capital,income or expense must have an offsetting effect to maintain accounting equation.
or
the process of recording every transaction in at least two places.

Question 4

accounting

Answer 4

it is the process of recording, classsiying, summarising the information of financial nature and interpreting the results to end users
there are two types of accounting 1. financial accounting and reporting and 2.cost and management accounting

Question 5

financial accounting and reporting

Answer 5

maintaing a system of accounting records for business transactions and other items of financial nature and reporting the financial position and performance of an entity in a set of financial statements to the stakeholders

Question 6

cost and management accounting

Answer 6

it is the recording and communication of economic information to management for planning, control and decision making

Question 7

accounting cycle

Answer 7

1.transactions 2.books of prime entry 3.ledgers 4.trial balance 5. financial statement

Question 8

transaction

Answer 8

dealing between 2 people or parties that effect or influence each other

Question 9

business/financial transaction

Answer 9

an economic event that has monetary impact and has to be recorded in books of accounts of the business

Question 10

simple transaction

Answer 10

simple like buying and selling items on cash

Question 11

complex transaction

Answer 11

involves long time and various parties

Question 12

one off transaction

Answer 12

transactions that occur on single occasion. e.g buying land

Question 13

ongoing transaction

Answer 13

transaction that occur on regular basis.e.g.monthly bills

Question 14

capitalisation

Answer 14

it means recognizing a cost as an asset

Question 15

financial statement

Answer 15

are reports of an entity to provide its stakeholder with neceesary information for their decision making needs.

Question 16

entity

Answer 16

any type of organisation for which we do accounting

Question 17

business entity concept

Answer 17

business entity and its owners are seperated or financial reports are constructed as if the business entity is seperate from its owners

Question 18

companies(business entity concept)

Answer 18

a company by law is a legal person seperate from its owners

Question 19

accounting period also called

Answer 19

accounnting session/financial year/accounting period/reporting period=12 months or 1 year

Question 20

set of financial statements comprises

Answer 20

1.statement of final position
2. statement of comprehensive income
3. statement of changes in equity
4. statement of cash flows
5. notes to financial statements

Question 21

statement of financial position(balance sheet)

Answer 21

-reports financial position of an entity usually at the end of financial year. financial position is shown by assets,liabilities and equity(capital)
-it shows equity of businesss at a point in time

Question 22

asset

Answer 22

defined as a present economic resource controlled by entity as a result of past event.
simply an asset is something a business owns or controls and is available or will be available for use in business.
Or
Asset is an economic resource and the owner has a right on it and it has the potential to produce economic benefits bit these Benefits need not to be expected to flow to the entity. Like it must be in control and must have the potential to give benefits whether it is used to get benefits or not.

Question 23

current assets

Answer 23

assets that provide economic benefits in short term(one year).e.g.cash, trade receivables

Question 24

non current assets

Answer 24

assets that have long useful life and provide future economic benefits for an entity over a period of several years.e.g.buildings, machinery

Question 25

liabilities

Answer 25

a present obligation of an entity to transfer an economic resource as a result of past events.
simply a liability is something owed by the business to someone else.

Question 26

current liabilities

Answer 26

amounts payable within one year.e.g.trade payables, utility bills

Question 27

non-current liabilities

Answer 27

amounts payable more than 12 months after the reporting date,e.g. long term bank loan

Question 28

equity/capital/net assets

Answer 28

the residual interest in the assets of entity after deducting all its liabilities
-in sole trader business it is the owners capital
-increase in income or further capital investment increases equity
-increase in expense and drawing decreases equity

Question 29

accounting equation

Answer 29

assets=capital+liabilities
total debit and credit entries must be equal , this maintains accounting equation

Question 30

income

Answer 30

arise from increase in assets or decrease in liability other than contribution from owner(more capital invested in business)

Question 31

revenue

Answer 31

income arising in the course of ordinary activities of entity.e.g income from sales of goods

Question 32

other income

Answer 32

income arising other than in the course of ordinary activity.e.g.disposal of non-current assets

Question 33

expenses

Answer 33

arise from decrease in asset or increase in liability other than distributions to owners.

Question 34

drawing

Answer 34

any thing taken away from the business for personal use

Question 35

debit

Answer 35

shortened as ‘dr’
it is debit if assset,expense,drawing increases or liabilities, income, capital decreases

Question 36

credit

Answer 36

shortend as ‘cr’
it is credit if asset, expense,drawing decreases or liabilities, income, capital increases

Question 37

single entry system

Answer 37

consists of a cash book which contains only the personal accounts of creditors and debtors

Question 38

recognition

Answer 38

refers to putting an item into the book keeping system(performing double entry on it)

Question 39

cost

Answer 39

the amount of cash or cash equivalents paid, or the value of the other consideration given to acquire an asset at the time of acquisition or construction.

Question 40

Gross amount

Answer 40

presenting an asset,liability,income or expense without deducting any related amount.

Question 41

net amount

Answer 41

this is the result of adding a positive or negative number together. the result might be a net asset, net liability, net income or net expense.

Question 42

financial reporting

Answer 42

the objective is to provide financial information about the reporting entity that is useful to existing and potential investors,lenders and other creditors in making decisions about providing resources to the entity.

Question 43

responsibility of preparing financial statements in sole trader and partnership business

Answer 43

-there is no obligation to prepare a financial statement
-but financial statement might be required for tax purposes or for obtaining loan from a bank for which the owner or the partners are resposnsible.
-a person might be employed to maintain accounting records and prepare financial statements.

Question 44

responsibility of preparing financial statements in companies

Answer 44

-financial statements must be prepared for shareholders and for filing with relevant regulatory bodies.
-it is the responsibility of the directors to ensure that this is done.

Question 45

regulation for preparing financial statements for sole trade or partnership business

Answer 45

-financial statements are private and do not have to be disclosed, except for tax authorities or lending bank.
-must be prepared according to the accepted accounting principles and practices but need not to conform to all the requirements of accounting standard

Question 46

regulation for preparing the financial statement for companies

Answer 46

-financial statements of a company are usually subject to audit
-company law requires that financial statements are filed with a government agency where they can be accessed and read by any member of the general pulic
-listed companies are even required to make their financial statements availabale on their websites

Question 47

audit

Answer 47

it is the examination of financial statements by an independant expert who expresses an opinion as to whether they are fairly presented

Question 48

GAAP(Generally Accepted Accounting Principles)

Answer 48

the concepts,principles,conventions, laws, rules and regulations that are used to preapre and present financial statements are known as GAAP.

Question 49

main sources of GAAP in pakistani jurisdiction

Answer 49

-companies act 2017
-INternational financial reporting standards(IFRSs) this is used by companies whose shares are traded on the worlds stock markets.

Question 50

IFRSs is issued by

Answer 50

International Accounting Standards Board (IASB)

Question 51

Equity claims

Answer 51

These are the claims against the entity that do not meet the definition of a liability.