Questions and Answers
What is the primary function of accounting?
In which phase of accounting are transactions organized into categories?
Which of the following is NOT a type of business operation?
What category does a coffee shop fall under?
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What is the final step in the accounting process?
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Which of the following is the correct order of the accounting functions?
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Which statement best represents the nature of accounting?
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Which of the following is an example of a manufacturing business?
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What is the primary characteristic of a sole proprietorship?
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Which of the following is a disadvantage of a partnership?
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What distinguishes a corporation from a sole proprietorship?
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Which of the following is NOT a current asset?
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What does liabilities refer to in the context of business accounting?
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What formula represents the calculation of proprietorship equity?
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Which type of expense would be classified under proprietorship equity?
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What is the main reason for maintaining an Account Title in financial reporting?
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Study Notes
Nature of Accounting
- Accounting is a service activity that begins with accumulating business transactions to create organized financial reports.
- Functions of accounting are divided into:
- Recording: Systematic documentation of all business transactions in a Journal.
- Classifying: Organizing transactions into categories within a Ledger.
- Summarizing: Presenting data clearly through reports like the statement of income and financial position.
- Analyzing and Interpreting: Enables users to make informed decisions based on financial condition and profitability.
Types of Business as to its Operation
- Service: Businesses that provide services to customers. Examples include coffee shops and law firms.
- Manufacturing: Companies that convert raw materials into products. Examples include automotive companies and bakeries.
- Merchandising: Businesses that buy products and resell them. Examples include grocery stores and drugstores.
Forms of Business Organization
- Sole Proprietorship: Owned and managed by one person; easiest to establish and dissolve, with personal liability for the owner.
- Partnership: Owned by two or more individuals who share profits and liabilities; decisions made by one partner affect all.
- Corporation: An entity recognized by law, owned by shareholders; has a perpetual lifespan, and liability is limited to the extent of their investment.
Five Major Accounts
- Account Title: Ensures consistency and clarity in financial reporting.
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Assets: Items owned with value, classified as:
- Current Assets: Cash, accounts receivable, prepaid expenses.
- Non-Current Assets: Delivery equipment, office supplies, buildings, furniture.
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Liabilities: Obligations owed by the business, classified into:
- Current Liabilities: Notes payable, accounts payable.
- Long-Term Liabilities: Mortgages and loans payable.
- Proprietorship (Owner's Equity): Represents the owner's residual interest in assets after deducting liabilities, calculated as A - L = P. Types include expenses, drawings, income, and additional investments.
Additional Note
- Remember to take breaks and rest. Good luck with your studies!
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Description
This quiz covers the fundamental nature of accounting, including its key functions like recording, classifying, summarizing, and analyzing financial information. It also explores different types of businesses based on their operations—service, manufacturing, and merchandising—with relevant examples for each type.
