Chapter 1 - Basics

Question 0

How do we collect financial information

Answer 0

Accounting is the process of collecting, recording and then reporting business data into information that assists in making decisions about their firm

Question 1

The purpose of accounting

Answer 1

Is to provide business owners with financial information that will assist them in making decisions about their firm

Question 2

Data and Information

Answer 2

Data is raw facts and figures. Information is data that has been sorted, classified and summarised into a more suitable and understandable form

Question 3

The users of accounting

Answer 3

• The owner or prospective owners
• Debtors/Creditors
• Banks and other lenders
• Australian Taxation Office (ATO)
• Employees or potential employees

Question 4

Debtors and creditors

Answer 4

Debtors owe money to YOU

You owe money to creditors

Question 5

The accounting process

Answer 5

1. Source document - input
2. Records - process
3. Reports - output
4. Advice - advice

Question 6

Source documents

Answer 6

The pieces of paper that provide evidence that a transaction has occurred, and the details of the transaction
E.g. Receipts, bank statements, invoices

Question 7

Recording

Answer 7

Sorting data into information eg. Journals, stock cards

Question 8

Reporting

Answer 8

The preparation of financial statements that communicate financial information
eg. Income statement, balance sheet

Question 9

Advice

Answer 9

The financial information is then used to advise the owner on an appropriate course of action

Question 10

Debtors and other customers

Answer 10

who may wish to know about the firm’s continuing ability to provide them with stock

Question 11

Banks and other lenders

Answer 11

which will certainly want to know about the firm’s current levels of debt and their ability to repay before providing them with any additional finance

Question 12

Employees

Answer 12

may wish to know about the firm’s long-term viability, and their own long-term employment prospects, or its ability to afford improvements in wages and conditions

Question 13

creditors and other suppliers

Answer 13

who may wish to know about the firm’s ability to repay what it owes them

Question 14

Prospective owners

Answer 14

who may wish to know about the firm’s financial structure and earnings performance, and its assets and liabilities to determine the firm’s worth

Question 15

Australian taxation owners

Answer 15

which will require financial information for taxation
purposes.