Lesson 2
Think Ahead
QUESTIONS
What is accounting and what is its purpose?
What is its role in decision making?
Who are the users of accounting information and
what is the relevance of the information to the
various types of decisions that they make? Who
are the users of financial statements and what
are their information needs?
What are the steps in the accounting process?
What is the importance of each step and how is it
related to the other steps in the process?
Why are journals called books of original entry?
Distinguish between (a) a general journal and
special journals and (b) a general ledger and
subsidiary ledger
Does the trial balance prove the accuracy of
accounting work done? Explain your answer
What are the common types of adjusting data?
Why do we prepare adjusting entries?
Why do accountants prepare work sheet even if
its preparation is optional
Enumerate and discuss the components of a
complete set of financial statements
ANSWER
Accounting is a service activity wherein
accountants record, summarize, analyze, and
report financial statements. Its purpose is to
report financial information about the
performance, financial position, and cash flows of
a business. By providing data it helps internal
users on what action they will make in the future
based on the financial report of the accountant
The users of accounting information are the
individuals who makes the business alive or
running, information is very important to the
users of accounting information ex; External
users uses information to make decision whether
they will invest or stay in the business, while
internal users use the information to decide for
the future of the company
There are eight steps in accounting process:
identifying transactions, recording transactions in
a journal, posting, the unadjusted trial balance,
the worksheet, adjusting journal entries, financial
statements, and closing the books
Because business transaction is recorded here
General journal records all the daily financial
transactions
Special journal records all transactions in a form
of a single line
General ledger sorts, store and summarize the
company’s transactions
Subsidiary ledger is used for recording each
accounts receivables and accounts payable in
separately
Trial balance is not a conclusive proof, despite
this, it fails to reveal some mistakes that effect
both debit and credit amounts equally
The common types of adjusting data are accruals,
deferrals, and estimates
We prepare adjusting entries to update all
account balances for financial statements
It helps to verify the information before
preparing the financial statement
There are 5 components of financial statements:
Statement of Comprehensive Income, Statement
of Changes in Equity, Balance Sheet, Statement of
 Cash Flows, and Notes to Financial Statements.
Statement of comprehensive income lists the
profit and loss and other comprehensive income
of entity for the period
State of changes in equity reconciles the opening
and closing balances of owner’s/shareholder’s
equity
Balance sheet lists the company’s assets,
liabilities, and equity in point of time
Cash flows shows how much cash that is moving
and out in the company
Notes to financial statements is an additional
note that is included in the financial statements

See if you can do this!

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