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Questions and Answers
What is the accounting equation?
What represents the ownership claim on total assets?
What are revenues?
What are expenses?
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What is the expanded accounting equation?
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What is the result of investments by an owner?
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What is the result of withdrawals by an owner?
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What are assets?
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What is the primary purpose of accounting?
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Who are the internal users of accounting information?
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What is one of the main functions of accounting?
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What is the primary objective of accounting?
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What is the accounting cycle?
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What does the accounting equation represent?
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Who are external users of accounting information?
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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.
