Section 1: The Fundamentals of accounting

Question 1

What involves the collection, recording, storage and retrieval of financial transactions of a business?

Answer 1

Book-keeping.

Question 2

What are financial transactions?

Answer 2

Financial transactions are events that occur that change the value of an asset, a liability, or an owner’s equity.

Question 3

What is the definition of accounting?

Answer 3

Accounting is the process of collecting, recording, classifying, summarising, analysing, interpreting and communicating financial data in order to allow the users of accounting information to make informed judgements and decisions.

Question 4

What are the financial statements?

Answer 4

Financial statements are made up of an income statement and a statement of financial positions.

Question 5

What is financial data?

Answer 5

Financial data refers to any aspect of a business that can be measured in terms of money.

Question 6

What are interested parties?

Answer 6

Interested parties are all those people or groups of people who have a special interest in the business.

Question 7

List down the interested parties.

Answer 7

Owners, 
Prospective investors, 
Bank, 
Trade payables (creditors), 
the government.

Question 8

What is Owner’s Equity / Capital?

Answer 8

Owners’ Equity / Capital, in accounting, is usually what the business owes the owner.

Question 9

What are assets?

Answer 9

Assets are resources of monetary value that a business owns or is owed.

Question 10

What are liabilities?

Answer 10

Liabilities are the amounts that the business owes people for resources supplied to the business.

Question 11

What is the accounting equation?

Answer 11

Owner’s equity = Assets – Liabilities
Assets = Owner’s equity + Liabilities
Liabilities = Assets – Owner’s equity

Question 12

What is a statement listing the assets, liabilities and capital at a specific point of time?

Answer 12

The statement of financial position.

Question 13

List down the types of assets and their definitions.

Answer 13

Current Assets:
Assets that can be sold, used up or consumed through the normal workings on a business within no more than a year from the date of the statement of financial position.

Liquid Assets:
Assets that can be quickly converted to cash with no loss in value.

Non-current Assets:
Assets that the business has brought with the intention of using them for a period of more than a year, such as machinery, motor vehicles and premises.

Trade Receivables:
Business or individuals who have received goods or a service from the business on credit, with the understanding that payment is due within the credit period.

Question 14

List the types of liabilities and their definition

Answer 14

Current liabilities:
Debts that must be paid within a year from the date of the statement of financial position.

Non-current liabilities:
Debts that do not need to be paid within a year from the date of the statement of financial position.

Question 15

What is an account?

Answer 15

An account is a physical place where information concerning an asset or liability, or owner’s equity is recorded.