1. What is Accounting System?

Ans: Accounting is the financial information system, it identifies, records, and communicates the
economic events of an organization to interested users.

2. Who is the user of Accounting? Why they need used to Accounting?

Ans: The financial information that users need depends upon the kinds of decisions they make.
There are two broad groups of users of financial information internal users and external users

Internal Users

Internal users of accounting information are managers who plan, organize and the business. These
include marketing managers, production supervisors, finance directors, and company officers. In
running a business, internal users must answer many important questions. To answer these and
other questions, internal users need detailed information on a timely basis Managerial accounting
provides internal reports to help users make decisions about their companies. Examples are
financial comparisons of operating alternatives, projections of income from new sales campaigns,
and forecasts of cash needs for the next year.

External Users

External users are individuals and organizations outside a company who want financial infor-
mation about the company. The two most common types of external users are investors and
creditors. Investors (owners) use accounting information to decide whether to buy, hold, or sell
ownership shares of a company. Creditors (such as suppliers and bankers) use accounting
information to evaluate the risks of granting credit or lending money. Financial accounting answers
these questions. It provides economic and financial in-formation for investors, creditors, and other
external users. The information needs of external users vary considerably. Taxing authorities, such
as the State Administration of Taxation in the People's Republic of China (CHN), want to know
whether the company complies with laws. Regulatory agencies, such as the Financial Services
Authority of Indonesia (IDN), want to know whether the company is operating within prescribed
rules. Customers are interested in whether a company like Tesla Motors, Inc. (USA) will continue
to honor product warranties and support its product lines, Labor unions, such as the Indian National
Trade Union Congress (IND), want to know whether companies have the ability to pay increased
wages and benefits to union members.

3. Why Accounting is important for the modern business?

Ans: Accounting is an important process because it organizes financial data and summarizes your
company’s financial performance. It’s often called the “language of business” as it communicates
financial information to different users, like regulators, stakeholders, investors, creditors, oversight
agencies, and government tax agencies.
The main objectives of accounting are:
1. Decision-Making

Accounting assists in many decision-making processes and helps owners develop policies to
increase business efficiency. Some examples of decisions based on accounting information include
product and service prices, resources used, and financing and business opportunities.

2. Budgeting and Planning

Owners of small businesses need to plan how they allocate their limited resources including labor,
machinery, equipment, and cash towards accomplishing their business objectives.

Accounting is an important component of business management, budgeting, and planning as it

enables business planning by anticipating the needs and resources. This helps in the coordination
of different segments of an organization.

3. Recording Transactions

The primary role of accounting is to maintain a systematic, accurate, and complete record of all
financial transactions of a business. These records are the backbone of the accounting system.
Company owners should be able to retrieve and review the transactions whenever required.
4. Business Performance Management

Using accounting reports, business owners can determine how well a business performs. The
financial reports are a reliable source of measuring the key performance indicators so that they can
compare themselves against their past performance as well as against the competitors.

5. Financial Statements
The financial statements generated at the end of the fiscal period reflect the financial condition of
a business during that period. They provide information about how much capital has been invested,
the funds the business has used, revenues it generated, profits and losses, and the assets and
liabilities of the business.

6. Statutory Compliance

The law requires businesses to maintain accurate financial records of their transactions and share
the reports with the shareholders, tax authorities, and regulators. This information is also required
for indirect and direct tax filing purposes.

7. Financial: In the business world, accounting helps organization owners prepare historic financial
records like an income statement and balance sheet as well as financial projections which can be
used while applying for a loan or securing investments for the business.
4. Definition of Asset, Liability, and Owner’s Equity?
Ans:

Assets

An asset is anything a business owns that has financial value and can provide future benefits.
Assets can be tangible (like cash, buildings, and equipment) or intangible (like patents and
trademarks).

Example: Cash, inventory, land, machinery, and accounts receivable.

Liability

A liability is any financial obligation or debt that a business owes to others, such as loans, unpaid
bills, or salaries payable. Liabilities represent claims of outsiders on a business’s assets.

Example: Bank loans, accounts payable, and wages payable.

Owner’s Equity

Owner’s equity is the owner's financial interest in the business, calculated as the difference
between total assets and total liabilities. It represents the net worth of the business.

Formula: Owner’s Equity=Assets−Liabilities

5. What is Account?
Ans: An account is an individual accounting record of increases and decreases in a specific asset,
liability, or owner’s equity item.

Example: Cash, Accounts receivable, Account payable, Salaries and Wages expense and so on.
6. The roles of Debit and Credit or the golden roles of accounting?

Ans: The term debit indicates the left side of an account, and credit indicates the right side. They
are commonly abbreviated as Dr. for debit and Cr. for credit. They do not mean increase or
decrease, as is commonly thought. We use the terms debit and credit repeatedly in the record-ing
process to describe where entries are made in accounts. For example, the act of entering an amount
on the left side of an account is called debiting the account. Making an entry on the right side is
crediting the account. When comparing the totals of the two sides, an account shows a debit
balance if the debit amount exceeds the credits. An account shows a credit balance if the credit
amounts exceed the debits.
7. What are the Double Entry systems?
Ans: The equality of debits and credits provides the basis for the double-entry system of recording
transactions.

Under the double-entry system, the dual (two-sided) effect of each transaction is recorded in
appropriate accounts. This system provides a logical method for recording transactions and also
helps ensure the accuracy of the recorded amounts as well as the detection of errors. If every
transaction is recorded with equal debits and credits, the sum of all the debits to the accounts must
equal the sum of all the credits.

The double-entry system for determining the equality of the accounting equation is much more
efficient than the plus/minus procedure.

8. Definition of Tabular Analysis, Journal, Ledger, Trial Balance, Work Sheet,

Balance Sheet, and Accounting Equation?
Ans: Here are the definitions of Tabular Analysis, Journal, Ledger, Trial Balance, Worksheet and
Accounting Equation.

Tabular Analysis
Tabular analysis is a method of presenting financial transactions in a table format to show how
each transaction affects different accounts. It helps in understanding the impact of transactions
on the accounting equation.

Journal
A journal is the first book of accounting records where financial transactions are recorded in
chronological order. It follows the double-entry system, where each transaction has a debit and a
credit entry.
Ledger
A ledger is a collection of accounts where transactions from the journal are posted to specific
accounts. It helps in summarizing financial transactions for each account.
Trial Balance

A trial balance is a statement that lists all ledger account balances at a specific time to check the
mathematical accuracy of the accounting records. It ensures that total debits equal total credits.

Worksheet
A worksheet is a multi-column document used for preparing financial statements. It helps
accountants adjust and organize financial data before creating final reports.
Balance Sheet
A Balance Sheet is a financial statement that shows a company's financial position at a specific
point in time. It lists the company's assets, liabilities, and owner's equity, following the
accounting equation:
Assets = Liabilities + Owner’s Equity

Accounting Equation

The Accounting Equation is the foundation of double-entry accounting, which shows the
relationship between a company's assets, liabilities, and owner's equity. The equation is:

Assets = Liabilities + Owner’s Equity

This equation ensures that a company's financial records are always balanced. Every transaction
affects at least two accounts, maintaining equality in the equation.

9. What is Accounting Cycle?

Ans:

Accounting Cycle

The Accounting Cycle is the systematic process of recording, processing, and summarizing
financial transactions to prepare financial statements. It begins with recording transactions and
ends with closing the books for a specific period.

Steps of the Accounting Cycle

• Identify Transactions

• Record in Journal

• Post to Ledger

• Prepare Trial

• Adjust Entries

• Adjusting Trial Balance

• Prepare Financial Statements

• Close Accounts

• Post-Closing Trial Balance

10. The error of Trial Balance?
Ans: A trial balance does not guarantee freedom from recording errors, however. Numerous errors
may exist even though the totals of the trial balance columns agree. For example, the trial balance
may balance even when:

1. A transaction is not journalized.

2. A correct journal entry is not posted.

3. A journal entry is posted twice.

4. Incorrect accounts are used in journalizing or posting.

5. Offsetting errors are made in recording the amount of a transaction.

As long as equal debits and credits are posted, even to the wrong account or in the wrong amount,
the total debits will equal the total credits. The trial balance does not prove that the company has
recorded all transactions or that the ledger is correct.

11. Adjusting Entries and the type of Adjusting Entries?

Ans:

Adjusting Entries

Adjusting entries are journal entries made at the end of an accounting period to update revenues
and expenses to their correct amounts before financial statements are prepared. These adjustments
ensure that the matching principle and accrual basis of accounting are followed.

Types of Adjusting Entries

There are five main types of adjusting entries:

1. Accrued Revenues

• Revenues earned but not yet received or recorded.

• Example: A company provides services in December but receives payment in January.

• Journal Entry:

Accounts Receivable (Debit)

Revenue (Credit)

2. Accrued Expenses
• Expenses incurred but not yet paid or recorded.
 • Example: Salaries payable for employees at the end of the month but not yet paid.

• Journal Entry:

Salary Expense (Debit)

Salary Payable (Credit)

3. Deferred (Unearned) Revenues

• Cash received before the revenue is earned.

• Example: A customer pays for a service in advance, but the service is not yet provided.

• Journal Entry:

Unearned Revenue (Debit)

Revenue (Credit)

4. Deferred (Prepaid) Expenses

• Expenses paid in advance but not yet used.

• Example: Paying rent for six months in advance.

• Journal Entry:

Rent Expense (Debit)

Prepaid Rent (Credit)

5. Depreciation

• Allocating the cost of a fixed asset over its useful life.

• Example: A company buys machinery for $10,000, which depreciates over 10 years.
• Journal Entry:

Depreciation Expense (Debit)

Accumulated Depreciation (Credit)

12. Closing Entries and the types of Closing Entries?

Ans:
Closing Entries
Closing entries are journal entries made at the end of an accounting period to transfer balances
from temporary accounts (such as revenues, expenses, and drawings) to permanent accounts (such
as retained earnings or capital). This process resets the temporary accounts to zero for the next
accounting period.
Types of Closing Entries

There are four main types of closing entries:

1. Closing Revenue Accounts

• Revenue accounts are closed by transferring their balances to the Income Summary
account.

• Journal Entry:
Revenue (Debit)

Income Summary (Credit)

2. Closing Expense Accounts (ব্যয় হিসাব্ ব্ন্ধ করা)

• Expense accounts are closed by transferring their balances to the Income Summary
account.
• Journal Entry:

Income Summary (Debit)

Expense Accounts (Credit)

3. Closing Income Summary to Retained Earnings/Capital

• The balance of the Income Summary account (Net Profit or Loss) is transferred to the
Retained Earnings or Owner’s Capital account.

If there is a Net Profit

Journal Entry:

Income Summary (Debit)

Retained Earnings / Owner’s Capital (Credit)

If there is a Net Loss

Journal Entry:

Retained Earnings / Owner’s Capital (Debit)

Income Summary (Credit)
4. Closing Drawings or Dividends

• Owner's withdrawals (drawings) or dividends paid are transferred to the Retained Earnings
or Owner’s Capital account.

• Journal Entry:

Owner’s Capital / Retained Earnings (Debit)

Drawings / Dividends (Credit)

13. What is the difference between Merchandise Inventory VS Service

Organization?
Ans:

Feature Merchandise Inventory Service Organization

Definition Merchandise inventory refers to goods A service organization provides
that a company buys and sells to intangible services instead of
customers for profit. physical products.
Nature of Product-based business (e.g., retail Service-based business (e.g.,
Business stores, wholesalers, supermarkets). consulting, healthcare, education).
Revenue Earns revenue by selling physical goods. Earns revenue by providing
Source services.
Inventory Requires inventory management No physical inventory; service is
(purchasing, storing, and selling goods). the main product.
Cost Involves Cost of Goods Sold (COGS), Involves Service Costs, such as
Structure including purchase price, storage, and employee salaries, utilities, and
handling costs. tools.
Financial Includes Inventory and COGS in the No inventory; instead, it records
Statements balance sheet and income statement. service revenue and operating
expenses.
Examples Walmart (Retail Store), Amazon (E- Hospitals, Law Firms, Accounting
commerce), Best Buy (Electronics Firms, Universities.
Store).
14. What is the difference between FOB Shiping point and FOB Destination?
Feature FOB Shipping Point FOB Destination
Definition Ownership of goods transfers to the Ownership of goods transfers to
buyer as soon as the goods leave the the buyer when the goods arrive at
seller’s location. the buyer’s location.
Who Pays Buyer pays for shipping costs. Seller pays for shipping costs.
Shipping?
Risk Buyer takes responsibility once goods Seller is responsible until goods
Responsibility are shipped. reach the buyer.
Accounting Buyer records inventory as soon as it Buyer records inventory only after
Entry is shipped. receiving the goods.
Best for Buyers who want faster control over Buyers who want sellers to handle
inventory. risks and costs.
Example A company orders laptops from a A supplier delivers furniture to a
supplier, and ownership transfers once store, and ownership transfers
they leave the supplier's warehouse. when the store receives the
furniture.

15. What is the difference between Book Keeping and Accounting?

Feature Bookkeeping Accounting
Definition The process of recording daily The process of interpreting, analyzing,
financial transactions in a systematic and summarizing financial data to
manner. make informed decisions.
Scope Involves routine tasks like recording Involves preparing financial
transactions, maintaining ledgers, and statements, analyzing financial data,
balancing books. and making financial decisions.
Focus Focuses on the accurate recording of Focuses on interpreting and
financial transactions. summarizing financial data for
reporting and decision-making.
Complexity Generally less complex and more More complex, involving analysis,
repetitive. forecasting, and strategy.
Key Tasks - Recording transactions - Preparing financial statements
- Maintaining ledgers (Income Statement, Balance Sheet)
- Posting journal entries - Financial analysis
- Budgeting and forecasting
Users Primarily used by accountants and Used by internal managers, investors,
bookkeepers. regulators, and external auditors.
Required Attention to detail, knowledge of Analytical skills, knowledge of
Skills accounting software. accounting principles, and decision-
making ability.
Example Recording a sale or purchase in the Preparing an income statement to
sales journal. assess the company’s profitability.
16. What is Monetary Unit Assumption?
Ans: The Monetary Unit Assumption is an accounting principle that assumes that all business
transactions can be measured and recorded in terms of a stable currency. It implies that only those
transactions that can be expressed in monetary terms (such as dollars, euros, etc.) are recorded in
the financial statements. This assumption allows for consistency and comparability in financial
reporting.

This assumption also assumes that the value of the currency remains stable over time and ignores
any inflation or deflation effects that may occur.

17. What is the Cash Follow Statement?

Ans: Cash Flows is to provide financial information about the cash receipts and cash payments of
a company for a specific period of time (such as a month, quarter, or year). The primary purpose
of this statement is to assess the company's liquidity, solvency, and financial flexibility.

Importance of a Cash Flow Statement

1. Liquidity Assessment: Helps determine if the company has enough cash to meet short-
term obligations.

2. Investment Decisions: Provides investors with an understanding of how well a company

is managing its cash.

3. Financial Health: Indicates the company’s ability to generate cash and fund its operations.

Non-Cash Items

Non-cash items are transactions or adjustments that affect a company's financial statements but
do not involve an actual cash inflow or outflow. These items are typically related to accounting
adjustments such as depreciation, prepaid rent, and bad debt gains, prepaid insurance. Since they
do not affect the cash balance directly, they are excluded from the cash flow statement, but they
do impact the income statement and balance sheet.

18. What is Account Receivable? What bad debt and bad debt allowance?
Ans: Accounts Receivable
Accounts Receivable (AR) refers to the amount of money that a business is owed by its customers
for goods or services sold on credit. It represents a current asset on the balance sheet, as it is
expected to be collected within a short period (typically within 30 to 90 days).

When a company sells products or services on credit, it records the amount as accounts receivable
until the customer makes the payment.
Bad Debt

Bad debt refers to the amount of money a business is unable to collect from its customers after
selling goods or services on credit. When a company realizes that a customer will not pay, it writes
off the amount as a bad debt expense.

Bad Debt Allowance / Allowance for Doubtful Accounts

Bad debt allowance, also called Allowance for Doubtful Accounts, is an estimated amount that
a company sets aside in advance to cover potential bad debts. Instead of waiting for customers to
default, businesses create a reserve to account for expected losses.