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Questions and Answers
Which of the following best describes the scope of book keeping?
Which of the following best describes the scope of book keeping?
- Recording and summarizing all financial transactions.
- Recording financial transactions from source documents. (correct)
- Communicating financial information for decision making.
- Recording, classifying, summarizing financial data, and preparing financial statements.
What equation is correct when representing liabilities in terms of assets and capital?
What equation is correct when representing liabilities in terms of assets and capital?
- $liabilities = capital - assets$
- $liabilities = assets + capital$
- $liabilities = capital + assets$
- $liabilities = assets - capital$ (correct)
Which of the following is NOT considered a purpose of accounting?
Which of the following is NOT considered a purpose of accounting?
- For decision making
- To monitor progress
- To record financial transactions (correct)
- To prepare financial statements
Which of the following is an example of an asset?
Which of the following is an example of an asset?
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What is considered a liability?
What is considered a liability?
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What differentiates accounting from book keeping?
What differentiates accounting from book keeping?
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What term defines resources supplied to the business by its owner?
What term defines resources supplied to the business by its owner?
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Identify the correct accounting equation.
Identify the correct accounting equation.
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Study Notes
Accounting Fundamentals
- Accounting involves recording, classifying, summarizing, and communicating financial data to provide useful information for decision-making.
- The purpose of accounting is to monitor progress, prepare financial statements, and facilitate informed decision-making in business.
Bookkeeping vs Accounting
- Bookkeeping: the process of recording financial transactions in the books of account, maintaining double-entry records, and preparing accounts from source documents.
- Accounting: involves recording, classifying, summarizing, and communicating financial data to provide useful information for decision-making.
Accounting Equation
- Assets = Capital + Liabilities
- Liabilities = Assets - Capital
- Capital = Assets - Liabilities
Assets
- Definition: Resources owned by the business and what is owed to the business.
- Examples: land, buildings, motor vehicles, furniture, cash in hand, etc.
Liabilities
- Definition: Total amount of money the business owes.
- Examples: bank loan, trade payables (creditors), bank overdraft, etc.
Capital
- Definition: Resources supplied to the business by the owner or what the business owes to the owner of the business.
- Also referred to as owner's equity or net worth.
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Description
Practice questions from past papers covering fundamentals of accounting, including definitions, purposes, and differences between related terms.
