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Questions and Answers
What is the term used to describe the routine process of preparing journal entries for business transactions?
Which step in accounting involves grouping transactions according to class (accounts)?
What is the purpose of interpreting accounting information or financial statements?
Which step involves assigning amounts or value to accountable economic transactions and events?
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What does 'results of operations' specifically pertain to in accounting?
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In accounting, what does 'economic entities' refer to?
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What is the resulting amount when deducting all expenses from all income?
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Which financial statement focuses on the entity's ability to pay obligations when they become due?
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What is the primary focus of managerial accounting?
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Which branch of accounting involves the analysis of manufacturing costs?
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What is the main purpose of external auditing?
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Which accounting branch focuses on providing information for internal users rather than following GAAP strictly?
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Study Notes
Accounting Process
- Recording: preparing journal entries for business transactions and events in a chronological manner, also known as "journalizing".
- Classifying: grouping transactions recorded according to class (accounts), done by posting accounts to ledgers.
- Summarizing: preparing financial statements, including balance sheet, income statement, statement of changes in equity, statement of cash flows, and notes to the financial statements.
- Interpretation: using accounting information or financial statements for decision-making.
- Identifying: determining accountable events (business transactions).
- Measuring: assigning amounts or value to accountable economic transactions and events.
- Communicating: preparing and distributing accounting reports to potential users of accounting information.
Key Concepts
- Quantitative information: refers to numbers.
- Financial: refers to money.
- Economic entities: pertains to business.
- Economic decision: pertains to the purpose of accounting.
- Results of operations: profit generated by the company for a certain span of time, measured by deducting all expenses from all income.
- Financial position: entity's current resources, liabilities, and capital.
- Solvency: entity's ability to pay obligations when they become due.
- Liquidity: entity's ability to meet short-term cash flows.
Financial Statements
- Provide qualitative, quantitative, and financial information.
- Characterized by relevance, including information that could affect user decisions.
Branches of Accounting
- Financial Accounting: recording and classifying business transactions, preparing and presenting financial statements to internal and external users, primarily concerned with processing historical data.
- Managerial Accounting: providing information for internal users, focusing on management needs, involving financial analysis, budgeting, and forecasting.
- Cost Accounting: recording, presenting, and analyzing manufacturing costs, useful in manufacturing businesses, analyzing actual costs versus budgets or standards.
- Auditing: external auditing examines financial statements, expressing an opinion on fairness of presentation and compliance with GAAP, internal auditing evaluates adequacy of internal controls and risk management.
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Description
Learn about the fundamental steps in the accounting process which include recording, classifying, and summarizing financial transactions to produce accurate financial statements.
