Role of accounting and accountants

Question 1

What is the role of accounting?

Answer 1

Accounting is an information system that provides accounting information for stakeholders to make informed decisions regarding the management of resources and performance of businesses.

Question 2

What is the role of accountants?

Answer 2

Accountants prepare and provide accounting information for decision-making. In doing so, accountants set up an accounting information system(AIS) and become stewards of businesses

Question 3

What are the two professional ethics?

Answer 3

Integrity: An accountant with integrity is straightforward and honest in all professional relationships.
Objectivity: An accountant who is objective will not let bias, conflict of interest or undue influence of other override his or her professional judgement.

Question 4

What is an Accounting Information System?

Answer 4

A system that a business uses to collect, store and process accounting data for stakeholders to use in their decision-making.

Question 5

Accounting entity theory

Answer 5

The activities of a business are separate from the actions of the owner. All transactions are recorded from the point of view of the business.

Question 6

Accounting period theory

Answer 6

The life of a business is divided into regular time intervals.

Question 7

Going concern theory

Answer 7

A business is assumed to have an indefinite economic life unless there is credible evidence that it may close down

Question 8

Historical cost theory

Answer 8

Transactions should be recorded at their original cost.

Question 9

Monetary theory

Answer 9

Only business transactions that can be measured in monetary terms are recorded.

Question 10

Objectivity theory

Answer 10

Accounting information recorded must be supported by reliable and verifiable evidence so that financial statements will be free from opinions and biases.

Question 11

Prudence theory

Answer 11

The accounting treatment chosen should be the one that least overstates assets and profits and least understates liabilities and losses

Question 12

What is the accounting cycle?

Answer 12

Identify and record, adjust, report, close

Question 13

What is the difference between a debit note and a credit note?

Answer 13

Debit note refers to the increase in the amount owed by credit customers who were previously undercharged while credit note refers to the reduction to the amount owed by credit customers who were previously overcharged or for goods that were returned.

Question 14

What is the difference between current assets and non-current assets?

Answer 14

Current assets are resources a business owns or controls that are expected to provide future benefits within one financial year while non-current assets are resources a business owns or controls that are expected to provide future benefits that last beyond one year.
Current assets are not easily converted to cash while non-current assets are easily converted to cash.

Question 15

What is the difference between current liabilities and non-current liabilities?

Answer 15

Current liabilities are obligations owed by a business to others that are expected to be paid beyond one financial year and are consolidated as long-term borrowings in SOFP while non-current liabilities are obligations owed by a business to others that are expected to be paid within one year.

Question 16

What is equity?

Answer 16

Claim by the owner(s) on the net assets of a business

Question 17

What is the difference between income and expense?

Answer 17

Income is amounts earned from the activities of a business while expense is costs incurred to earn income in the same accounting period

Question 18

What is the double-entry rule?

Answer 18

For every business transaction(it will affect at least two accounts), there will be one debit entry to one account and one credit entry to another account and both amounts recorded are equal.

Question 19

What are the differences between a trade discount and a cash discount?

Answer 19

TD is a reduction to the list price while CD is a reduction to the invoice price.
TD is to encourage customers to buy in bulk; their patronage; and their loyalty while CD is to encourage credit customers to pay early, within a specified time.
TD is not recorded in the ledger account as invoice price is recorded while CD is recorded in the ledger account as discount allowed or discount received.

Question 20

What is a trial balance?

Answer 20

The trial balance is a list of all the ledger accounts and their ending balances at a point in time.

Question 21

What is the purpose of a trial balance?

Answer 21

A trial balance is prepared to facilitate the preparation of the financial statement and ensure arithmetic accuracy in recording.

Question 22

What is a statement of financial position?

Answer 22

The statement of financial position lists the assets, liabilities and equity of a business as at a specified date. It provides information on how resources are obtained and used in a business and the claim by the owner(s) on the net assets of the business at a point in time.

Question 23

What is the difference between cash in hand and cash at bank?

Answer 23

Cash in hand is physical cash kept by the business, inside a cash register or safe while cash at bank is cash deposited with the bank.

Question 24

Why are cheques dishonoured?

Answer 24

expired; post-dated; inconsistent information; incomplete information; insufficient fund in payer’s bank account

Question 25

What is the purpose of internal control?

Answer 25

Internal controls Safeguard assets of business, ensure business transactions are recorded accurately and comply with laws and regulation.

Question 26

What is the purpose of internal control over cash?

Answer 26

As cash is highly portable, it has a high chance of getting stolen.
A business should implement the following internal controls to reduce the possibility of theft or the likelihood of error in order to ensure that cash is well protected and accurately reported otherwise errors discrepancies and irregularities may not be detected on time and cash maybe misappropriated.

Question 27

What are the four internal controls?

Answer 27

Segregation of Duty - separate cash handling and cash recording duties among different employees so that no single person has control over the entire cash process
Custody of cash - secure cash and check in a locked storage by limiting access of cash to authorized personnel are providing combination passwords or other access codes to authorized personnel only.
Authorization - obtained proper approval for all payments from authorized personnel
Bank reconciliation - compare the business’ records with the bank’s records to identify items that cause the differences between the ending balances in the cash at bank account and the bank statement

Question 29

How to calculate the cost of inventory purchased?

Answer 29

Cost of inventory includes the purchase price of goods and all costs incurred to bring in and get them ready for sale

Question 30

What is the First-In-First-Out(FIFO) method?

Answer 30

Goods that are purchased first are assumed to be sold out first.

Question 31

What is impairment loss on inventory?

Answer 31

When the net realisable value falls below the cost of inventory, business must reduce the value of inventory and record the potential loss as an expense known as impairment loss on inventory even though the inventory has not yet been sold.

Question 32

What is an insurance claim?

Answer 32

To manage the risk of potential loss caused by damaged goods, a business may buy insure and make an insurance claim to seek compensation.