Revision

Question 1

What is the role of accounting in business?

Answer 1

Accounting is a information system that provides reports to users about economic activities and the condition of a business

Question 2

Process by which accounting provides information

Answer 2

Identifying Users
Assesing user needs
Designing accounting system to meet user needs
Recording economic data about business activities + events
Prepare account reports

Question 3

Different Types of Accounting

Answer 3

Managerial Accounting: Provides info to internal users , it is private accounting

Financial Accounting: Provides relevant and timely info to external users such as financial statements

Question 4

What is the Business Entity Concept

Answer 4

Activities of a business are recorded separately from the activities of it’s owners, creditors or other businesses

Question 5

Cost Concept

Answer 5

Under this concept amounts are recorded in the accounting record at their cost/purchase price

The cost concept also includes the objectivity concept and the unit of measure concept

Question 6

Objectivity & Unit of Measure Concepts

Answer 6

Objectivity requires that amounts recorded must be based on objective evidence and that only the final agreed upon amount is enough to be recorded.

The unit of measure concept requires economic data to be recorded in dollars

Question 7

Accounting Equation

Answer 7

Assets = Liabilities + Owners Equity

Question 8

What is a business transaction?

Answer 8

An economic event or condition that changes an entity’s financial condition.

Question 9

What is an Account Payable

Answer 9

A acc. payable is a liability created by making a purchase on account

Question 10

What is revenue?

Answer 10

The money earned from the sales of goods/services

Question 11

What is an Account Receivable

Answer 11

An acc. receivable is a claim against a customer therefore it is considered an asset

Question 12

Definition of Expenses

Answer 12

Assets that are used in the process of earning revenue

Question 13

List of Assets, liabilities and Owners Equity

Answer 13

Assets: Cash, Land, Supplies, Buildings, Acc. recievables

Liabilities: Acc. payable, Wages payable, Notes payable

Owners Equity: Fees earned, Wages Expenses, Rent Expenses, Unwritten expenses

Question 14

What are Financial Statements

Answer 14

Financial statements are written records that convey the business activities and the financial performance of a company.

Question 15

Which are the financial statements

Answer 15

Income statement, Statement of owners equity, Balance Sheet, Statement of cashflows

Question 16

What is an income statement?

Answer 16

The income statement is a summary of revenue and expenses for a specific period of time such as month or year, it uses the matching concept.

Question 17

What is a Statement of Owners Equity

Answer 17

It is a summary of changes in O.E. that have occurred during a specific period i.e. month or year

• Prepared after income statement because Net income/loss needs to be reported in the statement

Question 18

What is a Balance Sheet

Answer 18

The balance sheet is a list of assets, liabilities and owners equity as of a specific date (usually close of a month or year)

Question 19

What is a statement of cash flows

Answer 19

A summary of the cash receipts and cash payments for a specific period of time

Consists of 3 sections: Operating activities, Investing Activites and Financing Activities

• Cashflow from investing activities reports cash transactions for the acquisition + sale of relatively permanent assets
• Cashflow financing activities reports cash transactions related to cash investments by the owner, borrowing and
withdrawals from the owner.

Question 20

What is Owners Equity?

Answer 20

Owners right to the assets of the business after all liabilities have been paid

o Owners’ equity represented by balance of owners Capital Account
o Drawing Account = Number of withdrawals made by the owner

Question 21

What is Revenue

Answer 21

Revenue is an increase in assets and O.E. as a result of selling services/goods

i.e.
Fees earned
Commissions Revenue
Rent Revenue

Question 22

What is an expense

Answer 22

The using up of assets or consuming services in the process of generating revenue

i.e.
Wages Expenses
Rent Expenses
Miscellaneous Expenses

Question 23

The T account

Answer 23

The t account is a chart where transactions are recorded it has the shape of a T

left side credit
right side is debit