Basics

Question 1

What is financial accounting?

Answer 1

the process of identifying, recording, summarising and analysing an entity’s financial transactions and reporting them in financial statements

Question 2

what are the 8 steps to accounting

Answer 2

1. identify transactions
2. prepare journal entries
3. post journal in general ledger
4. put together unadjusted trial balance
5. post adjusting entries
6. adjusted trial balance
7. financial statements
8. post closing entries

Question 3

what do journal entries require

Answer 3

• unique journal number
• date
• description
• accounts effected
• debits/ credits

Question 4

what is a general ledger

Answer 4

a database that stores a complete record of all accounts & journal entries

Question 5

what is the definition for an account

Answer 5

a place where we record, sort & store all financial transactions that affect a related group of items

Question 6

what are the 6 types of accounts

Answer 6

• assets
• liabilities
• equity
• expenses
• revenue
• dividend / drawings

Question 7

what is a trial balance

Answer 7

an accounting report showing the closing balances of all general ledger accounts

Question 8

how to adjust entries

Answer 8

journal entries posted at the end of an accounting period to bring a business’s books in line with the accrual method of accounting

Question 9

what is the accrual method of accounting

Answer 9

revenue is recognised as its earned expenses are recorded as they are incurred

Question 10

what is the double entry of accounting

Answer 10

• assets (business owns) = liabilities & equity ( business owes)
• credits = sources that economic benefit flows from
• debits = destinations that economic benefit flows too

Question 11

what is a financial stamens and what are the three types

Answer 11

• account that summarise a businesses activities over a time period

three types

• balance sheet
• income statement
• cash flow statement

Question 12

what is a closing entry

Answer 12

a journal entry that transfers balanced from temporary accounts to permanent accounts in the balance sheet