Ans: The American Institute of Certified Public Accountants (AICPA) defines Accounting as “the art of recording, classifying and summarizing in a significant manner in terms of money, transactions and events which are, in part at least of a financial character, and interpreting the results thereof.”
2. What is GAAP?
Ans: Generally Accepted Accounting Principles - GAAP
The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information.
3. What are the types of accounts?
Ans: The business transactions can be grouped under three types of accounts:
* Personal accounts
* Real accounts
* Nominal accounts
4. What is meant by book keeping?
Ans: Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper.
5. What are the stages of accounting cycle?
Ans: Steps in the Accounting Cycle
* Identify the Transaction
* Analyze the Transaction
* Journal Entries
* Post to Ledger
* Trial Balance
* Adjusting Entries
* Adjusted Trial Balance
* Financial Statements
* Closing Entries
* After-Closing Trial Balance.
6. What are Debit and Credit rules of double entry system? Ans: Debits are recorded on the left side of a T account in a ledger. Debits increase balances in asset accounts and expense accounts and decrease balances in liability accounts, revenue accounts, and capital accounts. Credits are recorded on the right side of a T account in a ledger. Credits increase balances in liability accounts, revenue accounts, and capital accounts, and decrease balances in asset accounts and expense accounts.
Debit accounts are asset and expense accounts that usually have debit balances, i.e. the total debits usually exceeds the total credits in each debit account. Credit accounts are revenue (income, gains) accounts and liability accounts that usually have credit balances. 7. What is account ting equation?
Ans: The equation that is the foundation of double entry accounting. The accounting equation displays that all assets are either financed by borrowing money or paying with the money of the company’s shareholders. Thus, the accounting equation is: Assets = Liabilities + Shareholder Equity. 8. Who are the users of accounting information
Ans: Accounting, as an information system is very helpful to parties interested in it such as owners, management, creditors, employees, bankers, government and shareholders. Accounting directly or indirectly is of primary importance to proprietors and manahers. The two main categories of users are (a) internal users (b) external users Internal users
Internal users comprise owners, management and employees who are interested in the accounting information relating to business. * Owners, i.e. shareholders, partners and proprietors: they are the backbone of the business in the sense that they provide necessary funds for it smooth running, growth and development. There is always a keen desire on their part on profitability, increasing turnover, stable or rising dividend rate, sound financial position and conctantly growing expanding business volume along with future earning potential and growth prospects. Such information needs of this group are satisfied through published accounts, annual report and other supplementary statements.
* Management: management may consist of board of directors (i.e. top management) of the company, middle management and departmental heads or supervisors (lower level management), who are entrusted with the task of policy formulation, policy execution or implementation and overall supervision respectively. Accounting...