Fundamentals of Accounting Quiz

Fundamentals of Accounting

• The main focus of the fundamentals of accounting is to understand the basics of accounting, including its definition, objectives, and functions.

Differences between Bookkeeping, Accounting, and Accountancy

• Bookkeeping is the process of recording, classifying, and reporting financial transactions and events.
• Accounting is the process of identifying, recording, classifying, reporting, and analyzing financial transactions and events.
• Accountancy refers to the profession of accountants, who are responsible for preparing and examining financial records.

Advantages of Accounting

• Provides financial information for decision-making
• Helps in profit maximization
• Facilitates comparison with other businesses
• Assists in tax compliance
• Serves as a tool for control and management

Users of Accounting Information

• Internal users: Management, Employees, and Owners
• External users: Investors, Creditors, and Regulatory bodies

Attributes of Accounting

• Relevance: Accounting information should be relevant to the needs of users
• Reliability: Accounting information should be accurate, reliable, and unbiased
• Comparability: Accounting information should be comparable between companies and over time
• Consistency: Accounting information should be consistent in its application and presentation

Functions of Accounting

• Recording: Identifying and recording financial transactions and events
• Classifying: Categorizing financial transactions and events into accounts
• Reporting: Preparing financial statements and reports
• Analyzing: Examining financial data to provide insights and recommendations

Objectives of Accounting

• To provide financial information for decision-making
• To ensure accountability and transparency
• To facilitate the allocation of resources

Limitations of Accounting

• Assumes a stable monetary unit
• Ignores non-monetary transactions and events
• Can be influenced by personal biases and judgment
• Has limited predictive ability

Basis of Accounting

• Cash basis: Recognizes transactions when cash is received or paid
• Accrual basis: Recognizes transactions when earned or incurred, regardless of cash flow