Intro To Accounting

Question 1

Define accounting

Answer 1

Accounting is a system for recording information about business transactions to provide summary statements of accompanies financial position and performance to users who require such information.

Question 2

What are the two main sets of summary statements or main sets of books ?

Answer 2

Financial accounting: standardised reports for external users
Managerial accounting : customised reports for internal users

Question 3

Who are the external users of financial statements?

Answer 3

Investors and creditors

Question 4

What questions might investors ask that financial statements answer?

Answer 4

1. Is X Company earning satisfactory Income?
2. How does X Company compare in size and profitability with Y Company?

Question 5

What questions my creditors have that financial statements answer?

Answer 5

Will X Company be able to pay its debts when they come due?

Question 6

Who are the internal users of financial statements?

Answer 6

Marketing department managers
Management department managers
HR managers

Question 7

What questions might the marketing department ask that financial statements answer?

Answer 7

What should be charged for the next launch to maximise net income

Question 8

Questions would management have that financial statements answer?

Answer 8

Which product line is most profitable?
Should any product line be eliminated?

Question 9

What questions would HR have that financial statements answer?

Answer 9

Can the company afford to give it’s employees employees a raise this year?

Question 10

What is the nature of the reports produced in financial accounting?

Answer 10

• General purpose reports
• Contains information that will be useful for a range of users

Question 11

What is the nature of the reports produced in management accounting?

Answer 11

• Specific purpose reports designed either the particular decision or particular manager in mind

Question 12

What is the level of detail in financial accounting documents?

Answer 12

• Reports provide users with a broad overview of the position and performance of an entity for the period

Question 13

What is the level of detail in management accounting?

Answer 13

• Reports provide considerable detail to managers
• This helps them with particular operating decisions

Question 14

What are the existing regulations for financial accounting?

Answer 14

They are subject to accounting regulation like:
GAAP
IFRS

Question 15

What is the existence of regulations for management accounting?

Answer 15

• No external regulation determining the form and content
• Because reports are used internally

Question 16

What is the reporting interval for financial accounting?

Answer 16

Annually semi-annually quarterly, according to the regulatory requirements and entity’s description

Question 17

What is the reporting interval for management accounting?

Answer 17

As frequently as required by managers
- This is either weekly or monthly

Question 18

What is the time orientation for financial accounting?

Answer 18

• Mainly provides information about the performance and position of the entity for the past period

Question 19

What is the time orientation for management accounting?

Answer 19

Reports provide information about the future as well as past performance

Question 20

What is the range and quality of information in financial accounting

Answer 20

• It focuses on information that can be quantified in monetary terms

Question 21

What is the range and quality of information in management accounting?

Answer 21

There is financial and non-financial information

Question 22

How can accounting help uses make better decisions?

Answer 22

It has a dual role
- it acts as a steward: confirming past performance
- it is predictive: can be used to predict the future