Business Entity Principle
Who are the parties involved in the business entity?
Owner and business.
What is the purpose of source documents in the accounting process?
They serve as evidence of business transactions. (used as business documents)
How are transactions recorded?
From a business perspective.
What is the purpose of trial balance?
Check for arithmetic accuracy of ledgers and ensure double-entry has taken place.
What is the alternative name of the business entity?
Accounting theory.
What does a journal entry provide?
Provides a complete record of all transactions as they occur in chronological order. Provides a detailed record of the full effect of a transaction on the business.
If the owner draws $1,000 from the business bank account for personal use, which accounts will be affected (state dr cr)?
dr drawing
cr cash
What are the stages? rearrange according to the process
A business transaction occurs -> business document prepared -> record journal entry ->post entry to ledger -> prepare a trial balance.
What are the 3 types of business entities? Explain the difference between each entity.
Sole proprietorship: 1 owner, solely responsible, limited liability, not required to file business tax.
Partnership: 2 or more individuals as co-owners, any profits, debts and decisions are a shared responsibility amongst partners, not required to file business tax.
Company: can have more than 1 owner because shares are issued to 2 owners/shareholders, legal entity, shareholders contribute funds but don't run and manage the company, limited liability of shareholders, required to file business tax and comply with company act requirements.
What is the purpose of the accounting process?
Provide information to users who need such information for operating the business and accessing the economic performance and condition of the business.