Questions and Answers
What is one of the primary objectives of accounting?
Which of the following is NOT a function of accounting?
Which book is used for recording initial business transactions?
The ledger in accounting is primarily used for:
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Which branch of accounting focuses on the costs of production?
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In the context of accounting, what is the purpose of ascertaining financial position?
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What is the significance of recording business transactions?
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What type of accounting provides information for decision-making?
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What is the effect on cash when Sierra invests $10,000 in exchange for common stock?
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What type of liability arises when Sierra borrows $5,000 from Castle Bank?
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What is the primary goal of Indian Accounting Standards (Ind AS)?
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What happens to Sierra's cash balance when it pays $5,000 to purchase equipment?
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What type of transaction is represented when Sierra receives a $1,200 cash advance from a client?
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How many accounting standards are effectively issued under Ind AS?
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Which of these is NOT a type of asset as defined by the content?
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What is the accounting treatment when Sierra pays $900 in cash for office rent?
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Which of the following describes a fixed asset?
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When Sierra pays $600 for a one-year insurance policy, what happens to assets?
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What is the nature of the $2,500 supplies purchased on account?
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What distinguishes current liabilities from non-current liabilities?
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Which of the following statements about Ind AS is accurate?
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In which scenario does Sierra's cash balance increase?
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Which of these is an example of a current asset?
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What aspect do accounting standards NOT typically address?
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What is the primary purpose of GAAP?
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Which of the following is NOT one of the three main financial statements?
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What year did the development of IAS begin?
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How does IFRS differ from IAS?
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Which of the following is a significant aspect of GAAP?
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Which type of standard provides broader principles-based guidance?
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Why can differences in reported financial information occur under IAS?
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What do the Accounting Standards in India aim to provide?
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Which financial statement is primarily focused on a company's profitability?
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What is a core principle of IFRS regarding financial reporting?
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What is capital in accounting terms?
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Which of the following statements about expenses is correct?
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What distinguishes capital expenditure from revenue expenditure?
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In accounting, what does the term 'profit' signify?
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What is the primary purpose of a voucher in accounting?
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Who are creditors in accounting?
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What does the accounting equation indicate?
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What does the double-entry system in accounting entail?
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Study Notes
Accounting Basics
- Accounting systematically records, measures, and communicates information about financial transactions.
- Key functions include measuring past performance, providing information for decision-making, and assisting tax collection.
Transactions Overview
- Purchasing furniture may decrease cash or create a liability while acquiring an asset.
- Cash investments of $10,000 are exchanged for common stock, increasing company equity.
- Borrowing $5,000 from a bank incurs a note payable of 12% interest over three months.
- Payments such as $5,000 in cash for equipment reduce cash assets while increasing fixed assets.
- Cash advances and payments for services received create obligations and affect cash flow.
Financial Statements & Principles
- Financial accounting encompasses several branches: Financial, Management, Cost, Social Responsibility, and Human Resource Accounting.
- Recording of transactions happens in a "Journal," with classified entries stored in a "Ledger."
- Summarization leads to key financial statements: income statement, balance sheet, cash flow statement.
GAAP and IFRS Standards
- GAAP stands for Generally Accepted Accounting Principles, ensuring consistency and reliability across financial reports.
- IFRS, established in 2001, expands on IAS, providing more flexibility and industry-specific guidelines.
- Indian Accounting Standards (Ind AS) align with IFRS to enhance transparency in financial reporting.
Core Accounting Terms
- Entity refers to identifiable business units, such as companies.
- Asset is a resource expected to generate future economic value, including both fixed (e.g., property) and current assets (e.g., cash).
- Liabilities are debts owed, categorized into current (due within a year) and non-current (due later).
- Capital signifies the amount invested to start a business, presenting liabilities for the business.
- Sales represent revenue from goods/services, while Expenses are costs incurred in operations.
Understanding Profit and Loss
- Profit is the excess of revenue above expenses within an accounting period; Loss is when expenses surpass revenue.
- Voucher serves as documentary evidence of transactions, ensuring accountability.
Accounting Equation
- Total Assets must equal Total Liabilities plus Shareholders' Equity, known as the balance sheet equation, reflecting organizational financial health.
Double Entry System
- Each transaction must be recorded with both debit and credit aspects in the accounting books, ensuring accurate financial tracking.
Studying That Suits You
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Description
Test your knowledge of fundamental accounting principles such as asset acquisition, cash investments, and liabilities. This quiz will cover scenarios involving investments and furniture purchases to help reinforce your understanding of these concepts.
