Welcome To Accounting

Question 1

What is accounting?

Answer 1

Accounting is the process of classifying, summarizing, and reporting financial transactions about economic entities such as businesses and corporations.

Question 2

In your own words, describe what an accounting system is.

Answer 2

The accounting system is a set of systems used in business to manage income, expenses, and other financial activities and to keep your business’s records.

Question 3

What Is a creditor?

Answer 3

A creditor or lender is a party that lends money with the expectation of repayment or profit.

Question 4

What is an investor?

Answer 4

An investor is any person or other entity (such as a firm or mutual fund) who commits capital with the expectation of receiving a financial return or profit for the investment conducted.

Question 5

What is the difference between financial and managerial accounting?

Answer 5

Managerial accounting focuses on an organization’s internal financial processes, while financial accounting focuses on an organization’s external financial processes.

Question 6

Who uses financial information

Answer 6

The financial statements are used byinvestors, market analysts, and creditorsto evaluate a company’s financial health and earnings potential.

Question 7

Explain what the code of ethics is?

Answer 7

The code of ethics is a set of standards and rules used by individuals and organizations to manage their decision-making process

Question 8

What are the five types of business structures?

Answer 8

Sole proprietorship. Partnership. Corporation. S corporation. Limited liability company(LLC).

Question 9

Why is accounting important in our financial life?

Answer 9

Accounting can be used in our daily lives as it helps Budgeting Your Money, Tracking Your Expense And Income, Saving For The Future, and Investing To Make More Money.

Question 10

What is a personal budget?

Answer 10

A financial plan to assign income and expenses for a specified period of time

Question 11

What are the different types of budget systems?

Answer 11

There are four common types of budgets that companies use: (1) incremental, (2) activity-based, (3) value proposition, and (4) zero-based.

Question 12

What is income?

Answer 12

The amount of money, property, and other transfers of value received over a set period of time by individuals or entities as compensation for services, payment for products, returns on investments, pension distributions, gifts, and myriad other transfers of value, or through investing capital.

Question 13

What is net income?

Answer 13

Net income refers to the amount an individual or business makes after deducting costs, allowances, and taxes.

Question 14

What are expenses?

Answer 14

The costs that a business incurs in its effort to generate revenues.

Question 15

How do you calculate net worth?

Answer 15

The net worth can be calculated bysubtracting all of your debts and liabilities from your assets.

Question 16

How do you prepare a personal budget?

Answer 16

To create a personal budget, first, identify important goals you want to achieve that require money. Next, prioritize your monthly spending, from necessary to trivial. Next, add your net income and subtract expenses. Finally, adjust your planned spending or consider additional income as necessary.

Question 17

What are principles?

Answer 17

Principles are the basic laws or truths that serve as the foundation for a system of beliefs or behaviors within a business.

Question 18

What is the purpose and importance of GAAP?

Answer 18

Generally Accepted Accounting Principles (GAAP or US GAAP) are a collection of commonly-followed accounting rules and standards for financial reporting, as GAAP aims toimprove the clarity, consistency, and comparability of the communication of financial information. GAAP helps govern the world of accounting according to general rules and guidelines. It attempts to standardize and regulate the definitions, assumptions, and methods used in accounting across all industries.

Question 19

How is GAAP different from IFRS?

Answer 19

The primary difference between the two systems is thatGAAP is rules-based and IFRS is principles-based.

Question 20

What is the global economy?

Answer 20

The sum of activities that take place both within a country and between different countries as a system of trade and industry around the world is considered one economic system.

Question 21

What is the accounting cycle and why is it important?

Answer 21

The accounting cycle isa comprehensive process designed to make a company’s financial responsibilities easier for its owner, accountant or bookkeeper as it provides a clear guide for the recording, analysis, and final reporting of a business’s financial activities. The accounting cycle is used comprehensively through one full reporting period also known as the fiscal year.

Question 22

What is the fiscal year?

Answer 22

The fiscal year is a one-year period used for financial reporting or budgeting that does not have to correspond with the calendar year.

Question 23

What is the accounting equation?

Answer 23

The accounting equation shows on a company’s balance sheet that the total assets are equal to the sum of the liabilities and its shareholders’ equity.

Question 24

What are the parts are the accounting equation?

Answer 24

The three elements or parts of the accounting equation are assets, liabilities, and shareholders’ equity.

Question 25

What is the difference between accounts payable and accounts receivable?

Answer 25

Accounts Payable are the current bills a business owes to suppliers. Money owed to a business enterprise for merchandise bought on open account as Accounts Receivable are the amounts owed to a company by its customers and/or employees

Question 26

How do transactions change the accounting equation?

Answer 26

Different transactions impact the owner’s equity in the expanded accounting equation. Revenue increases owner’s equity, while owner’s draws and expenses (e.g., rent payments) decrease owner’s equity. Both sides of the equation must balance each other.