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Questions and Answers
What is the accounting equation?
What is the accounting equation?
What represents the ownership claim on total assets?
What represents the ownership claim on total assets?
What are revenues?
What are revenues?
What are expenses?
What are expenses?
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What is the expanded accounting equation?
What is the expanded accounting equation?
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What is the result of investments by an owner?
What is the result of investments by an owner?
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What is the result of withdrawals by an owner?
What is the result of withdrawals by an owner?
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What are assets?
What are assets?
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What is the primary purpose of accounting?
What is the primary purpose of accounting?
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Who are the internal users of accounting information?
Who are the internal users of accounting information?
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What is one of the main functions of accounting?
What is one of the main functions of accounting?
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What is the primary objective of accounting?
What is the primary objective of accounting?
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What is the accounting cycle?
What is the accounting cycle?
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What does the accounting equation represent?
What does the accounting equation represent?
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Who are external users of accounting information?
Who are external users of accounting information?
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What is the purpose of financial accounting?
What is the purpose of financial accounting?
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Study Notes
Accounting Principles
- Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users.
Who Uses Accounting Data
- Internal users: individuals inside a company who plan, organize, and run the business.
- External users: individuals and organizations outside a company who want financial information about the company, such as investors and creditors.
Functions of Accounting
- Keeping systematic records of business transactions.
- Protecting properties of the business.
- Communicating the results to various parties interested in or connected with the business.
- Meeting legal requirements.
Objectives of Accounting
- To keep systematic records.
- To protect business properties.
- To ascertain the operational profit or loss.
- To ascertain the financial position of business.
- To facilitate rational decision making.
Accounting Cycle
- The accounting cycle is the financial process starting with recording business transactions and leading up to the preparation of financial statements.
- The purpose of the accounting cycle is to create useful financial information in the form of general-purpose financial statements.
Accounting Equation
- The accounting equation is the foundation of double-entry accounting.
- The equation is: Assets = Liabilities + Owner's Equity.
- Assets are resources with future benefits that are owned or controlled by a company.
- Liabilities are what a company owes its creditors in future products or services.
- Owner's Equity: the ownership claim on total assets is known as owner's equity, equal to total assets minus total liabilities.
Expanded Accounting Equation
- The expanded equation is: Assets = Liabilities + Owner's Capital - Owner's Drawings + Revenues - Expenses.
- Revenues: gross increase in equity from a company's earnings activities.
- Expenses: the cost of assets or services used to earn revenue, which decreases owner's equity.
- Investments: the assets an owner puts into the company.
- Withdrawals: the assets taken away from the company for personal use.
Assets
- Cash
- Accounts Receivable
- Notes Receivable
- Resources owned or controlled by a company
- Cars
- Lands
- Buildings
- Equipment
- Goods
Liabilities
- Accounts Payable
- Notes Payable
- Creditors' claims on assets
- Taxes Payable
- Wages Payable
Capital
- Increases: investments by owner, revenues
- Decreases: withdrawals by owner, expenses
- Owner's Capital: the ownership claim on total assets, equal to total assets minus total liabilities.
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Description
This quiz covers the basics of accounting, including its definition, three main activities, and the types of users who utilize accounting data, including internal and external users.
