ACCT1501 Study Guide - Midterm Guide: Internal Control, Financial Statement, Cash Flow
Document Summary
What is the basic purpose of financial accounting: the basic purpose of financial accounting is to produce useful information which is used in many and varied ways. People use the information generated by financial accounting to improve their decision-making in allocating scarce resources. What is the difference between financial and management accounting: managerial accounting is a branch of accounting that is oriented towards helping managers and others inside the enterprise. Financial accounting has a more external focus, and is often used by parties external to the enterprise, such as, shareholders, investors, bankers, legislators and employees etc. Journal entries are the first records of an accounting transaction in the accounting records. Purpose of closing entry: closing entries formally transfer the balances of the revenue and expense accounts to a profit and loss summary and then to retained profits. Closing entries also reset the revenue and expense account balances to zero to begin recording these items for the next accounting period.