MGT101 Midterm Preparation 2024 by ZB

PSY 101 MIDTERM PREPERATION FILE 2024 BY ZB

Lesson No 1 - 18

o Financial Accounting is the maintenance of daily records of all financial transactions to prepare suitable information regarding the financial affairs of a business. o A dealing between two persons involving money or a valuable thing is called a transaction o Budget is a plan of income, expenses, and other financial operations for a future period o The concept of Barter trading involves trading one commodity or service for another commodity or service. o In accounting, every transaction worth recording is translated in terms of money o When money is paid at the same time as the item is exchanged, it is termed a cash transaction. o The simplest form of business organization, owned and controlled by one person, is called sole proprietorship o The liability of each partner in a partnership is unlimited o A voluntary association of persons created by law, having a separate legal entity, is known as a joint stock company o The concept of Money Measurement refers to valuing all goods/services in terms of a common commodity called money. o A Budget is an organization’s plan of a future period expressed in money terms. o The system of accounting that records both aspects of a transaction is called Double entry book keeping o Money or resources invested in a business by the owner is called Capital o The income left after all expenses are deducted is referred to as Net Profit o Expenses that provide immediate benefit to the business are called Revenue expenses. o In cash accounting, events are recorded when actual cash or Cheque is received or paid. o The system of accounting that records events when they occur, regardless of cash movement, is known as Accrual accounting. o The value attached to the good reputation earned through clean conduct of business is called Goodwill o An organization's obligation to provide a benefit or asset on a future date is known as a Liability o Profit is calculated by deducting Expenses from total income. o In accounting, the treatment of a business as independent from its owners is called the Separate Entity Concept o The system of recording only one aspect of a transaction is called Single Entry Bookkeeping o In double entry bookkeeping, for every Debit there is an equal Credit o A register used to record goods sold on credit is known as Udhar Khata o The account that receives a benefit in a transaction is Debited o The Accounting Equation is the equation that represents the relationship between assets, liabilities, and capital. o A benefit that the business will obtain from items like cash or equipment is classified as an Asset o The liability of the business towards its owners is called Capital o Assets are the properties and possessions of the business, and can be classified into Tangible, and Intangible assets. o When a liability is created, the benefit is provided to the business by that account, so it is Credited o Profit is the excess of Income over expenses in a specific period. o When an asset is sold or disposed of, the asset account provides a benefit to the cash account, so the asset account is Credited o Liabilities are the Debts and obligations of the business. o Revenue Expenditure refers to daytoday expenses whose benefit is drawn Immediately o Capital Expenditure is the amount used to acquire or improve longterm assets, such as Property o or equipment. o An increase in an asset is always recorded as a Debit in the account. o Income is the value of goods or services that a business charges from its customers, or the reward received from Resources committed in the business. o The total of all balances on the Debit side is always Equal to the total of all balances on the Credit side. o All cash transactions (receipts and payments) are recorded in the Cash Book o The financial statements are prepared from the Trial Balance , which shows the arithmetic accuracy of the accounting system. o In Pakistan, the financial year starts from 1st of July and ends on 30th of June. o All bank transactions (receipts & payments) are recorded in the Bank Book o The calculation of Profit & loss is the most important objective of the accounting function. o The account that summarizes the profitability of the organization for a specific accounting period is called Profit & Loss Account o When the debit side of a ledger is greater than the credit side, the balance is called Debit Balance o If both sides of the trial balance are equal, it shows the Mathematical accuracy of the books of accounts. o Expenses incurred directly in connection with the sale of goods are called Selling Expenses o Receipt & payment account is the summarized record of actual cash receipts and actual Cash Payments during the period. o Assets are economic resources owned by a business and are expected to benefit future operations in the form of positive future cash flows. o Liabilities are the debts and obligations of the business, and the entity to whom the debt is owed is called a creditor. o Tangible assets, which have a physical existence, include items such as plant, machinery, and building. o Fixed assets are subject to depreciation, which is the method of charging the cost of longterm assets to the profit and loss account. o Capital is the funds invested by the owners of the business and is treated as a liability. o Current assets are expected to be received within one year of the balance sheet date. o Longterm liabilities are debts that will become payable after more than one year from the balance sheet date. o Working capital is the difference between current assets and current liabilities.