3 Lecture - Systems of Accounting and Some Basic Terminologies

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3 Lecture

MGT101

Midterm & Final Term Short Notes

Systems of Accounting and Some Basic Terminologies

Systems of accounting refer to the various methods used by businesses to record and report their financial transactions. Some of the commonly used systems of accounting include cash basis accounting and accrual basis accounting. Basic terminolog


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Midterm & Finalterm Prepration
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  1. What is the primary purpose of accounting? a) To maximize profits b) To maintain accurate financial records c) To minimize expenses d) To reduce tax liability Answer: b) To maintain accurate financial records

  2. What is the difference between cash basis accounting and accrual basis accounting? a) Cash basis accounting records transactions as they occur, while accrual basis accounting records transactions when payment is received. b) Cash basis accounting records transactions when payment is received, while accrual basis accounting records transactions as they occur. c) Cash basis accounting is used by small businesses, while accrual basis accounting is used by large corporations. d) Cash basis accounting is only used for tax purposes, while accrual basis accounting is used for financial reporting. Answer: b) Cash basis accounting records transactions when payment is received, while accrual basis accounting records transactions as they occur.

  3. What is an asset in accounting? a) Something a business owes b) Something a business owns c) A business's profits d) A business's expenses Answer: b) Something a business owns

  4. What is a liability in accounting? a) Something a business owes b) Something a business owns c) A business's profits d) A business's expenses Answer: a) Something a business owes

  5. What is equity in accounting? a) The amount of money a business owes to its creditors b) The amount of money a business owes to its shareholders c) The value of a business's assets minus its liabilities d) The value of a business's assets plus its liabilities Answer: c) The value of a business's assets minus its liabilities

  6. What is revenue in accounting? a) The money a business owes to its creditors b) The money a business owes to its shareholders c) The amount of money a business earns from its sales d) The amount of money a business spends on its expenses Answer: c) The amount of money a business earns from its sales

  7. What are expenses in accounting? a) The amount of money a business earns from its sales b) The amount of money a business spends on its assets c) The amount of money a business owes to its creditors d) The amount of money a business spends on its operations Answer: d) The amount of money a business spends on its operations

  8. What is profit in accounting? a) The difference between revenue and expenses b) The value of a business's assets minus its liabilities c) The amount of money a business owes to its creditors d) The amount of money a business owes to its shareholders Answer: a) The difference between revenue and expenses

  9. Which accounting system is commonly used for financial reporting? a) Cash basis accounting b) Accrual basis accounting c) Hybrid accounting d) None of the above Answer: b) Accrual basis accounting

  10. What is the purpose of the chart of accounts in accounting? a) To list a business's liabilities b) To list a business's expenses c) To list a business's assets d) To categorize a business's financial transactions Answer: d) To categorize a business's financial transactions



Subjective Short Notes
Midterm & Finalterm Prepration
Past papers included

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  1. What is the purpose of the accounting equation, and how is it expressed? Answer: The accounting equation expresses the relationship between a business's assets, liabilities, and equity. It is expressed as: Assets = Liabilities + Equity. The purpose of the accounting equation is to ensure that a business's financial statements are accurate and balanced.

  2. What is double-entry accounting, and why is it important? Answer: Double-entry accounting is a system of accounting where every financial transaction is recorded in two different accounts, with one account being debited and the other being credited. This system is important because it ensures that all transactions are accurately recorded and that the financial statements are balanced.

  3. What is the difference between a balance sheet and an income statement? Answer: A balance sheet is a financial statement that shows a business's assets, liabilities, and equity at a specific point in time. An income statement, on the other hand, shows a business's revenues, expenses, and net income over a specific period of time.

  4. What is the purpose of a general ledger, and what information does it contain? Answer: The purpose of a general ledger is to record all of a business's financial transactions in a central location. It contains information about each transaction, including the date, amount, accounts debited and credited, and a brief description of the transaction.

  5. What are accounts payable, and how are they recorded in a business's financial statements? Answer: Accounts payable are the amount of money a business owes to its suppliers for goods or services purchased on credit. They are recorded as a liability on a business's balance sheet.

  6. What is depreciation, and how is it recorded in a business's financial statements? Answer: Depreciation is the process of spreading the cost of a long-term asset over its useful life. It is recorded as an expense on a business's income statement.

  7. What is the difference between gross profit and net profit? Answer: Gross profit is the difference between a business's revenue and the cost of goods sold. Net profit, on the other hand, is the difference between a business's total revenue and total expenses.

  8. What is a trial balance, and why is it important? Answer: A trial balance is a report that lists all of a business's accounts and their balances. It is important because it helps ensure that the debits and credits in a business's financial statements are equal and that the statements are accurate.

  9. What is an audit, and why is it important for businesses? Answer: An audit is a review of a business's financial statements and accounting records by an independent third party. It is important for businesses because it helps ensure that the financial statements are accurate and that the business is complying with all relevant laws and regulations.

  10. What is a cash flow statement, and how is it different from other financial statements? Answer: A cash flow statement is a financial statement that shows the inflows and outflows of cash in a business over a specific period of time. It is different from other financial statements because it focuses solely on cash transactions and does not include non-cash items such as depreciation.

Accounting systems are essential for every business as they enable companies to keep track of their financial transactions and make informed decisions. There are two main accounting systems: the single-entry system and the double-entry system. In the single-entry system, each transaction is recorded only once, whereas in the double-entry system, every transaction is recorded in two accounts, with one account being debited and the other being credited. There are several basic terminologies used in accounting that are important to understand. The first is assets, which are anything of value that a business owns, such as cash, inventory, or equipment. Liabilities, on the other hand, are any debts that a business owes, such as loans or accounts payable. Equity represents the difference between a business's assets and liabilities. The balance sheet is a financial statement that shows a company's assets, liabilities, and equity at a specific point in time. It provides a snapshot of a company's financial health and is useful for investors and lenders in assessing the company's financial position. The income statement, also known as the profit and loss statement, shows a company's revenue, expenses, and net income over a specific period of time. It is useful for companies to track their profitability and make informed decisions about future investments. The general ledger is a central location where all of a company's financial transactions are recorded. It contains information about each transaction, including the date, amount, accounts debited and credited, and a brief description of the transaction. Accounts payable are the amount of money a company owes to its suppliers for goods or services purchased on credit. They are recorded as a liability on a company's balance sheet. Depreciation is the process of spreading the cost of a long-term asset over its useful life. It is recorded as an expense on a company's income statement. A cash flow statement is a financial statement that shows the inflows and outflows of cash in a business over a specific period of time. It is different from other financial statements because it focuses solely on cash transactions and does not include non-cash items such as depreciation. Finally, an audit is a review of a company's financial statements and accounting records by an independent third party. It is important for companies because it helps ensure that the financial statements are accurate and that the business is complying with all relevant laws and regulations.

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