Account M.C.Q (1 Marks)

Financial accounting is the field of accounting concerned with the summary, analysis and reporting of financial transactions pertaining to a business.
Financial accounting reports the results and position of business to government, creditors, investors, and external parties.

Understanding, comparability, and reliability is important characteristics of financial accounting.

Discount can be classified as:
Trade Discount
Cash Discount
Trade discount is allowed to promote the sales. It is allowed on the list price of the product and only net price is recorded as sales.
Cash discount is allowed to speed up the cash collection from the customers to whom the credit sales is done.
Cash discount is allowed to only those customers which are making the payment earlier than the specified credit period.
It is allowed if the customer is making the payment within the specific period and calculated on a certain percentage basis.

Transactions are acts performed by the business organization. Transactions are recorded in the books of the accounts as they occur. whereas,
Economic Events are results of transactions that take place in the business organizations and which can be measured in monetary terms.
There Closing Stock of Rs. 10,000 is the result of the business transaction therefore, it is an event.

Cost accounting is a specialized branch of accounting concerned with the processes and techniques of ascertaining the costs of products and services.
It also pinpoints any wastages, leakages, and defects during manufacturing and marketing processes.

There are mainly three branches of accounting and cost accounting is one of them.

A event involving some value between two or more entities. It can be purchase of goods, receipt of money, payment to a creditor, incurring expenses, etc.

A transaction is a business event that has a monetary impact on entity's financial statements, and is recorded as an entry in its accounting records.

A high-volume transaction, such as billing to a customer, may be recorded in a specialized journal, which is then summarized and posted to the general ledger.

Alternatively, lower-volume transactions are posted directly to the general ledger. A transaction can be a cash transaction or a credit transaction.

Comparability is one of the most important characteristic of financial information.
It states that accounting information must be capable of being compared between or among different entities.
Further accounting information is comparable only if the accounting policies and standards are consistently applied year after year or from one accounting period to another accounting period.
Also if there is any change in any accounting policy that change should also be reflected retrospectively and prospectively so as to deal with any changes in the amounts of transactions.

Profit & loss account and balance sheet are prepared on the basis of information available through financial accounting.
Profit and loss account shows the profit or loss during a specific period and balance sheet provides the financial position of the firm on a particular date.

Classification is concerned with the systematic analysis of the recorded data with a view to group transactions or entries of one nature at one place.

The work of classification is done in the book called "ledger". This book contains on different pages individual account heads under which all financial transactions of similar nature are collected.

Discounts are classified as trade discount and cash discount.
If a discount is not associated with any precondition and available to all the customers, it's considered a trade discount.
In such a situation, the net price will only be recorded in the books of account.
Trade Discount is not recorded the books of accounts.

The definition of accounting signifies "it is an art of recording, classifying, summarizing and interpreting in a significant manner and in terms of money, transactions and events which are, in part at least of a financial character and interpreting the result thereof.

Financial accounting results in the determination of net income at the bottom of the income statement.
Assets, liabilities and equity accounts are reported on the balance sheet.
The balance sheet utilizes financial accounting to report ownership of the company's future economic benefits.

Accounting starts with
identifying a transaction and then recording in Journal
then classifying in the ledger
then summarising in final accounts
then interpretation through Ratio analysis
then finally communicating the information to the users of the financial statement.
Thus, the first step is identifying and the last step is communicating the information.

Bookkeeping is the process of daily record-keeping financial transactions.
In Bookkeeping sales, expenses, cash and bank transactions are recorded of the business in a general ledger.
With these ledgers, final accounts are prepared.
So the work of accounting depends upon bookkeeping.

Creditors are those who supplies goods or provide services to the organization. Business owes money to the creditors.
Creditors are considered as short term or current liability and shown in the balance sheet.

Looking at all the options, the most appropriate one is the Maximisation of business wealth.
Well, whenever someone starts a business a lot of time, money and hard work is invested by the owner.
So, definitely in return, the owner wants to maximize the profits.

Financial accounting is the original form of accounting. It is mainly confined to the preparation of financial statements for the use of outsiders like shareholders, debenture holders, creditors, banks and financial institutions.
The field of accounting that serves external users of financial statements in decision making process is known as financial accounting.

The drawings account is to be created by linking with Capital. Drawing means the amount withdrawn by the owner.
When the owner withdraws some amount from the business it is known as the drawings.
As per Business Entity Concept, the businessman is considered separate from the business.
Therefore, capital is the liability for the business and investment for the owner.

Accounting starts with
identifying a transaction and then recording in Journal
-then classifying in the ledger
-then summarising in final accounts
-then interpretation through Ratio analysis
-then finally communicating the information to the users of the financial statement.
Thus, the first step is identifying and the last step is communicating the information.

There are various stake holders who want to know about the business. There are internal and external stakeholders.
Internal stakeholders are investor and management who wants to know about the business performance.
External stakeholders are creditors, lenders and customers.
Customers want to know about the growth of the organization and various new products whereas creditors and lenders are more interested to know about the financial position of the organization in reference to the security of their money.

This can be summarized as:
Sold Goods- It represent the sale of goods on cash as nothing is mentioned about customer name or sold on credit.
Hence this is considered as cash sales.
Sold Goods to customer- Its a credit sale.
Sold goods to customer on credit- Its a credit sales.
Sold goods to customer on account- Its also a credit sales.

After preparing the accounting data in a classified manner, it is summarized to help the Management and External Users in making meaningful and informed decisions.
This process of summarizing leads to the presentation of the following statements:

1. Trial balance
2. Income statement/Profit and Loss Statement
3. Balance sheet/Positional Statement

Officers, Mangers and Board of directors are the team of employees and board.
Debtors are those to whom company has sold goods on credit. These are part of current assets.

Capital refers the amount invested by the owner into business.
When the owner withdraws some amount from the business it is known as the drawings.
As per Business Entity Concept, the business man is considered separate from the business.
Therefore, capital is liability for the business and investment for the owner.

At the end of a specified period normally a year, every business prepare a statement i.e. profit & loss account to know about the profitability of the organization.
There are two sides of profit & loss account. One side the revenue are recorded and on another side costs are recorded.
Excess of revenue over the cost is called profit and vice versa.

Cost accounting is a branch of accounting. This tool is basically used by the business to find out the cost of any product or service.
It also have various methods to find out the cost of any product.
Cost accounting is a mechanism through which any business can control the cost. It has various tools and scientific method to have such control.

Information is relevant if it is available in time and helps in prediction. The management needs accounting information for making a useful decision like where to invest, how was the performance of the business the year, where management needs to improve but if management does not get this information on time then they cannot make a certain prediction which is important for the success of the company.

Any exchange of value for value (for money or money's worth) is called a transaction.
Something having value is received, and something having value goes out.
Selling or purchasing of goods or taking or granting any loan are examples of transactions.
Ram purchased goods of Rs.10,000 is a transaction.

Before passing any accounting entry in journal, this has to identify that which account need to be debited and credited.
For this, analysis of the business transaction is must which is done on the basis of nature of transaction.

The commodities which are bought to resale or for packing and selling or for production to produce final goods for sale are called goods.
It is basically things in which sellers trade. For example, for a seller of furniture goods are wood that he will purchase to make furniture.

Accounting is a process of recording, classifying, summarsing and interpretation of business transactions.
As information is recorded in the books of the accounts so, there is no need for users to remember each and every information in brain.
Thus, Accounting is substitute of the memory.

Financial report should present true and fair view, which means that financial statements must be free from errors or from other missions.
Financial statements cannot be prepared with the purpose to influence certain decisions, i.e. they might be neutral.

When a company purchases goods on credit which needs to be paid back in a short period of time, it is known as Accounts Payable.
It is treated as a liability and comes under the head 'current liabilities'.
Accounts payable is a short-term debt payment which needs to be paid to avoid default.

Any business transaction will involve at least two parties. One can not do the transaction with himself. One party may be receiver and another will be give.
For example, XYZ Ltd sold goods to ABC Ltd. In this case, XYZ Ltd is the giver who is transferring the goods and ABC Ltd is the receiver who is accepting the goods.

Accounting can be defined as the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof.
The correct sequence of accounting process is identifying, recording and communicating.