Questions and Answers
The accounting process is correctly sequenced as?
Which of the following groups would use accounting information to determine whether an advertising proposal will be cost effective?
Accounting only involves the recording of economic events.
False
Who is attributed with the origins of modern accounting?
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What is the role of corporate governance in accounting?
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What are the two major divisions of accounting?
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An account consists of?
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Recording money on the left side of an account is called crediting the account.
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What happens if the total of debit amounts is bigger than credits?
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What must total debits equal?
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Which of the following statements is true regarding assets and liabilities?
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What is the effect of debits on Owner’s Capital?
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Study Notes
What is Accounting?
- Accounting serves as an information system for identifying, recording, and communicating an organization's economic events.
- Primary users of accounting information include investors, creditors, and management.
The Accounting Process
- Correct sequence of the accounting process is identification, recording, and communication.
Importance of Accounting
- Assists in decision-making regarding the allocation of scarce resources.
- Provides valuable insights into the past, present, and future performance of an entity.
- Measures business activity to communicate vital information to decision-makers.
Corporate Governance and Financial Reporting
- Corporate governance involves directing and managing entities to align managers' goals with those of shareholders.
- ASX Corporate Governance Principles list 8 core principles to enhance the quality of financial reporting.
- Improved adherence to these principles leads to better accounting information for shareholders.
Users of Accounting Data
- Internal users: Managers (e.g., marketing managers, production supervisors, CFOs) who plan and run the business.
- External users: Investors, creditors, and government bodies (e.g., ATO, ASIC) who evaluate financial stability and risks.
History of Accounting
- Accounting's origins trace back to the work of Luca Pacioli in 1494.
- The separation of ownership and management increased the demand for financial reporting.
- The Industrial Revolution and emergence of large entities led to more complex transactions and higher reporting standards.
- Technological advancements and computers are pivotal in shaping the modern information age.
Bookkeeping vs. Accounting
- Bookkeeping is limited to the recording of economic events and is only a component of accounting.
- Accounting encompasses the entire process of identifying, recording, and communicating economic events.
- Branches of accounting include financial accounting and managerial accounting.
The Account
- An account functions as a record tracking increases and decreases in assets, liabilities, or owner's equity.
- Separate accounts are maintained for various transaction-related items such as cash, salaries expense, and accounts payable.
- The structure of an account includes a title, a left (debit) side, and a right (credit) side, resembling the letter "T," referred to as a T account.
Debits and Credits
- Debiting an account involves recording amounts on the left side, whereas crediting involves the right side.
- A debit (Dr) balance occurs when total debits exceed total credits.
- A credit (Cr) balance arises when total credits surpass total debits.
Double-Entry System
- Each transaction impacts at least two accounts to maintain the balance of the accounting equation: Assets = Liabilities + Equity.
- The total of debits must equal the total of credits in every transaction.
- Each account has a designated normal balance categorized as either a debit or a credit.
Assets and Liabilities Management
- Debits increase assets and decrease liabilities, while credits decrease assets and increase liabilities.
- A normal balance for assets is a debit, while for liabilities, it is a credit.
Owner’s Equity
- Owner's Capital:
- Debiting decreases Owner’s Capital, while crediting increases it.
- Owner's Drawings:
- Debiting increases Owner’s Drawings and crediting decreases it.
- Revenue and expenses play a pivotal role in shaping Owner’s Equity, impacting overall financial performance.
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Description
Explore the fundamentals of accounting with this quiz based on Chapter 1: Accounting in Action. Learn how accounting serves as an information system that identifies, records, and communicates economic events. This presentation by Dr. Anne Abraham will guide you through key concepts and important terminology.
