INTRODUCTION

A. What is an accounting? B. What are the functions of accounting? C. What are the difference between cost accounting and management accounting? D. What are the elements of financial statements? E. Who are the users of accounting information and explain? why the need the accounting information? F. What do you understand by source document? G. Briefly explain process of accounting diagrams? H. Classifying the accounting information? I. Identify the basic principle of accounting? J. List out the components of accounts?

A) What is an accounting?

Accounting is the art of recording, summarizing, reporting, and analyzing financial transactions. An accounting system can be a simple, utilitarian check register, or, as with Microsoft Office Accounting, it can be a complete record of all the activities of a business, providing details of every aspect of the business, allowing the analysis of business trends, and providing insight into future prospects. Bookkeeping is the practice of recording transactions. Bookkeepers tend to focus on the details, recording transactions in an efficient and organized manner, and they may or may not see the overall picture. Accountants use the work done by bookkeepers to produce and analyze financial reports. Although accounting follows the same principles and rules as bookkeeping, an accountant can design a system that will capture all of the details necessary to satisfy the needs of the business managerial, financial reporting, projection, analysis, and tax reporting. A good accountant will create a system of financial reporting that gives a complete picture of a business. By using Office Accounting, you can work with your accountant to set up your accounting system to meet the needs of your business. You can then enter transactions and generate reports all the bookkeeping tasks and some accounting tasks, such as generating reports, which you might previously have relegated to your accountant.

B) What are the Functions of Accounting?

Record Keeping Function:

The primary function of accounting is to keep a systematic record of financial transaction - journalisation, posting and preparation of final statements. The purpose of this function is to report regularly to the interested parties by means of financial statements.

Protect Business Property:

The second function of accounting is to protect the property of business from unjustified and unwanted use. The accountant thus has to design such a system of accounting which protect its assets from an unjustified and unwanted use.

Legal Requirement Function:

The third function of accounting is to devise such a system as will meet the legal requirements. Under the provision of law, a business man has to file various statements e.g., income tax returns, returns for sales tax purpose etc. Accounting system aims at fulfilling the requirements of law. Accounting is a base, with the help of which various returns, documents, statements etc., are prepared.

Communicating the Results:

Accounting is the language of business. Various transactions are communicated through accounting. There are many parties - owners, creditors, government, employees etc, who are interested in knowing the results of the firm. The fourth function of accounting is to communicate the results to interested parties. The accounting shows a real and true position of the firm of the business.

C) What are the difference between cost accounting and management accounting?

What is Management Accounting?

Management accounting is about producing accurate information in aiding a companys management in decision making. Management accounting is usually used as an input in the planning of projects, and as a technique for evaluating how well a firm has done in a given period. An important purpose for using management accounting would be to compare the current financial information with the previous periods financials, in order to ascertain how well the set targets have been met or surpassed. Management accounting is particularly valuable for a firm in terms of strategy formulation, budgetary control and project planning, and evaluation.

What is Cost Accounting?

Cost accounting is an accounting method used to record and analyze various costs that are incurred by a firm. The costs that are analyzed under this form of accounting include the cost of wages for workers, the material costs, utilities, supplies, maintenance and other overhead costs. The purpose of cost accounting is to identify wastage, and unnecessary expenditure in order to improve the firms efficiency and cut down on costs, thereby increasing profitability. The importance in cost accounting lies in the need for modern organizations to keep their costs to a minimum, especially during times of economic slowdowns, where the revenues will be lower, and costs must be controlled more to ensure that the company remains profitable.

What is the difference between Management Accounting and Cost Accounting?

Both management accounting and cost accounting are essential to ensure the smooth running of the business through prudent decision making. Both management and cost accounting require inputs from various departments of the firm, but top managers, shareholders, and the company creditors use the output from cost accounting, whereas only personnel in management positions involved in the decisions making use management accounting information. While cost accounting focuses on analyzing and controlling the various expenditures that arise in a dynamic business setting, management accounting focuses on using the data for planning business projects, strategy formulation, budgetary control and target setting. Cost accounting is backward looking with a focus on the expenses incurred in the past, while management accounting is concerned with prediction for the use of future decision making.

D) What are the elements of financial statements?

Financial statements are business documents that can be used to assess the profitability of a firm. Although financial statements may appear complicated, they are relatively straightforward. In order to understand financial statements it is necessary to understand the five elements that comprise them: assets, liabilities, equities, revenues and expenses.

Assets:o

Assets are all of the economic resources available to a firm. Types of assets include fixed assets (tangible assets with a long life, such as property), current assets (tangible assets with a short life, such as inventory), investments and intangible assets, such as goodwill or reputation.

Liabilities:o

Liabilities are, effectively, the opposite of assets; they are resources that a firm owes to another organization or individual. There are two types of liabilities, long term and short term. Long-term liabilities are debts or other liabilities that must be repaid over an extended period of time, such as a mortgage on a property. Short-term liabilities are, in contrast, expected to be paid in the near future, such as accounts payable, which include bills owing to suppliers and employee salaries.

Equity:o

Equity is the money in a firm that is owed to its owners. There are two types of equity. The first type of equity is contributed capital. This is the amount of money than an owner has invested in the firm. The second type of equity is retained earnings, which are the company's profits owed to owners.

Revenues:o

Revenues represent all of the firm's income. On a financial statement, revenues are listed for a fixed period of time only. For example, an annual statement would list only the revenues from that specific year.

Expenses:o

Expenses are all of the costs that a firm pays out. Like revenues, expenses are included only for a specific period of time. Together, revenues and expenses can be used to calculate profits.

E) Who are the users of accounting information?

Internal and external users

(a) Investors : The providers of risk capital and their advisers are concerned with the risk inherent in, and return provided by, their investments. (b) Employees : Employees and their representative groups are interested in information about the stability and profitability of their employers. (c) Lenders : Lenders are interested in information that enables them to determine whether their loans, and the interest attaching to them, will be paid when due. (d) Suppliers and other trade creditors : Suppliers and other creditors are interested in information that enables them to determine whether amounts owing to them will be paid when due. (e) Customers : Customers have an interest in information about the continuance of an enterprise, especially when they have a long-term involvement with, or are dependent on, the enterprise, especially when they have a long-term involvement with, or are dependent on,
the enterprise.

(f) Governments and their agencies : Governments and their agencies are interested in the allocation of resources and, therefore, the activities of enterprises (g) Public : Enterprises affect members of the public in a variety of ways. For example, enterprises may make a substantial contribution to the local economy in many ways including the number of people they employ and their patronage of local suppliers.

Why do users of accounting information need accounting information?

External users of accounting information (especially investors) use accounting information like annual and quarterly reports to base their investing decisions on, and to compare different companies with one another. Internal users of accounting (mostly managers) use internal accounting information in order to plan for the future. Therefore accounting information is not only vital to the one's individual business or investments but is also of great benefit to the wider society and the world at large. In addition to which this will allow each country to organize their funds in a more systematic approach as such making room for development of one's country and the upward social

mobility of the people of that specifies country. In all simplicity, accounting information prepares us for the future.

F) What do you understand by source documents?

When a business transaction occurs, a document known as the source document captures the key data of the transaction. The source document describes the basic facts of the transaction such as its date, purpose, and amount. Some examples of source documents:

cash receipt cancelled check invoice sent or received credit memo for a customer refund employee time sheet The source document is the initial input to the accounting process and serves as objective evidence of the transaction, serving as part of the audit trail should the firm need to prove that a transaction occurred. To facilitate referencing, each source document should have a unique identifier, usually a number or alphanumeric code. Renumbering of commonly-used forms helps to enforce numbering, to classify transactions, and to identify and locate missing source documents. A well-designed source document form can minimize errors and improve the efficiency of transaction recording. The source document may be created in either paper or electronic format. For example, automated accounting systems may generate the source document electronically or allow paper source documents to be scanned and converted into electronic images. Accounting software often provides on-screen entry forms for different types of transactions to capture the data and generate the source document. The source document is an early document in the accounting cycle. It provides the information required to analyze and classify the transaction and to create the journal entries.

G) Briefly explain process of accounting diagrams?

Accounting Cycle is a series of accounting process which begins with the identification of an economic activity or transaction, recording of the economic activity and ends with the preparation of the financial statements. The Accounting Cycle is a repeated process where one cycle ends and another cycle (as above) is repeated again

The steps involve in the Accounting Cycle:

1. Analyze source documents like invoices, receipts, payment vouchers, etc 2. Record transactions in Journals (sales journal, purchase journals, etc) 3. Post to ledger accounts 4. Prepare Unadjusted Trial Balance 5. Journalize adjusting entries 6. Post adjusting entries 7. Prepare Adjusted Trial Balance 8. Journalize closing entries 9. Post closing entries 10. Prepare post-closing Trial Balance 11. Prepare financial statements like the Income Statement

H) Classifying the accounting information?

fair (correct) - present fairly and correctly results of operations and financial position of the business

consistent - presentation and classification of items in the financial statements must be the same from one accounting period to the next prudent - accounting for certain items requires making judgments, these must be made with prudence to ensure assets or income are not overstated, liabilities or expenses are not understated

material - material items must be disclosed separately, immaterial items can be aggregated into groups

relevant - accounting information must be useful assisting users in their decision making process

reliable - free from material mistakes and errors complete - presented without omission of material information comparable - providing ability to compare information through time and with other entities

understandable - users without specific accounting knowledge must understand the accounting information

I) identify the basic principle accounting?

Revenue principle:The revenue principle, also known as the realization principle, states that revenue is earned when the sale is made, which is typically when goods or services are provided. A key component of the revenue principle, when it comes to the sale of goods, is that revenue is earned when legal ownership of the goods passes from seller to buyer. Note that revenue isn't earned when you collect cash for something.

Expense principle:The expense principle states that an expense occurs when the business uses goods or receives services. In other words, the expense principle is the flip side of the revenue principle. As is the case with the revenue principle, if you receive some goods, simply receiving the goods means that you've incurred the expense of the goods. Similarly, if you received some service, you have incurred the expense. It doesn't matter that it takes a few days or a few weeks to get the bill. You incur an expense when goods or services are received.

Matching principle:The matching principle is related to the revenue and the expense principles. The matching principle states that when you recognize revenue, you should match related expenses with the revenue. The best example of the matching principle concerns the case of businesses that resell inventory. For example, if you own a hot dog stand, you should count the expense of a hot dog and the expense of a bun on the day you sell that hot dog and that bun. Don't count the expense when you buy the buns and the dogs. Count the expense when you sell them. In other words, match the expense of the item with the revenue of the item. Accrual-based accounting, which is a term you've probably heard, is what you get when you apply the revenue principle, the expense principle, and the matching principle. In a nutshell, accrual-based accounting means that you record revenue when a sale is made and record expenses when goods are used or services are received.

Cost principle:The cost principle states that amounts in your accounting system should be quantified, or measured, by using historical cost. For example, if you have a business and the business owns a building that building, according to the cost principle, shows up on your balance sheet at its historical cost; you don't adjust the values in an accounting system for changes in a fair market value.

J) List out the components of accounting?

a) Financial accounting
Financial accounting is focused on providing accounting reports and analysis to other areas of the business. Financial accountants are responsible for the creation and issuing of the company's financial statements, providing accurate and timely information to management and ensuring that all regulatory reporting requirements are met. In financial accounting, the goal is to consistently provide the valuable, accurate and reliable information

b) Management accounting
Management accounting is a specialized sub-set of accounting, focusing on internal needs of businesses. While financial accounting focuses on external reporting and history, management accounting focuses on current information and the needs of in-house management. Both management and financial accounting work together to give management and external users the information required. Often a management computer system feeds into a financial computer system, providing users and stakeholders with complete cost information.

c) Cost accounting
A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance.