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Mind Map: Introduction to Accounting - Commerce PDF Download
FAQs on Mind Map: Introduction to Accounting - Commerce
| 1. What is the purpose of accounting in commerce? |  |
Ans. The purpose of accounting in commerce is to systematically record, report, and analyze financial transactions of a business. It provides essential information for decision-making, helps in monitoring the financial health of the business, ensures compliance with legal requirements, and facilitates communication with stakeholders such as investors, creditors, and regulatory authorities.
| 2. What are the basic principles of accounting? | |
Ans. The basic principles of accounting include the following: the revenue recognition principle, which dictates when revenue should be recognized; the matching principle, which requires expenses to be matched with the revenues they help to generate; the cost principle, which states that assets should be recorded at their cost; and the full disclosure principle, which mandates that all relevant financial information should be disclosed to users of financial statements.
| 3. How do financial statements assist in business decision-making? | |
Ans. Financial statements, such as the balance sheet, income statement, and cash flow statement, provide a snapshot of a business's financial performance and position. They assist in decision-making by showing profitability, liquidity, and solvency, enabling stakeholders to assess the company's operational efficiency, forecast future performance, and make informed investment or financing decisions.
| 4. What is the difference between cash basis and accrual basis accounting? | |
Ans. Cash basis accounting recognizes revenues and expenses only when cash is exchanged, making it simple and straightforward for small businesses. In contrast, accrual basis accounting recognizes revenues when earned and expenses when incurred, regardless of cash flow. This method provides a more accurate picture of a company's financial health and performance over time, as it aligns income and expenses to the period in which they occur.
| 5. Why is accounting considered the "language of business"? | |
Ans. Accounting is considered the "language of business" because it provides a standardized way to communicate financial information about a business's operations, performance, and financial position. Through financial statements and reports, accounting allows various stakeholders—such as management, investors, creditors, and regulators—to understand and evaluate the business's economic activities, making informed decisions based on quantifiable data.
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