The nature of accounting

Question 1

What is accounting information?

Answer 1

Useful information for making economic decisions. It should be comprehensible to those who have some understanding of economic activities and willing to study the information with reasonable diligence .

Question 2

Why did accounting begin?

Answer 2

Accounting began because people needed to:
1. l record business transactions,
2. l know if they were being financially successful, and
3. l know how much they owned and how much they owed.

Question 3

What is bookkeeping?

Answer 3

The recording of data relating to accounting transactions in the
accounting books.

Question 4

What is the accounting equation and describe each part.

Answer 4

Capital= Assets - Liabilities

Capital: Resources that the owner put into the business
Assets: Resources the business owns
Liabilities: Resources the business owes

Question 5

Who are the users of the accounting info?

Answer 5

Internal and external users

Question 6

What is the difference between internal and external users?

Answer 6

Internal users are decision makers like owners and managers who are responsible for the management of the business enterprise. They use accounting information to set goals and to take corrective actions if necessary. While external users are potential investors or those interested in dealing with the company.

Question 7

State some internal users

Answer 7

Managers
Owners
Partners /partners
share holders

Question 8

State some external user

Answer 8

Government and their agencies
Creditors (including banks and suppliers)
Existing and potential investors,
Employees
Unions
customers

Question 9

What are some limitations on accounting info

Answer 9

1. The accounting info can only record items with monetary value.
2. The process uses previous economic activities of the business to form the basis of account record.
3. The accounting process does not reflect the mood of the business
4. Many items on the financial statement are the result of the estimates (bad dept., dep’n)
5. Accounting policies differ between firms and this makes comparison hard.

Question 10

What are the 5 elements of accounting statement?

Answer 10

1.. Income statement
2. Balance sheet
3. Cashflow statement
4. Change in equity statement
5. Notes/disclosure requirements

Question 11

Outline the steps of the accounting cycle.

Answer 11

1. Identify business transactions
2. Journalize business transactions
3. Prepare business transactions from journal to ledger
4. Prepare unadjusted trial balance
5. Journalize and post adjusting entries
6. Prepare adjusted trial balance
7. Prepare financial statements
8. Journalize and post closing entries

Question 12

Why was there a switch in from manual accounting to computerized accounting

Answer 12

The switch from manual accounting to computerized accounting was a natural progression driven by the need for greater efficiency, accuracy, scalability, and cost-effectiveness. Computerized systems not only streamline routine accounting tasks but also enable businesses to make better and faster decisions, enhance compliance, and support growth.