ITFA Chapter 1

Question 1

definition & importance of accounting

Answer 1

process of classifying, recording & summarizing business transactions in monetary units & interpreting the financial data to assist stakeholders in making decisions

Question 2

Difference between accounting and bookkeeping

Answer 2

bookkeeping: process of recording accounting data in the accounting book/ It’s part of accounting but not included the process of presenting/communicating the information

Question 3

Objectives of accounting?

Answer 3

-To identify the financial position of the the firm/ knowing whether it’s making a profit or loss
-Transaction that are recorded are easily referred to in the future

Question 4

How many uses and users of accounting information

Answer 4

2, Internal and external users

Question 5

Internal users

Answer 5

People within the organizations who are able to make decisions internally

Question 6

Example of internal users

Answer 6

Managers: needs to know how well things are progressing financially & about the financial status of the business
Staff: needs to know the company’s performance that could affect their salary or bonus

Question 7

External users

Answer 7

People outside the company but have benefit from the financial information of the company

Question 8

Example of external users

Answer 8

Supplier: want to know whether the organization will stay in business ad whether they will be paid.
Bank: to make decision whether need to give loan to the business

Question 9

Historical cost principle

Answer 9

Assets are recorded at the price paid to acquire them

Question 10

Objectivity principle

Answer 10

Transaction must be recorded based on objective evidence or verified & unbiased information

Question 11

Full disclosure principle

Answer 11

Published accounting information must always be relevant, timely, reliable, unbiased and free from mistakes/errors

Question 12

Matching of revenue & expenses principle

Answer 12

All expenses incurred to generate revenue must be reported within the period in which the revenue is reported

Question 13

Dual aspect concept principle

Answer 13

It’s a basis for double entry system of bookkeeping. All business transaction recorded in accounts have 2 aspects which are receiving benefit and giving benefit

Question 14

Separate entity assumption

Answer 14

A business & its owners are 3 separate entities. The business’s transaction must be accounted separately from the owner’s transaction

Question 15

Going concern assumption

Answer 15

Assuming a business will be continue to expand & operate in the future

Question 16

Monetary unit assumption

Answer 16

All transaction are recorded in the country’s monetary unit.

Question 17

Consistency assumption

Answer 17

Using the same accounting method from one accounting period to another accounting period

Question 18

Accounting period assumption

Answer 18

Business activity can be divided into specific periods, eg: a month, a quarter, 6 months or a year

Question 19

How many branches of accounting?

Answer 19

3, Financial accounting, Cost accounting, Management accounting

Question 20

Financial accounting branch

Answer 20

Preparation of financial reports to help stakeholders of a business in decision-making

Question 21

Financial accounting branch example

Answer 21

Income statement, Balance sheet, Statement of cash flow and Statement of Owner’s Equity.

Question 22

Cost accounting branch

Answer 22

A method to determine costs in order to plan and control business operations

Question 23

Cost accounting brach example

Answer 23

Production costs such as Raw material Cost, Overhead Cost, Labor Cost

Question 24

Management accounting branch

Answer 24

Interpretation of information obtained from financial accounting & cost accounting to help the management of a business to make decisions & plans, and to control business operations

Question 25

Management accounting branch example

Answer 25

Budgeting, Cost Volume Profit

Question 26

Types of business entity

Answer 26

3, Sole proprietorship, Partnership, Corporation

Question 27

Sole proprietorship amount of user

Answer 27

1 owner

Question 28

Sole proprietorship liability

Answer 28

Unlimited

Question 29

Sole proprietorship profit and loss

Answer 29

100% owner

Question 30

Partnership amount of user

Answer 30

2-20 @ 2-50 patners

Question 31

Partnership liability

Answer 31

Limited

Question 32

Partnership profit & loss

Answer 32

Share among partners

Question 33

Corporation amount of user

Answer 33

More than 1

Question 34

Corporation liability

Answer 34

Limited

Question 35

Corporation profit & loss

Answer 35

Return as dividend