The Role of Accounting in Business

What is accounting?

​Definition

The process recording of financial transactions (monetary terms), reporting the results of such a transaction and drawing up financial statements for decision making.

Summarises the transactions over an accounting period

record and report for use by stakeholders and shareholders

Accounting activities

​Communicating the finances of a Business

1 Identifying transactions

2​. Record the transactions

3.Reporting through Financial statements​​

For use by Management, Lenders& Creditors, Government entities, ​ Investors and Employees

​

Information must be understandable to users

Accounting principles

​Generally Accepted Accounting Principles

​

Use the link below to access the information

https://www.youtube.com/watch?v=vABCnUzvFJw​

Businesses use GAAP while adhering to International Finance Reporting Standards. (IFRS)

​Accounting concepts/terms

​Use the prescribed reading material and any other to define the following terms:

Assets- Current vs non current

Liabilities- Current vs Non current

Owners' Equity

Income

Expenses

Profit

​Basic Accounting Equation

Assets= Owners Equity + Liabilities

​

Understanding what ​accounts fit in the three elements allows for calculations.

​

Re-arrange the equation to calculate - Liabilities, Owners Equity.

​Test your understanding

Use the following Quiz to test your understanding of the accounting concepts.

You can repeat as many times as needed ​to deepen your knowledge.

NB: Complete the study material before attempting the quiz

Enjoy!​

Accounting for all chapter 1 , Finance for Non-Financial Managers chpt 1, Accounting concepts video

Multiple Choice

For the following 6 questions, Match the accounting principle with the statement given.

1. An entry is made for rent income at the end of a financial year. This was for the rent for the last month of the financial year that was still owing.

• Prudence principle

• Realisation principle

• Accrual Principle

• Matching principle

Multiple Choice

2. Sales and cost of sales are recorded simultaneously

• Prudence Principle

• Accrual principle

• Realisation principle

• Matching Principle

Multiple Choice

3. The account of a debtor who is having financial difficulty is written off.

• principle of consistency

• Prudence principle

• Going concern principle

• accrual principle

Multiple Choice

4. The method and rate of depreciation must be maintained year after year.

• Principle of materiality

• Principle of consistency

• Realisation principle

• Matching principle

Multiple Choice

5. An entry is made immediately in the books for an invoiced received for goods purchased

• Principle of materiality

• Realisation principle

• Prudence principle

• Accrual principle

Multiple Choice

6. Transactions that are important must be specifically shown in financial statements

• principle of consistency

• Going on concern principle

• Principle of materiality

• realisation principle

Open Ended

State any three users of the financial statements and what information they need from the statements

Open Ended

Classify the following accounts into Current assets, Non current Assets, Current Liability, Non-current Liabilities, Income or Expenses.

Creditors control, Salaries, Debtors' control, Sales, Mortgage bond, Bank overdraft, Investment in shares, Stationary, Trading Inventory, Interest on fixed deposit, Equipment, Cost of sales

Multiple Choice

Sihle is the proprietor of Sihle's Cafe. On 28 February 21.9, the business had the following assets and liabilities:

Equipment R110 000

Trading Inventory 20 000

Bank overdraft 10 000

Debtors control 12 000

Creditors control 15 000

Which of the following amounts reflect the Equity as at 28 Feb 21.9?

• R63 000

• R127 000

• R117 000

• R115 000