Chapter 1: Decision making and the role of accounting

Question 1

Accounting

Answer 1

The process of identifying measuring, recording and communicating economic information to permit informed judgments and economic decisions by users of the information

Question 2

Management accounting

Answer 2

Area of accounting concerned with providing financial and other information to all levels of management in an organisation to enable them to carry out their planning, controlling and decision making responsibilities

Question 3

Financial accounting

Answer 3

Concerned with reporting information to uses eternal to an entity in order to help them to make sound economic decisions about the entity’s performance and financial position

Question 4

Steps in decision making

Answer 4

1. Establish goals
2. Gather information
3. Determine consequences of alternatives
4. Choose a course of action

Question 5

The accounting process

Answer 5

1. Identification: Transactions
2. Measurement: Quantification in money terms
3. Recording: recording, classification, summarisation
4. Communication: accounting reports, analysis and interpretation

Question 6

Types of business entities

Answer 6

Single proprietorship or sole trader
- owned by one person

Partnership
- owned by tow or more partners

Company or corporation

• owned by shareholders
• separate legal entity limited liability