HOMEWORK 1
INTRODUCTION
TO ACCOUNTING
1) What is ACCOUNTING?
Ans:
Accounting concerned primarily with methods for
recording transactions, keeping financial records, performing internal audits, reporting
and analyzing financial information to the management, and advising on taxation
matters.
It is a systematic process of identifying,
recording, measuring, classifying, verifying, summarizing, interpreting and
communicating financial information. It reveals profit or loss for a given
period, and the value and nature of a firm's assets, liabilities and owners'
equity.
Accounting provides information on the resources
available to a firm, the means employed to finance those resources, and the
results achieved through their use.
2) What is BOOKKEEPING?
Ans:
Bookkeeping,
also referred to as keeping the books, is the process of keeping full,
accurate, up-to-date business records. Proper methods can help businesses
effectively manage cash flow, stay abreast of profits and losses, and develop
plans for the future based on financial trends. Common financial transactions
and tasks that are involved in bookkeeping include billing for goods sold or
services provided to clients, recording receipts from customers, verifying and
recording invoices from suppliers, paying supplier, processing employees’ pay
and the related governmental report, monitoring individual accounts receivable,
recording depreciation and other adjusting entries, and providing financial
reports. Furthermore, keeping accurate books is required by both federal and
local tax agencies.
The
bookkeeping process involves making a record of the monies received by a
business as well as the monies paid out. It encompasses money a company owes to
vendors, employees, tax agencies, contractors, and any other individual or
entity. Likewise, accurate records of amounts owed to a company by outside
individuals and organizations are also recorded in a company's books.
Though
necessary and beneficial to business owners, the task can be very time
consuming. With no exceptions, every monetary amount that is paid or received
must be recorded. Additionally, accuracy is of the utmost importance, making
keeping the books in a rushed manner a very bad idea. As business owners are
often lacking in time, many choose to hire professional bookkeepers to keep
company records well maintained.
3) What is TRANSACTION?
Ans:
In General, transaction is an agreement, contract, exchange,
understanding, or transfer of cash or property that occurs between two or more
parties and establishes a legal obligation.
In accounting,
transaction is an event
that effects a change in the asset, liability, or net worth account.
Transactions are recorded first in journal and then posted to a ledger.
In banking,
transaction is an activity
affecting a bank account and performed by the account holder or at his or her
request.
In commerce,
transaction is an exchange
of goods or services between a buyer and a seller. Every transaction has three
components, that is
transfer of good or service
and money, transfer
of title which may or may not be accompanied by a transfer of possession, and
transfer of exchange rights.
If in computing,
transaction is an event
or process (such as an input message) initiated or invoked by a user or
computer program, regarded as a single unit of work and requiring a record to
be generated for processing in a database. In a secure transaction such events
are regarded as a single unit of work and must either be processed in their
totality or rejected as a failed transaction.
4) Who are the USERS of
accounting?
Ans:
The users of accounting include managers,
employees, owners, investors, supplies, customers, lenders and government.
5) What is the main function of
Generally Accepted Accounting Principle [GAAP]?
Ans:
GAAP is exceedingly useful because it attempts to
standardize and regulate accounting definitions, assumptions, and methods.
6) What are the THREE FORMS OF
BUSINESSES?
Ans:
The three types of business entities are a sole
proprietorship, a partnership, and a corporation. A sole proprietorship is
owned by one person, a partnership is owned by two or more people, and a
corporation is a business entity separate from its owners.
