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Why are transactions recorded in monetary terms in accounting?
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Monetary terms simplify the process by providing a common unit of measurement for diverse items like kg, liters, and pieces.
What does recording transactions in a journal involve?
Capturing all financial transactions chronologically.
What types of transactions are recorded in accounting?
Only financial transactions are recorded; non-financial events like customer disputes are not recorded.
What is the role of accounting in indicating the financial status of a business?
Accounting shows whether a business is profit-making or loss-incurring through financial statements.
How is accounting both an art and a science?
Accounting is an art in recording, classifying, and summarizing financial data, and a science due to its standardized rules and principles.
Why is a business entity considered separate from its owners in accounting?
Law recognizes a business entity as an artificial person, distinct from its owners.
What financial statements are used to determine the profitability and financial condition of a business?
The Profit and Loss account and the Balance Sheet.
What are the four main activities involved in accounting according to the CSAR definition?
Collecting, Summarizing, Analyzing, and Reporting financial information.
What is the significance of classifying transactions in accounting?
Classifying transactions organizes entries into a ledger, making it easier to summarize and analyze financial data.
How does accounting serve as the language of business?
It communicates the financial status and performance of a business to stakeholders through standardized financial statements.
What principle justifies recording transactions solely in monetary terms?
Monetary measurement principle, which ensures consistency and comparability in financial records.
Give an example of a non-financial event that is not recorded in accounting.
Customer conflicts.
List and describe the four steps of the accounting cycle.
1. Recording Transactions (journal), 2. Classifying Transactions (ledger), 3. Summarizing Transactions (trial balance), 4. Interpretation of Results (Profit and Loss account, Balance Sheet)
Define accounting using the CSAR framework.
CSAR stands for Collecting, Summarizing, Analyzing, and Reporting financial information in monetary terms.
Explain the purpose of preparing a trial balance in the accounting process.
A trial balance is prepared to ensure that total debits equal total credits, which is crucial for accurate financial reporting.
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