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Questions and Answers
What is the primary purpose of accounting in a business?
Which of the following is an example of a liability?
Which accounting principle states that revenues and expenses are recognized when earned or incurred, not when cash is received or paid?
What is the name of the financial statement that provides a summary of revenues and expenses over a period of time?
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Who is responsible for overseeing the accounting department and managing financial reporting and planning?
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What is the name of the accounting principle that states that expenses are matched with revenues in the same period?
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Study Notes
Accounting in Business
Definition and Purpose
- Accounting is the process of recording, classifying, and reporting financial information of a business
- Purpose: to provide stakeholders with financial information to make informed decisions
Key Concepts
- Assets: resources owned or controlled by the business, e.g. cash, inventory, property
- Liabilities: debts or obligations owed by the business, e.g. loans, accounts payable
- Equity: ownership interest in the business, e.g. shares, retained earnings
- Revenue: income generated from sales or other business activities
- Expenses: costs incurred to operate the business, e.g. salaries, rent, materials
Accounting Principles
- Accrual Accounting: revenues and expenses are recognized when earned or incurred, not when cash is received or paid
- Cash Accounting: revenues and expenses are recognized when cash is received or paid
- Matching Principle: expenses are matched with revenues in the same period
- Materiality: information is disclosed if it could influence investment decisions
Financial Statements
- Balance Sheet: snapshot of the business's financial position at a point in time, showing assets, liabilities, and equity
- Income Statement: summary of revenues and expenses over a period of time, showing net income
- Cash Flow Statement: summary of inflows and outflows of cash over a period of time
Accounting Roles and Responsibilities
- Accountant: prepares and analyzes financial statements, ensures compliance with laws and regulations
- Controller: oversees accounting department, manages financial reporting and planning
- Chief Financial Officer (CFO): responsible for overall financial strategy and direction of the business
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Description
Test your knowledge of accounting principles, financial statements, and roles in a business setting. Learn about assets, liabilities, equity, revenue, expenses, and more.
