DISCUSSION QUESTIONS

1. What is accounting and what is its purpose? What is its role in decision-making?
-Accounting is the process of recording financial transactions pertaining to a business. The
purpose of accounting is to accumulate and report on financial information about the
performance, financial position, and cash flows of a business. This information is then used to
reach decisions about how to manage the business, or invest in it, or lend money to it.

Reference:

https://cleartax.in/g/terms/accounting#:~:text=Accounting%20is%20the%20process%20of,regulators
%2C%20and%20tax%20collection%20entities.

https://www.accountingtools.com/articles/what-is-the-purpose-of-accounting.html#:~:text=What%20is
%20the%20Purpose%20of,or%20lend%20money%20to%20it.

2. Who are the users of accounting information and what is the relevance information to the
various types of decisions that they make? Who are the financial statements and what are their
information needs?
-There are three primary users of accounting information: internal users, external users, and the
government (which is a specific form of an external user). Each group uses accounting information
differently and requires the information to be presented differently. The users of financial statements
include present and potential investors, employees, lenders, suppliers and other trade creditors,
customers, governments and their agencies and the public. They use financial statements in order to
satisfy some of their different needs for information.

Reference:
https://courses.lumenlearning.com/wm-financialaccounting/chapter/users-of-accounting-information/
#:~:text=There%20are%20three%20primary%20users,information%20to%20be%20presented
%20differently.

https://www.tbs.tu.ac.th/wp-content/uploads/2019/05/6-Users-and-their-information-needs.pdf

What are the steps in the accounting process? What is the importance of each and how is it
related to the other steps in the process?
1. Identifying and Analysing Business Transactions

Analysing the transactions is the first yet crucial step in the whole accounting process. The
businesses need to identify the accounts that are affected by the transactions. The process involves
analysing source documents like the purchase orders, invoices, loan agreements, receipts etc. that
 are the evidence for business transactions in the company. Companies need to avoid mixing personal
and business transactions. It is crucial to ensure that only business transactions are entered into the
accounting system.

2. Posting Transactions in Journals

The next step in the accounting cycle is journalising the transactions. The outsourced accounting
firms in the UAE will ensure that all the financial information pertaining to the business has been
recorded in the journal. This process is done using the double-entry system of bookkeeping, where
the transactions are recorded in debit and credit accounts. The journal carries the date and
description of the transactions. The journal can be in book or electronic form depending on the
system followed by the outsourced accounting firm.

3. Posting from Journal to Ledger

The financial information recorded in the journal, both debit and credit, now gets transferred into
the ledger. The ledger is also called the book of final entry and it shows the company’s accounts and
the changes it underwent due to various business transactions. All the debit and credit journal cash
transactions will be transferred to the cash ledger.

4. Recording adjusting entries

The accountants in the UAE at this stage will record the adjusting entries to update the accounts
before summarising them in the financial statement. The entries will be journalised and posted to
the ledger.

5. Preparing the adjusted trial balance

After the new entries are made, the companies need to calculate a new trial balance to test if the
debits are equal to the credits. This is the stage laid for preparing for the financial statements of the
company and therefore is an important phase in the accounting cycle. Any error detected in the
adjusted trial balance requires immediate correction.

6. Preparing financial statements

After the adjusted trial balance, move on to prepare the financial statements. The financial
statements of companies are statements such as,

Income Statement

Balance Sheet

Cash flow Statement

Posting closing entries

As the accounting period ends, the temporary accounts are closed or minimised to zero. These
include expenses, income, and withdrawal accounts. It must be noted that the closing entries are
made for temporary accounts and not for permanent accounts or the account of balance sheet.
7. Post-Closing Trial Balance

As the temporary accounts have already been closed, the book now consists only of permanent entries
like assets, liabilities and owner’s equity. This step ensures the proper closure of revenue and expense
accounts. It also aims to make sure that total debit and credit are equal. The companies need to recheck
the book again for errors and correct them.

Reference

https://jcauaeaudit.com/steps-accounting-process-business-need-know/

4. Why are journals called books of original entry?

- It's also known as the book of original entry as it's the first place where transactions are recorded. The
entries in an accounting journal are used to create the general ledger which is then used to create the
financial statements of a business.

Reference

https://www.freshbooks.com/hub/accounting/an-accounting-journal#:~:text=It's%20also%20known
%20as%20the,financial%20statements%20of%20a%20business.

5. Distinguish between (a) a general journal and special journals, and (b) a general ledger and
subsidiary ledger.
A. A general journal and special journals

- The general journal includes all transactions for a business, while the special journal includes only
specific types of transactions.

B. A general ledger and subsidiary ledger.

- The general ledger is a set of master accounts, whereas the subledger is a set of accounts that is a
subset of the general ledger.

Reference

https://www.carboncollective.co/sustainable-investing/general-journal#:~:text=The%20main
%20difference%20between%20a,only%20specific%20types%20of%20transactions.

https://www.highradius.com/resources/Blog/sub-ledger-vs-general-ledger/#:~:text=Both%20general
%20ledger%20and%20subledger,subset%20of%20the%20general%20ledger.
6. Does the trial balance prove the accuracy of accounting work done? Explain answer.
- Trial balance is not a conclusive proof of accuracy of accounts as the trial balance might tally in cases
where there are compensating errors. Hence, it does not justify that the accounts are free from any
frauds or errors.

Reference

https://www.toppr.com/ask/question/trialbalance-is-a-conclusive-proof-of-accuracy-of-accounts/

7. What are the common types of adjusting data? Why do we prepare adjusting entries?
- There are three main types of adjusting entries: accruals, deferrals, and non-cash expenses

- Adjusting entries are necessary because they ensure that your business activities are correctly recorded
and that you are not paying for expenses before they happen. Simply put, that your financial statements
provide accurate data.

Reference

https://www.deskera.com/blog/adjusting-entries/#:~:text=There%20are%20three%20main
%20types,through%20depreciation%2C%20depletion%2C%20etc.

https://www.appvizer.com/magazine/accounting-finance/accounting/why-are-adjusting-entries-
necessary

8. Why do accountants prepare work sheet even if its preparation is optional?

- Worksheets are prepared by accountants for their own convenience. It is not part of the permanent
accounting record. Accountants use it to minimize errors by automatically bringing to light many types of
errors that might otherwise end up in the General Journal and, in turn, be posted to ledger accounts.

Reference

https://www.financestrategists.com/accounting/worksheet/

9. Enumerate and discuss the components of a complete set of financial statement

- omponents of financial statements are nothing but a balance sheet (which presents the financial
position of the organization as of a specified date), income statement (which presents the performance
of the organization over a specific period), cash flow statement (which presents the cash flows that arose
to the organization at a specific date from operating, investing and financing activities during the period)
and notes accompany the above three.

Reference
https://www.educba.com/components-of-financial-statements/

10. If reversing entries are made, which adjusting entries would be reversed?
-The only types of entries that can be reversed are: accrued income. accrued expenses. unearned
revenue.

Reference

https://www.appvizer.com/magazine/accounting-finance/accounting/reversing-entries-in-accounting