Accounting Basics Quiz

Introduction to Accounting

• Accounting is the process of recording, summarizing, and reporting financial transactions.
• It's crucial for effective management and decision-making in any organization.
• Accounting principles and practices are fundamental to business success.

Chapter 1 Content

• Definition of Accounting
• Importance of Accounting
• Accountant Responsibilities
• Accounting Branches
• Accounting Principles
• Accounting Terminologies
• Financial Statements
• The Accounting Cycle

Learning Objectives

• Define accounting
• Understand the importance of accounting
• Identify the accounting cycle
• Recognize basic accounting concepts and objectives

The Company and the Owner

• A company's profit (operation results) flows to the owner(capital funds).

What is Accounting?

• Accounting is the process of recording, summarizing, and reporting financial transactions.

Importance of Accurate Financial Records

• Maintaining accurate records is critical for business success and sustainability.
• Accurate records help track income, expenses, assets, and liabilities.
• They ensure tax compliance and provide a comprehensive understanding of the company's financial standing.

Why Accounting is Important

• Financial Position: Tracks profitability and growth.
• Financial Planning: Helps in the financial planning for the organization.
• Financial Accuracy: Ensures the accuracy and validity of financial transactions within the company.
• Financial Protection: Preserves the money of the company owners.

Accountant Responsibilities

• Recording financial transactions and ensuring their accuracy.
• Preparing financial reports for senior management and decision-makers.
• Dealing with taxes and ensuring accounts comply with tax laws.
• Calculating costs and helping to increase company profits.

Accounting Branches

• Financial Accounting: Prepares financial statements for external users (e.g., reporting company's annual revenue).
• Managerial Accounting: Focuses on internal decision-making (e.g., calculating the cost of producing a product).
• Tax Accounting: Manages tax compliance (e.g., filing income tax returns).

Key Accounting Concepts

• Business Entity Concept: Separates business money from personal owners' money.
• Money Measurement Concept: Only documented, measurable transactions in monetary terms are recorded.
• Dual Aspect Concept: Every transaction affects at least two accounts.

Accounting Principles

• Accrual Principle: Revenue and expenses are recognized when earned or incurred, not when cash is received or paid.
  • Example: Services worth $10,000 rendered in December, but paid in January, are recorded as revenue in December.
• On Going Principle: Assumes a business will continue to operate in the future unless evidence suggests otherwise.
• Historical Cost Principle: Assets and liabilities are recorded at their original purchase cost, not current market value.
  • Example: Land bought for $100,000 is still recorded at $100,000 even if its market value increases to $120,000.
• Matching Principle: Expenses are recognized in the same period as the related revenues.
  • Example: Goods sold for $20,000 in March with a cost of $12,000 must be recorded as an expense in March to match the revenue.
• Business Entity Principle: A business's financial records are separate from owners' personal financial transactions.

Accounting Activity

• Projects for Digital Marketing Agency (CA 5000$), Coffee Shop (CA 30000$), Restaurant (CA 60000$), and Tourism Agent (CA 60000$). Projects require tasks like listing expenses, estimating revenue, defining team work, searching for employee salaries, and managing financial problems.

Basic Accounting Terminologies

• Assets: Resources owned (e.g., cash, buildings).
• Liabilities: Amounts owed (e.g., loans, accounts payable).
• Equity: Owners' money in the company (e.g., Retained Earnings).
• Revenue: Income from sales or services.
• Expenses: Costs incurred to generate revenue (e.g., rent, utilities).
• Debit & Credit: Increases & decreases in accounts.

Financial Statements

• Balance Sheet: A snapshot of a company's assets, liabilities, and equity at a specific point in time.
• Income Statement: Measures a company's financial performance by tracking revenue, expenses, and net income over a period of time.
• Cash Flow Statement: Outlines cash inflows and outflows, providing insights into a company's liquidity and ability to meet financial obligations.

Balance Sheet Accounts

• Assets include Cash, Accounts Receivable, Inventory, Prepaid Expenses, Property, Plant, and Equipment, and Intangible Assets.
• Liabilities include Accounts Payable, Accrued Expenses, Short-term Loans Payable, Long-term Loans Payable, Common Stock, and Retained Earnings.

Income Statement Accounts

• Revenues include Sales Revenue, Service Revenue, and Interest Income.
• Expenses include Cost of Goods Sold (COGS), Salaries Expense, Rent Expense, Utilities Expense, Depreciation Expense, Advertising Expense, and Interest Expense.

How to Record Financial Transactions?

• Through Accounting Cycle.

Accounting Cycle

• A series of steps to record and process financial transactions resulting in financial statements.

Example of Recording a Financial Transaction with Accounting Cycle Steps

• Purchases of $500 in raw materials for cash.

1. Identify the transaction
2. Record in the journal
3. Post to the ledger
4. Prepare Trial Balance.

Other key details from provided documents

• There is a detailed accounting record example of several transactions.
• Important to ensure all accounting transactions are documented and recorded properly.

Closing Entries

• Closing revenue and expense accounts, preparing the income statement.

Test your knowledge on fundamental accounting concepts with this quiz. It covers topics such as financial statements, recording transactions, and the accounting cycle. Perfect for students and anyone looking to refresh their accounting skills.