1.1 The Accounting System

• What is the purpose of an accounting system?

  Manage financial transactions
• The input component of an accounting system involves gathering financial data from various sources.
• The output phase of an accounting system generates financial reports and statements.
• What are the three main components of an accounting system?

  Input, Processing, Output
• Arrange the steps of the accounting system's components in the correct order:

  1️⃣ Collect financial data from various sources (Input)

  2️⃣ Classify and organize the data (Processing)

  3️⃣ Generate financial reports and statements (Output)
• One objective of accounting is to provide accurate financial information for effective decision-making
• Match the objective of accounting with its description:

  Regulatory compliance ↔️ Adhere to legal standards

  Accountability ↔️ Track assets, liabilities, equity
• Why does accounting ensure regulatory compliance?

  Adherence to legal standards
• Decision-making support in accounting helps stakeholders assess financial health and performance.
• Accountability in accounting involves tracking assets, liabilities, and equity
• What are the two main categories of users of accounting information?

  Internal and external stakeholders
• Match the user type of accounting information with their primary need:

  Investors ↔️ Return on investment

  Creditors ↔️ Repayment ability

  Managers ↔️ Operational costs

  Shareholders ↔️ Financial stability
• The basic accounting equation states that Assets = Liabilities + Equity.
• What are the two categories of users of accounting information?

  Internal and external
• Match the user type with their information needs:

  Owners/Shareholders ↔️ Profitability, financial stability

  Managers ↔️ Operational costs, sales data

  Creditors ↔️ Repayment ability, creditworthiness
• Each user type relies on accounting information to make informed decisions relevant to their role.
• What is the basic accounting equation?

  Assets = Liabilities + Equity
• Assets are what the company owns
• The accounting equation maintains financial equilibrium by showing that assets are funded by liabilities or equity.
• How many steps are there in the accounting cycle?

  8
• Place the steps of the accounting cycle in the correct order:

  1️⃣ Identify Transactions

  2️⃣ Record in Journal

  3️⃣ Post to Ledgers

  4️⃣ Prepare Unadjusted Trial Balance

  5️⃣ Make Adjustments

  6️⃣ Prepare Adjusted Trial Balance

  7️⃣ Prepare Financial Statements

  8️⃣ Close the Books
• Match the component of the accounting system with its purpose:

  Input ↔️ Gathering financial data

  Processing ↔️ Classifying and organizing data

  Output ↔️ Generating financial reports
• The accounting system ensures accurate financial management and decision-making.
• What are the primary objectives of accounting?

  Accurate financial information, regulatory compliance, accountability
• Match the accounting objective with its description:

  Decision-making Support ↔️ Assess financial health and performance

  Regulatory Compliance ↔️ Adhere to legal standards

  Accountability ↔️ Track assets, liabilities, and equity
• The accounting cycle is an 8-step process used to record and report financial transactions
• Creating journal entries involves debiting and crediting accounts.
• Steps in the accounting cycle

  1️⃣ Identify Transactions

  2️⃣ Record in Journal

  3️⃣ Post to Ledgers

  4️⃣ Prepare Unadjusted Trial Balance

  5️⃣ Make Adjustments

  6️⃣ Prepare Adjusted Trial Balance

  7️⃣ Prepare Financial Statements

  8️⃣ Close the Books
• The cash flow statement is one of the financial statements prepared in the accounting cycle.
• Closing the books involves transferring temporary account balances to retained earnings
• What is the first step in the accounting cycle?

  Identify Transactions
• Match the component of the accounting system with its function:

  Input ↔️ Gathering financial data

  Processing ↔️ Classifying and organizing data

  Output ↔️ Generating financial reports
• The basic accounting equation is Assets = Liabilities + Equity.
• What are liabilities in the basic accounting equation?

  Amounts owed to external parties
• Equity represents the owners' stake in the company
• What is the primary purpose of financial accounting?

  External reporting to stakeholders
• What reporting standards must financial accounting follow?

  GAAP/IFRS
• Internal controls are designed to prevent fraud and ensure financial integrity.
• Key components of internal controls

  1️⃣ Control Environment

  2️⃣ Risk Assessment

  3️⃣ Control Activities

  4️⃣ Information and Communication

  5️⃣ Monitoring Activities
• What are internal controls designed to protect in an organization?

  Assets, prevent fraud