Home » Questions » Introduction to Accounting and its terms Short Answer Questions




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1. What is accounting?

Accounting is the process of recording, summarizing, analyzing and communicating the financial information or transactions of an entity

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2. What is bookkeeping?

Recording financial information or transactions in the books of accounts is called bookkeeping. Bookkeeping is the basic phase of accounting

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3. What’s difference between accounting and bookkeeping?

Bookkeeping merely concerns with the recording of transactions in the books of accounts while accounting records, summarizes, analyzes and communicates the financial information/transactions/economic events

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4. What are the types of business organization?

A business organization can be a

- Sole proprietorship
- Partnership
- Joint stock company

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5. What are the different accounting systems?

There are two main accounting systems

- Cash accounting system
- Accrual accounting system

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6. What is cash accounting or cash accounting system?

An accounting system wherein transactions are recorded in the books of accounts when cash is paid and cash is received

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7. What is accrual accounting or accrual accounting system?

An accounting system wherein transactions are recorded in the books of accounts when these transactions take place and they are not recorded when cash is paid or cash is received

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8. What is a business?

Any legal activity carried out for the purpose of making money is referred to as business

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9. What is meant by a transaction?

Any economic event or any activity of buying and selling goods or services

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10. What is a proprietor?

Also referred to as owner. Someone that legally owns a business

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11. What is capital?

The total amount of goods or cash that is invested in a business by the owner(s)

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12. What are merchandises?

Goods that an entity or business purchases to resell them with the intention of making profit

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13. What are purchases?

When merchandises/goods are purchased with an intention of selling them, they are recorded in a purchases account. Therefore, goods purchased for resale are referred to as purchases in accounting

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14. What is purchase return?

When a business returns some purchased goods to the supplier because of defects in goods or any other reason, it is recorded as purchase return in accounting

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15. What are sales?

The amount of merchandises/goods sold to a person or an organization in the normal course of business is known as sales

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16. What is sales return?

The amount of sold goods returned by a person or an organization to the business because of defects in the goods or any other reason is known as sales return

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17. What is discount?

The concession, deduction or allowance given by the business to a buyer is referred to as discount

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18. What is a trade discount?

The concession, deduction or allowance given at the list price of goods by the business to a buyer

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19. What is a cash discount?

The concession, deduction or allowance given by the seller to a buyer on the quick repayment of debt(s) is known as cash discount

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20. What is the commission?

The remuneration paid by the business to a person or an organization for selling business’s goods or services

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21. What are assets?

The resources controlled by a business that possess future economic benefits for the business entity

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22. What are liabilities?

The debts or obligations of a business which have been arisen by a past event or a transaction

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23. What are expenses?

The cost expired during an accounting period or the gross outflow of economic benefits such as purchase of goods, rent expenses, commission expenses etc.

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24. What are incomes or revenues?

The grow inflow of economic benefits or the financial value recognized for selling goods and services. For example sale of goods, rent income, commission income, dividends received etc.

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25. What is a debtor or account receivable?

The person or organization that owes money to the business is called debtor or account receivable

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26. What is a creditor or account payable?

An individual or an organization to which money is owed by the business is known as creditor or account payable

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27. What is the stock or inventory?

The goods or merchandises that are left unsold at the end of an accounting period are called stock or inventory

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28. What is an account?

A device or record in which similar or related transactions/economic events are recorded. Accounts also referred to as ledger accounts and T accounts

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29. Define voucher

A voucher is defined as a written evidence of a business transaction

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30. What is an invoice?

A written evidence of credit sale issued by the seller to a customer at the time of sale

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31. What is a cash memo/voucher?

A written evidence of cash sale issued by the seller to a customer at the time of sale

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32. What are drawings?

Business’s Goods or cash withdrawn from business by the business’s owner for his/her personal use

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33. What is a double entry system of accounting?

When dual (two, double) aspects of a transactions is recorded, it is called a double entry system

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34. What is a single entry system of accounting?

When only one (single) aspect of a transaction is recorded in the books of account, it is referred to as a single entry system

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35. What is the difference between single and double entry systems?

Single entry system records only one aspect of a transaction whereas double entry system records two or double aspect of a transaction or economic event

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36. What is a trade?

Purchase and sale of goods or services is called trade

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37. What are manufacturing businesses?

The businesses that buys raw material convert it to finished products and then sell these products in the market

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38. What is a retail business?

A business that buys finished products or goods and sell them in the market without making any modification in them

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39. What is a service business?

A business that renders or sells services rather than selling goods to the customers

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40. What is an accounting period?

A period of time for which accounts and reports/statements (such as income statement, balance sheet etc.) are prepared

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41. What are reserves?

Funds that are kept aside for meeting some expected and unexpected losses or contingencies of a business. The fund kept apart will not be drawn by the business’s owner for his/her personal use

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42. What are the two major steps of an accounting period?

1. Adjusting the entries if there is a mistake or omission in recording transactions in any book of accounts
2. Preparing financial statements (Income statement, Balance sheet, Cash flow statement etc)


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43. What are the two major objectives of bookkeeping?

Keeping the basic record of business transactions and providing this record to the business management

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44. What are the two major application of financial accounting?

Keeping the record of financial information and communication the financial information in the form of financial statements such income statement, balance sheet

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45. What are the different branches of accounting?

- Financial accounting
- Cost accounting
- Management or managerial accounting
- Government accounting
- Auditing

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46. What is an alternative term for expenses?

Revenue expenditure is a term used as an alternative term for expenses

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47. What is the separate entity concept?

An accounting principle which states that the business should be considered as a separate entity from its owner(s)

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48. What is cost accounting?

A branch of accounting that concerns with the calculation and presentation of unit cost, cost of production, cost of sales or cost of services rendered for the management of an entity

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49. What is management accounting?

Provision and presentation of financial information in such a way that it can help management of an entity in decision making is known as management or managerial accounting

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50. What is meant by the provision in accounting?

Setting aside a specific amount from income pertaining to the current accounting period to meet an uncertain liability or expenses in the future

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