Lesson-4 on Accounting

Question: What is Difference between Accrual Basis Accounting & Cash Basis Accounting?

Answer:

Accrual Basis Accounting

Ø In accrual basis accounting, income is reported in the fiscal period when it is earned, regardless of when it is received, and expenses are deducted in the fiscal period when they are incurred, whether they are paid or not.

Ø In other words, using accrual basis accounting, we record both revenues and expenses when they occur.

Cash Basis Accounting

Ø Revenue recognition: Revenue is recognized when cash is received.

Ø Expense recognition: Expense is recognized when cash is paid.

Question: What is an Accounting error?

Answer:

An accounting error is a non-fraudulent discrepancy in financial transaction documentation. The term is used in financial reporting.

Types of accounting errors include:

1.     Error of omission -- a transaction that is not recorded.

2.     Error of commission -- a transaction that is calculated incorrectly. One example of an error of commission is subtracting a figure that should have been added.

3.     Error of principle -- a transaction that is not recorded  in accordance with generally accepted accounting principles ( GAAP). For example, Purchase of Furniture  recorded as expense instead of recording as Asset.   .

Question: What is Economic Event?

Answer:

Ø An economic event means transaction.

Ø In accounting, any event that can be measured in terms of money and changes in financial position of an organization.

Question: What are the Financial Statements of Banks?

Answer:

1.      Balance Sheet

2.     Income Statement

3.     Cash Flow Statement

4.     Statement change in owner’s equity

5.     Statement change in liquidity

Question: What is Intangible asset?

Answer:

An intangible asset has no physical substance but provide long-term benefits to the Organization. For example, patents, copyrights, trademarks, trade names, franchise licenses, government licenses, goodwill etc.

Question: What is Depreciation?

Answer:

Depreciation is an expense recorded to allocate a tangible asset's cost over its useful life It is a non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence 

Question: What is Amortization?

Answer:

Amortization is the writing off an intangible asset over the projected life of the assets. This method measures the consumption of the value of intangible assets, such as a patent or a copyright

Question: What is Depletion?

Answer:

Depletion is the amortization of assets that can be physically reduced. It is the actual physical reduction of extractable natural resources For example, coal mines, oil fields and other natural resources are depleted on company accounting statements .

Question: What is Window Dressing?

Answer :

Window Dressing is Accounting manipulation designed to make a financial statement more favorable and to give better liquid financial position than actually exist at the year end.

Question: What is AICPA?

Answer:

 American Institute of Certified Public Accountants.

Question: What is IFRS?

Answer:

 International Financial Reporting Standards

Question: What is IFA?

Answer: International Federation of Accountants

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