Questions and Answers
What is the primary objective of cost accounting?
What does management accounting provide to management?
Which accounting concept implies that a business unit is separate and distinct from its owners?
What is the purpose of the accounting equation?
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Which of the following is NOT a function of management accounting?
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What is the main difference between cost accounting and management accounting?
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Which accounting concept is related to the idea that a business unit will continue to operate for a long period of time?
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What is the term used to describe the basic assumptions or conditions upon which the accounting super-structure is based?
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What is the primary purpose of the Money Measurement Concept in accounting?
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Which concept assumes that a business will continue to exist for a longer period of time?
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What is the purpose of preparing an Income Statement at the end of an accounting period?
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What is the underlying assumption of the Dual Aspect Concept?
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According to the Cost Concept, at what value is an asset recorded in the accounting record?
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What is the purpose of the Accounting Period Concept?
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What is the essence of the Matching Concept?
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According to the Going Concern Concept, how are prepaid expenses treated?
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What is the accounting equation according to the Dual Aspect Concept?
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What is the purpose of accounting conventions?
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What is the main function of a journal?
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Which concept is closely related to the valuation of assets at historical cost or replacement cost?
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What is journaling in the context of accounting?
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Why are adjustments necessary in financial statements?
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What is the primary benefit of the Accounting Period Concept?
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What is the normal duration of an accounting period?
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Study Notes
Cost Accounting
- Cost accounting aims to determine the cost of units produced and sold, or services rendered, to assess profitability and efficiency.
- It involves estimating future costs to be incurred and exercises control over them.
Management Accounting
- Management accounting provides necessary information to the management for discharging its functions.
- It presents accounting information to assist management in creating policy and day-to-day operations.
Accounting Concepts
- The following are common accounting concepts adopted by many business concerns:
- Business Entity Concept
- Money Measurement Concept
- Going Concern Concept
- Dual Aspect Concept
- Accounting Period Concept
- Cost Concept
- Matching Concept
- Realisation Concept
- Accrual Concept
- Objective Evidence Concept
Business Entity Concept
- The business unit is separate and distinct from the persons who provide capital to it.
- This concept can be expressed through the accounting equation: Assets = Liabilities + Capital.
Money Measurement Concept
- All events and transactions are recorded in terms of money.
- Money is considered a common denominator to record various facts, events, and transactions.
Going Concern Concept
- The business unit is assumed to exist for a longer period, i.e., a going concern, not a liquidated one.
- This concept supports valuing assets at historical cost or replacement cost and treating prepaid expenses as assets.
Dual Aspect Concept
- Every transaction has a two-fold aspect: giving certain benefits and receiving certain benefits.
- The accounting equation (Assets = Capital + Liabilities or Capital = Assets – Liabilities) clarifies this concept.
Accounting Period Concept
- The life of the business is segmented into different periods to ascertain the result of each period.
- Each segmented period is called an "accounting period," usually a year.
- At the end of an accounting period, an Income Statement is prepared to ascertain profit or loss, and a Balance Sheet is prepared to depict the financial position of the business.
Cost Concept
- Transactions are recorded in the books of account with the respective amounts involved.
- The cost of an asset is considered the base for all future accounting.
Matching Concept
- All costs associated with a particular period should be compared with revenues associated with the same period to obtain net income.
- This concept necessitates provisions for recording outstanding expenses, prepaid expenses, outstanding incomes, and incomes received in advance during the course of preparing financial statements.
Accounting Conventions
- Accounting conventions are customs and traditions that act as guidelines for preparing books of accounts.
Journal and Ledger
- A journal is a book of original entry where transactions are first recorded in chronological order.
- A journal is a simple book of accounts in which all business transactions are originally recorded and then posted to ledger accounts at any convenient time.
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Description
This quiz covers the basics of cost accounting, including ascertaining unit costs and exercising control over them, as well as management accounting, which provides information to management for decision-making.
