Theory questions Flashcards
State the accounting equation?
Asset = Equity + liabilties
Explain what is accounting.
Accounting is the process of recording, summarising, analysing, interpreting and reporting the financial information of an organisation.
What is Bookkeeping?
Bookkeeping involves only the recording of business transactions.
What are the roles of accounting
Stewardship and Decision -making
Who are the internal stakeholders of business?
Sole proprietors and managers, and employees
Who are the external stakeholders of business?
Shareholders and investors, bank and other lenders, suppliers, customers, government public and competitors.
Explain why sole proprietor and managers need the financial information.
To make decision on how to plan, control, monitor and operate the business. To decide whether to continue the business or not.
Explain why employees need the financial information.
To know if the business is profitable to evaluate their career prospect so as to decide whether to continue working for the business or not.
Explain why bankers and lenders need the financial information.
To access the liquidity of the business so as to decide whether to grant the business loan or not.
Explain why investors need the financial information.
To access whether to increase, decrease or maintain their investment in the business. Potential investors may decide whether to invest in the business or not.
Explain why suppliers need the financial information.
To decide to sell goods to business or credit or not.
Explain why customers need the financial information.
To access if business is able to provide after-sales service so as to decide whether buy from the business or not.
Explain why government need the financial information.
To access how much tax to collect from the business.
