chapter 1: introduction to accounting Flashcards
(12 cards)
What is accounting
The classifying summarizing and recording of financial transactions
What is bookkeeping
The keeping record of the financial affairs of a business
What are the objectives of accounting
Provide the knowledge needed in the preparation and evaluation of accounting statements
Provide a means of developing a critical and analytical approach to quantitative problems, and the numerative skills required for accounting
Knowledge of accounting helps in financial decision-making
What are the users of accounting information
Internal users
~ users of financial statements, normally people employed by the business and responsible for its management
•owner- interested in finding out if his or her investment is yielding any return or a face should close down eventually in other activities
• employees - interested in finding out the financial performance of the business as it could impact the job security, salaries, and other perks
External users
~ is the users of financial statement, person’s not directly concerned with the management of the business
•Bank and the other financial
- to find out if the financial status of the business is of a liquid and solvent nature to repay loans borrowed. The banks’ other financial institutions also use accounting information to make decisions on whether to loan money to the business
• potential investors
- an investor wants to maximize his return on investment. They need accounting information to make decisions on whether the investment in the business will bring forth returns or if they should invest elsewhere
• government
- interested in the financial affairs of the business in order to determine the amount of tax collectible from the business
• suppliers
- they want to find out if there are any risks of non-payment due to insolvency involved in supplying goods to the business, especially when credit is requested
• competitors
- competitors use the businesses financial results as a benchmark for the performance of their own business
• economic analysts
- use the accounting information when they want to examine the collective performance of a sector or industry and how it may impact the countries economy in general
• community
- they are interested in finding out if the financial performance of the business could create more jobs for the local people
• general public
- they are concerned about the environmental effects and are keen in finding out if the accounting information of the business has made provision in addressing these effects
The branches of accounting
- Financial accounting - this branch of accounting provides accounting information that is needed by the external users
- Cost and management accounting - this branch of accounting provides accounting information needed by the internal users for decision-making
- Auditing - this branch of accounting seeks to verify that recorded information represents the business transactions that took place and also if they are recorded in accordance to the established guidelines
Discuss on ethics in a job
Ethics deal with the fundamental principles of morality. It is concerned with the basic principles of what is universally accepted to be right and wrong for people to do
Define fraud and discuss on how to combat fraud
Fraud is a deliberate unlawful act intended to give an unfair personal or financial gain to an individual
How to combat fraud
♧ establish and maintain specific internal control intended to combat fraud such as employee anonymous fraud report line
♧ establishing safe hiring procedures by conducting a thorough background check on all prospective employees. Incorporate anti fraud programs into regular performance reviews of the employees
♧ invest in hiring experts who specialize in fraud management and prevention
♧ conduct frequent audits especially at the high risk areas such as financial and inventory departments
♧ train employees in fraud prevention. Provide basic fraud prevention techniques and clear procedures for reporting suspicious activities
Define financial risk and discuss on the different types of financial risks. Define financial risk management
Financial risk is a risk that a business is faced with which is associated with a type of financing method not likely to bring forth good Returns
Types of financial risks
♧ market risk - caused by unexpected movement in market prices of financial instruments
♧ credit risk - when a debtor fails to honor the debt of the business
♧ liquidity risk - this is when the business has a negative working capital, inability of the business to meet its short-term obligation and the day-to-day running of the business
Financial risk management is a practice the financial decision-makers of the businesses follows detailing the guidelines needed when analyzing investments in order to reduce the chances of financial risks
Discuss on the application of computers in accounting records and their usefulness in business situations
- Computerized ledgers
- this application is in various accounting software and it automatically summarizes the different information in the respective accounts immediately as each transaction occurs - Spreadsheets
- Microsoft Excel is the common spreadsheet application. Spreadsheet is used to organize an analyze information in tabular fashion - Databases
- database applications are used by the business to manage the human resources (employees), assets and projects easily
Uses of computerd in accounting
♧ helps in recording in controlling inventory
♧ helps in preparing financial reports
♧ used for electronic banking payments
♧ used to compare source documents
♧ inventory and Order processing
Name three advantages of computerized systems versus a manual system of accounting
♧ it is faster to process information with computerized systems than with manual systems
♧ human resources associated with manual system are reduced in a computerized system because some software detect errors and prevents the user from continuing before correcting the error
♧ it is very fast to retrieve specific documents that may be needed in a computerized system than in a manual system
Application and advantages of computers as a tool for communication technology
♧ computers make communication between people fast through email especially when making orders for inventory
♧ electronic payments could be done faster through business computers
