Nature and Functions of Accounting

Question 1

Name and explain the different BRANCHES of accounting

Answer 1

• 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.

Question 2

EXPLAIN the term “Accounting”

Answer 2

Accounting is concerned with

• Recording
• Classifying
• Summarising
• Communicating data

Question 3

Explain the six OBJECTIVES of accounting

Answer 3

• Use accounting rules and concepts to analyse case studies of real business events
• Interpret and evaluate accounting statements, reports, systems
• Provide a means of developing a critical and analytical approach to quantitive problems
• Apply numerical skills required for accounting
• Use accounting to assist in decision making

Question 4

No business can operate in ______

Answer 4

Isolation

Question 5

Define bookkeeping

Answer 5

Recording day to day financial transactions

Question 6

Define accounting

Answer 6

Enabling the preparation of periodic financial summaries and the interpretation thereof

Question 7

Explain the importance of accounting information to INTERNAL users

Answer 7

• Owner: wants to see whether his business is making a profit/loss
• Employees: Have direct interest in financial affairs

Question 8

Explain the importance of accounting information to EXTERNAL users

Answer 8

• Bank and financial institutions: Repay loan?
• Potential Investors: Worthwhile investment?
• Government: Tax calculation
• Customers and Suppliers: Solvent? (Trading relationship)
• Local Community: Pollution? Closing down?
• Business competitors: Measure progress
• Economic analysts: Establish trends
• Public: Environmental, ecological, attitudes? (Business reports)