Introduction To Accounting - The Nature And Functions of Accounting

Question 0

Explain the meaning of he term “accounting”

Answer 0

Accounting is concerned with recording of data, classification and summary of data, communication what has been learned from data

Question 1

Explain six objectives of accounting

Answer 1

• Use accounting rules and concepts to analyse case studies and real business events
• Interpret and evaluate Accounting statements, systems and reports
• Providing a mean of developing a critical and analytical approuch to quantative problems
• Apply numeric skills required for accounting
• Use accounting to assist in decision-making
• Describe the impact of computers on accounting

Question 2

No business can operate in

Answer 2

Isolation

Question 3

Whatever the size and type of business, the principles of the system are the same

Answer 3

Recording day-to-day financial transactions = bookkeeping

Enabling, preparation of periodic financial summaries and interpretation of it = accounting

Question 4

Explain the importance of Accounting information to internal users

Answer 4

OWNER: wants to see whether his/her investment has made a profit/loss
EMPLOYEES: They are working for the business and have a direct interest in the financial affair.

Question 5

Explain the importance of Accounting information to external users

Answer 5

• Bank & financial institutions: will be interested in whether the business will be able to repay the loan and whether interest can be paid.
• Potential investors & prospective buyers: wants to see whether the investment will be worthwhile and will be interested in the progress the business has made. Whether a profit is made
• The government(Receiver of revenue): need bank statements in order to calculate the taxes(VAT & tax on profit)
• Custimers & Suppliers: Want to ensure that the business is solvent prior to entering a trading relationship
• Local community: concerned about effects like redundancy, closing down, pollution
• Business competitors: Measures own performance against rivals
• Economic analysts: attempt to establish trends by analysis of particular business’s results
• Members of general public: require information relating to environmental, ecological and other attitudes revealed in reports of business.

Question 6

Name and explain the different branches of Accounting

Answer 6

• Cost and management accounting: provision of info to interested parties inside the business, especially to managers, to help with decision-making, planning management & control
• Financial accounting: Provision of info to interested parties outside of business. Parties like prospective buyers, the receiver of revenue, bank, future partners & investors
• Auditing: Determines whether recorded info is a true reflection of the business transactions. Be done internally, that is when the business itself does it, externally when the business contracts an outside company to do it.