Homework 1- Financial Accounting

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?

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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]?

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GAAP is exceedingly useful because it attempts to standardize and regulate accounting definitions, assumptions, and methods.

6)    What are the THREE FORMS OF BUSINESSES?

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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.