Fundamentals of accounting

Question 1

Define book-keeping?

Answer 1

Book-keeping is the process of detailed recording of all the financial transactions of a business.

Question 2

Define accounting?

Answer 2

Accounting is using Book-keeping records to prepare financial statements and to assist in decision making.

Question 3

What is purpose of Book-keeping?

Answer 3

Is to keep a complete and accurate record of all the financial transactions in a systematic order.

Question 4

What is purpose of accounting?

Answer 4

• to know whether a business is making profit or loss.
• It helps to prepare reports on financial information about the performance of a business.

Question 5

Define statement of financial position?

Answer 5

It shows the assets and liabilities of a business on a certain date. Also known as balance sheet.

Question 6

What is the purpose of preparing financial statements?

Answer 6

• shows what a business owns and owes.
• Helps monitor the progress of the business by comparing it with financial statements from previous years.
• Helps to make decision and plans for the future of the business.
• provide important information for the accounting users.

Question 7

What are the purposes of measuring a businesses profit and loss?

Answer 7

• understand the progress of the business.
• Comparing business to itself from year to year.
• compare the progress of business to the progress of similar businesses.
• Base the business’ future and make decisions based on the profit/loss figure.

Question 8

Define Assets?

Answer 8

Are thing/resources a business owns.

Question 9

Define non-current assets?

Answer 9

Are assets that a business can use for a long time.

Question 10

Define current assets?

Answer 10

Are assets that can be converted into cash. They are cash equivalent.

Question 11

Define capital/owners equity?

Answer 11

Are resources provided by the owner of the business. It is what the business owes to its owner.

Question 12

Define liabilities?

Answer 12

Liabilities are anything that is owed by the business to other businesses.

Question 13

Define non-current liabilities?

Answer 13

Are the amounts owed by the business that are not due within 12 months.

Question 14

Define current liabilities?

Answer 14

Are amounts owed by the business that are due within 12 months.

Question 15

What is the accounting equation?

Answer 15

Assets = capital + liabilities

Question 16

Define inventory?

Answer 16

Is the goods in the business that are available for resale.

Question 17

Define closing inventory?

Answer 17

Are The good that remained unsold at the end of the year.

Question 18

Define opening inventory?

Answer 18

Are the goods that remain unsold at the start of a new reporting year for the business.

Question 19

Define trade receivables?

Answer 19

Represents the amount owed to the business by its debit customers. (since this is cash to the business it is recorded as a current asset in the financial position)

Question 20

Trade payables?

Answer 20

Represents the amount the business owes to the credit suppliers of goods. (since it is something the business owes to the others it is recorded as a current liability in the financial position)