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Questions and Answers
What is the primary purpose of accounting?
What is the primary purpose of accounting?
Which of the following is an example of an internal user of financial information?
Which of the following is an example of an internal user of financial information?
What do external users of accounting information typically assess?
What do external users of accounting information typically assess?
What is the role of ethics in accounting?
What is the role of ethics in accounting?
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According to the International Ethics Standards Board for Accountants (IESBA), what is a fundamental principle of ethical behavior in accounting?
According to the International Ethics Standards Board for Accountants (IESBA), what is a fundamental principle of ethical behavior in accounting?
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What could be a consequence of inappropriate conduct in accounting?
What could be a consequence of inappropriate conduct in accounting?
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How has technology impacted the accounting profession?
How has technology impacted the accounting profession?
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Which of the following correctly identifies external user perspectives on financial information?
Which of the following correctly identifies external user perspectives on financial information?
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What is a key benefit of using computerized accounting systems?
What is a key benefit of using computerized accounting systems?
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Which of the following tasks can computerized accounting systems automate?
Which of the following tasks can computerized accounting systems automate?
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What disadvantage could arise from implementing computerized accounting systems?
What disadvantage could arise from implementing computerized accounting systems?
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In addition to financial records, what other function can computerized accounting systems provide?
In addition to financial records, what other function can computerized accounting systems provide?
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How can computerized accounting systems assist managers?
How can computerized accounting systems assist managers?
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What type of costs may rise with the use of computerized accounting systems?
What type of costs may rise with the use of computerized accounting systems?
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Which of the following best describes the risk of data loss in computerized accounting?
Which of the following best describes the risk of data loss in computerized accounting?
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What important aspect of computerized systems can assist in inventory management?
What important aspect of computerized systems can assist in inventory management?
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What benefit does computerized records of accounts receivable provide?
What benefit does computerized records of accounts receivable provide?
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Which of the following is a characteristic of fixed assets?
Which of the following is a characteristic of fixed assets?
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What is the purpose of management reports generated by accounting software?
What is the purpose of management reports generated by accounting software?
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What does the accounting equation illustrate?
What does the accounting equation illustrate?
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Which of the following statements about current assets is accurate?
Which of the following statements about current assets is accurate?
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What is the main purpose of following accounting concepts and conventions?
What is the main purpose of following accounting concepts and conventions?
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Which of the following is considered a fixed asset?
Which of the following is considered a fixed asset?
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What does the accounting cycle trace?
What does the accounting cycle trace?
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What is an example of a current liability?
What is an example of a current liability?
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Which of the following best describes liabilities?
Which of the following best describes liabilities?
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How does an owner's equity get affected when the owner withdraws assets for personal use?
How does an owner's equity get affected when the owner withdraws assets for personal use?
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What type of asset is cash in hand classified as?
What type of asset is cash in hand classified as?
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Which equation correctly reflects the relationship between assets, liabilities, and owner's equity?
Which equation correctly reflects the relationship between assets, liabilities, and owner's equity?
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Which of the following liabilities must be settled within one accounting year?
Which of the following liabilities must be settled within one accounting year?
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What effect does an additional investment by the owner have on owner's equity?
What effect does an additional investment by the owner have on owner's equity?
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Which of these is classified as a long-term liability?
Which of these is classified as a long-term liability?
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What happens to the cash at bank when equipment is purchased and paid by cheque?
What happens to the cash at bank when equipment is purchased and paid by cheque?
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When a vehicle is purchased on credit, which item on the balance sheet increases?
When a vehicle is purchased on credit, which item on the balance sheet increases?
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What is true about the owner's withdrawal of a cheque for private use?
What is true about the owner's withdrawal of a cheque for private use?
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Selling unwanted furniture for cash affects the balance sheet in what way?
Selling unwanted furniture for cash affects the balance sheet in what way?
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When the owner invests more cash into the business, what are the effects?
When the owner invests more cash into the business, what are the effects?
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What impact does paying a credit supplier by cheque have on accounts payable?
What impact does paying a credit supplier by cheque have on accounts payable?
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Which of the following correctly describes the principle of double entry accounting?
Which of the following correctly describes the principle of double entry accounting?
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In double entry accounting, what must always hold true after a transaction is recorded?
In double entry accounting, what must always hold true after a transaction is recorded?
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What is the total value of fixed assets?
What is the total value of fixed assets?
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Which of the following is included in current assets?
Which of the following is included in current assets?
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What are the total current liabilities?
What are the total current liabilities?
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What is the value of working capital?
What is the value of working capital?
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Which line item represents the owner's equity?
Which line item represents the owner's equity?
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The total long-term liabilities amount to?
The total long-term liabilities amount to?
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Which of the following transactions affects the accounting equation?
Which of the following transactions affects the accounting equation?
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How is net assets calculated?
How is net assets calculated?
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What is the cash at bank value listed in current assets?
What is the cash at bank value listed in current assets?
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What components make up the total fixed assets?
What components make up the total fixed assets?
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What does working capital represent?
What does working capital represent?
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In which section can you find 'fixtures and fittings'?
In which section can you find 'fixtures and fittings'?
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What are accrued expenses categorized as?
What are accrued expenses categorized as?
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Study Notes
Accounting Fundamentals
- Accounting is the process of identifying, measuring, and communicating economic information. This allows users to make informed decisions.
- The accounting process includes recording transactions, classifying information, analyzing and interpreting transactions and reports. This enables businesses to make decisions and plan for the future.
- All businesses use general bookkeeping rules and principles. Differences in accounting arise from how owner's capital and profits are accounted for.
Users of Accounting Information
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Internal users: Individuals or groups within a company who rely on financial information for decision-making and operational planning.
- Management: Use financial information to make decisions and plan for the future.
- Employees: Use financial statements to assess job security and negotiate wages.
- Owners: Monitor company financial health and performance.
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External users: Individuals or groups outside the company who rely on financial information for their own decisions.
- Investors: Use financial information to evaluate company performance for investment decisions.
- Customers & Suppliers: Use financial information to evaluate a company's ability to fulfill orders and maintain stability.
- Competitors: Analyze financial information for strategic planning.
Ethical Principles in Accounting
- Ethics are morals governing human behavior. Professional ethics are codes of behavior considered acceptable within a specific profession.
- Factors influencing ethical behavior include culture, laws, consequences, and codes of ethics.
- The International Ethics Standards Board for Accountants (IESBA) Code of Ethics outlines five fundamental ethical principles for accountants: integrity, objectivity, professional competence and due care, confidentiality, and professional behavior.
- Unacceptable behavior in accounting includes not working in the best interest of employers, dishonesty, disregarding confidentiality, undermining colleagues, causing conflict, harassment, and accepting bribes.
- When working in the financial industry, employees must exhibit competency, willingness to work in teams, effective communication skills, continuous training, uphold confidentiality, act open and honestly, and trust their colleagues' judgments.
- Honesty and accountability are vital. Poor behavior, such as fraudulent reporting, failure to record sales, theft, misappropriation of funds, and tax evasion lead to loss of trust, disciplinary actions by professional bodies, fines, imprisonment, loss of employment, and difficulties obtaining future financial loans.
Technology and Accounting
- Accounting records are increasingly computerized, utilizing software packages like Sage, QuickBooks, and Microsoft Dynamics.
- Computerized systems automate many processes, like record updating, producing financial statements, handling inventory, generating payroll records, and providing management information.
- Computerized accounting systems provide benefits like accuracy, speed, and easier information access. However, drawbacks include initial capital expenditures, ongoing update costs, technical staff training, and potential data loss risks.
Accounting Concepts and Conventions
- Accounting concepts and conventions are assumptions generally accepted without proof, which guide the preparing of financial reports.
- Concepts include business entity (separate from owners) and monetary (common unit of monetary transactions). Other significant ones are historical cost (transaction's cost at time of event), going concern (business will continue), accounting period (splitting the business year), objectivity (evidence-based), accrual (revenues & expenses recognized when earned/incurred), matching (costs associated with products match revenues), consistency (same treatments for similar items), and prudence (conservatism).
- Realization recognizes revenue at the point of sale.
Accounting Cycle
- The accounting cycle outlines the steps of processing business transactions to generate financial reports.
- This cycle sequence includes source documents, books of original entry, ledgers, trial balance, adjusting entries, and financial reports (profit & loss account and balance sheet). Financial reports are the final step in the cycle.
Main Financial Statements
- Main financial statements include the income statement (profit & loss), balance sheet, and cash flow statement.
- The income statement shows a company's performance over a set time.
- The balance sheet presents a company's financial position on a specific date.
- The cash flow statement tracks cash inflows and outflows over a period, categorizing these activities into operating, investing, and financing types.
Accounting Equation
- The accounting equation is a fundamental concept that shows the relationship between assets, liabilities, and owner's equity.
- Assets = Liabilities + Owner's Equity
- Assets are resources owned by the business; liabilities are obligations owed by the business; owner's equity is the owner's investment in the business.
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Description
Test your knowledge on the basics of accounting and the users of accounting information. This quiz covers essential concepts like recording transactions, internal and external users, and the implications of financial information for decision-making. Perfect for beginners and those looking to enhance their understanding of accounting principles.
