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Questions and Answers
Define book-keeping.
Define book-keeping.
Book-keeping includes recording of journal, posting in ledgers, and balancing of accounts. It is the science and art of recording transactions in money or money’s worth systematically in a set of books.
What are the types of accounts based on accounting rules?
What are the types of accounts based on accounting rules?
Accounting is essential only for business organizations.
Accounting is essential only for business organizations.
False
What is the American Institute of Certified Public Accountants (AICPA) definition of accounting?
What is the American Institute of Certified Public Accountants (AICPA) definition of accounting?
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What is the main objective of accounting?
What is the main objective of accounting?
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What is the primary function of accounting according to the content?
What is the primary function of accounting according to the content?
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List out five objectives of Accounting.
List out five objectives of Accounting.
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What is the purpose of the Legal Requirement function in accounting?
What is the purpose of the Legal Requirement function in accounting?
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Accounting statements always reflect the current financial position of a business.
Accounting statements always reflect the current financial position of a business.
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The term 'debit' is derived from '_____' and the term 'credit' from 'creditable'.
The term 'debit' is derived from '_____' and the term 'credit' from 'creditable'.
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What are personal accounts in accounting?
What are personal accounts in accounting?
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How are Natural Persons' Personal Accounts defined?
How are Natural Persons' Personal Accounts defined?
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Explain Artificial or Legal Persons' Personal Accounts.
Explain Artificial or Legal Persons' Personal Accounts.
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Which rule applies to Real Accounts?
Which rule applies to Real Accounts?
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What are Nominal Accounts in accounting?
What are Nominal Accounts in accounting?
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Accounting principles should satisfy which of the following three basic qualities?
Accounting principles should satisfy which of the following three basic qualities?
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Define the Business Entity Concept as described in the text.
Define the Business Entity Concept as described in the text.
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Under the Money Measurement Concept, all events and transactions are recorded in terms of quantity.
Under the Money Measurement Concept, all events and transactions are recorded in terms of quantity.
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The _ Concept assumes or recognizes revenue when a sale is made.
The _ Concept assumes or recognizes revenue when a sale is made.
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Match the following accounting concepts with their descriptions:
Match the following accounting concepts with their descriptions:
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What is the basis of accounting where accounting entries are made based on amounts becoming due, whether cash is received or not?
What is the basis of accounting where accounting entries are made based on amounts becoming due, whether cash is received or not?
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In accrual basis of accounting, expenses are detailed to the period in which they are incurred, regardless of cash payment.
In accrual basis of accounting, expenses are detailed to the period in which they are incurred, regardless of cash payment.
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A person who owes money to the firm mostly on account of credit sales of goods is called a ______.
A person who owes money to the firm mostly on account of credit sales of goods is called a ______.
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Define 'Liability' in accounting.
Define 'Liability' in accounting.
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Match the following accounting terms with their definitions:
Match the following accounting terms with their definitions:
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On June 1, Karthik commenced the business with a capital of __________.
On June 1, Karthik commenced the business with a capital of __________.
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What was the total amount spent when plant worth Rs.10,000 was purchased from Modi & Co. on June 3?
What was the total amount spent when plant worth Rs.10,000 was purchased from Modi & Co. on June 3?
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How much cash was withdrawn for office use on June 18?
How much cash was withdrawn for office use on June 18?
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What is the purpose of a journal?
What is the purpose of a journal?
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What is the function of a ledger?
What is the function of a ledger?
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What are the advantages of using a journal? (Select all that apply)
What are the advantages of using a journal? (Select all that apply)
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Define 'journalizing' in accounting.
Define 'journalizing' in accounting.
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A journal entry shows both debit and credit aspects, while each entry in the ledger shows only ______ aspect.
A journal entry shows both debit and credit aspects, while each entry in the ledger shows only ______ aspect.
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What is the function of a ledger?
What is the function of a ledger?
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What is the purpose of ledger posting?
What is the purpose of ledger posting?
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Define 'journal' in accounting.
Define 'journal' in accounting.
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What does the term 'dual aspect concept' refer to in accounting?
What does the term 'dual aspect concept' refer to in accounting?
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Define the 'convention of materiality' in accounting.
Define the 'convention of materiality' in accounting.
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What is meant by the term 'accounting equation'?
What is meant by the term 'accounting equation'?
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What are the components of the accounting equation?
What are the components of the accounting equation?
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Explain the term 'losses' in accounting.
Explain the term 'losses' in accounting.
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Define 'assets' in accounting terminology.
Define 'assets' in accounting terminology.
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What does 'liability' mean in accounting?
What does 'liability' mean in accounting?
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In accounting, the goods purchased for selling but not yet sold are referred to as __________.
In accounting, the goods purchased for selling but not yet sold are referred to as __________.
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Study Notes
Accounting for Managers
Introduction to Accounting
- Accounting is often called the language of business, serving as a means of communication between various stakeholders.
- Accounting is required to account for money and other economic resources in all organizations.
Meaning and Definition of Book-Keeping
- Book-keeping is the science and art of recording business transactions in a systematic manner.
- It includes recording of journal, posting in ledgers, and balancing of accounts.
- Objectives of book-keeping:
- Provides a permanent record of each transaction.
- Enables the assessment of a firm's soundness.
- Facilitates the preparation of a list of customers and suppliers.
Accounting
- Accounting is the process of identifying, measuring, and communicating economic information to users.
- It involves recording, classifying, and summarizing transactions and events in a significant manner.
- Objectives of accounting:
- To keep systematic records.
- To ascertain the results of operations.
- To ascertain the financial position of the business.
- To portray the liquidity position.
- To facilitate rational decision-making.
- To satisfy the requirements of law.
Importance of Accounting
- Importance of accounting to:
- Owners: To know the returns on investment.
- Management: To study the merits and demerits of business activities.
- Creditors: To know the financial soundness of the firm.
- Employees: To know the profitability of the firm.
- Investors: To know the safety of investment.
- Government: To know the earnings for taxation.
- Consumers: To know the cost of production.
- Research Scholars: To study the financial operations of a firm.
Functions of Accounting
- Record keeping function: To record, classify, and summarize financial transactions.
- Managerial function: To facilitate decision-making.
- Legal requirement function: To comply with legal requirements.
- Language of business: To communicate financial information to stakeholders.
Advantages of Accounting
- Advantages of accounting to a business:
- Complete record of business transactions.
- Information about profit or loss.
- Comparative study of current year's profit, sales, expenses, etc.
- Useful in judging the management's ability.
- Supplies information useful in predicting, comparing, and evaluating the enterprise's earning power.
- Helps in complying with legal formalities.
Limitations of Accounting
- Limitations of accounting:
- Historical in nature.
- Transactions of non-monetary nature are not recorded.
- Influenced by accounting conventions and personal judgments.
- Alternative accounting procedures are often equally acceptable.
- Cost concept is found in accounting.
- Does not show the impact of inflation.
- Does not reflect those increase in net asset values that are not considered realized.
Methods of Accounting
- Single entry method: An incomplete system of recording business transactions.
- Double entry method: A system that records the effects of transactions and other events in at least two accounts with equal debits and credits.### Accounting Principles
1.4 Aims and Objectives
- Understand the meaning and definition of Accounting
- Study the basic accounting principles
- Know the bases of accounting
- Understand the accounting terminology and equation
Introduction to Accounting Principles
- Accounting principles refer to certain rules, procedures, and conventions that represent a consensus view by those indulging in good accounting practices and procedures
- The American Institute of Certified Public Accountants (AICPA) defines accounting principles as "general laws or rules adopted or professed as a guide to action"
- The Canadian Institute of Chartered Accountants defines accounting principles as "the body of doctrines commonly associated with the theory and procedure of accounting"
Accounting Concepts and Conventions
2.2.1 Accounting Concepts
- Accounting concepts are basic assumptions or conditions upon which the accounting superstructure is based
- The following are common accounting concepts adopted by many business concerns:
- Business Entity Concept
- Money Measurement Concept
- Going Concern Concept
- Dual Aspect Concept
- Periodicity Concept
- Historical Cost Concept
- Matching Concept
- Realisation Concept
- Accrual Concept
- Objective Evidence Concept
Business Entity Concept
- A business unit is an organization of persons established to accomplish an economic goal
- The business entity concept implies that the business unit is separate and distinct from the persons who provide the required capital to it
- The accounting equation, Assets = Liabilities + Capital, represents this concept
Money Measurement Concept
- In accounting, all events and transactions are recorded in terms of money
- Money is considered a common denominator, by means of which various facts, events, and transactions about a business can be expressed in terms of numbers
- This concept does not take into account the effects of inflation, as it assumes a stable value for measuring
Going Concern Concept
- Under this concept, transactions are recorded assuming that the business will exist for a longer period of time
- The business unit is considered to be a going concern, not a liquidated one
- This concept supports the valuation of assets at historical cost or replacement cost
- It also supports the treatment of prepaid expenses as assets, although they may be practically unsaleable
Dual Aspect Concept
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According to this concept, every transaction has a two-fold aspect, i.e., giving certain benefits and receiving certain benefits
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The basic principle of the double entry system is that every debit has a corresponding and equal amount of credit
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The accounting equation, Assets = Capital + Liabilities, or Capital = Assets – Liabilities, represents this concept### Accounting Concepts and Conventions
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There are eight concepts in accounting: Going Concern, Monetary, Historical Cost, Accounting Entity, Dual Aspect, Periodicity, Accrual, and Matching.
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Going Concern concept assumes that the business will continue to operate in the future.
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Monetary concept assumes that only transactions that can be expressed in money terms are recorded in the accounts.
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Historical Cost concept records transactions at the cost at which they were acquired.
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Accounting Entity concept separates the business from its owners.
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Dual Aspect concept states that every transaction has two aspects: debit and credit.
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Periodicity concept divides the business into different periods to measure income and expenses.
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Accrual concept recognizes revenue and expenses when earned, not when cash is received or paid.
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Matching concept matches revenues with the expenses incurred to earn them.
Accounting Conventions
- There are three conventions: Consistency, Disclosure, and Conservatism.
- Consistency convention ensures that accounting rules are consistently applied from one year to another.
- Disclosure convention ensures that all material facts are disclosed in the financial statements.
- Conservatism convention recognizes losses and expenses as soon as possible, but delays the recognition of gains.
Bases of Accounting
- There are three bases of accounting: Cash, Accrual, and Hybrid.
- Cash basis records transactions when cash is received or paid.
- Accrual basis records transactions when earned, regardless of cash receipt or payment.
- Hybrid basis combines elements of cash and accrual basis.
Accounting Terminology
- Transaction: an event that affects the financial position of the business.
- Debtor: a person who owes money to the firm.
- Creditor: a person to whom the firm owes money.
- Capital: the amount invested by the proprietor in the business.
- Liability: a debt or obligation that the firm owes to outsiders.
- Asset: a physical thing or right owned by the business that has a money value.
- Goods: articles in which the business deals.
- Revenue: income earned by the business.
- Expense: a cost incurred in the process of earning revenue.
- Expenditure: a cost incurred in acquiring an asset or service.
- Purchases: buying of goods by the trader for selling them to customers.
- Sales: selling of goods to customers.
- Stock: goods purchased but not yet sold.
- Drawings: goods or money taken by the proprietor for personal use.
- Losses: expenses or outflows that do not result in any benefit.
- Account: a statement of the various dealings between a customer and the firm.
- Invoice: a statement showing the particulars of a sale.
- Voucher: a written document in support of a transaction.
- Proprietor: the person who makes the investment and bears all the risks connected with the business.
- Discount: a deduction in the price of goods allowed to customers.
- Solvent: a person who has assets that exceed liabilities.
- Insolvent: a person whose liabilities exceed assets.
Accounting Equation
- Assets = Equities
- Assets = Liabilities + Capital
- Capital = Assets - Liabilities
- Liabilities = Assets - Capital
Rules of Accounting
- Assets: increase is debited, decrease is credited.
- Liabilities: increase is credited, decrease is debited.
- Capital: increase is credited, decrease is debited.
- Expenses: decrease in owner's equity.
- Income or profits: increase in owner's equity.
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Description
This quiz covers the basics of accounting for managers, including introduction to accounting, principles, and more. It is designed for BBA first year students.
