Chapter 3: Introduction to Accounting

question

Financial Accounting (FI)
answer

Is concerned with recording the financial impacts of business processes as they are executed. Businesses use these data to generate financial statement to meet legal or regulatory reporting requirements.
question

Management Accounting (CO)
answer

Provides the information the organization needs to effectively manage the various processes. The reports focus on costs and revenues which management uses to achieve profitability.
question

General Ledger
answer

Is used to record the financial impacts of business process steps: it contains much of the data needed for financial reporting.
question

Accounts Receivables Accounting
answer

Is associated with the fulfillment process and is used to manage money owed by customers for goods and services sold to them.
question

Accounts Payable Accounting
answer

Is associated with the procurement process. Companies use this to record and manage money owed to vendor for the purchase of material and services.
question

Asset Accounting
answer

Is used to record data related to the purchase, use, and disposal of assets such as buildings, equipment, machinery, and automobiles.
question

Bank Ledger Accounting
answer

Is concerned with recording data associated with bank transactions.
question

Balance Sheet
answer

Is a snapshot of the organization at a point in time. It identifies assets, liabilities, and equity.
question

Income Statement (Profit and Loss Statement)
answer

Indicates the changes in a company’s financial position over a period of time.
question

Statement of Cash Flow
answer

Displays all cash receipts and payments over a specified period of time.
question

Business Areas
answer

These are internal divisions of an enterprise that are used to define areas of responsibility or to meet the external reporting requirements of an enterprise segment.
question

Segment
answer

Is a division of an enterprise for which management monitors performance (revenue, costs, profitability, etc.) separately from other segments.
question

Chart of Accounts
answer

It is a list of accounts that can be included in the general ledger. It is an ordered listing of accounts that comprise a company’s general ledger.
question

Operative COA Country COA Group COA
answer

What are the three types of Chart of Accounts?
question

Operative COA
answer

Contains the operational accounts that are used to record the financial impact of an organization’s day-to-day transactions. It is the primary COA maintained by an organization.
question

Country-Specific COA
answer

Companies create alternative accounts to meet the special country-specific reporting requirements.
question

Group COA
answer

This contains group accounts that multiple companies within an enterprise use to consolidate their financial reporting.
question

Assets
answer

Items that a company owns, such as cash, inventory of materials, land, buildings, and money owed to the company by its customers (receivables).
question

Liabilities
answer

Items that a company owes to others, including money owed to vendors (payables) and loans from financial institutions.
question

Owners’ Equity
answer

Refers to the owners’ share of the company’s assets.
question

Revenue
answer

The monies the company earns by selling its products and services.
question

Expenses
answer

The costs associated with creating and selling those products and services.
question

Account Group
answer

Groups together accounts with similar characteristics.
question

Subsidiary Ledgers or Subledgers
answer

Customer and Vendor accounts are maintained using these.
question

Reconciliation Accounts
answer

These are general ledger accounts that consolidate data from a group of related sub ledger accounts, such as customers and vendors
question

Accounts Receivable
answer

This is the reconciliation account for customers.
question

Accounts Payable
answer

This is the reconciliation account for vendors.
question

Financial Accounting Document (FI Document)
answer

Records the impact (financial data) of a transaction step on financial accounting.
question

Posting Key
answer

It is a two-digit code that determines how a line item is posted using a debit or credit.
question

Parallel Accounting
answer

An organization can implement multiple ledgers in parallel and use each ledger for different purposes.
question

Leading Ledger
answer

Enterprise will implement on set of accounting principles. Global principles are consolidated in a single ledger. It is required, and all transaction data are posted to it.
question

Non-leading Ledgers
answer

These are defined for each company (company code) based on the local accounting practices of each company located in a region.
question

Cost Center
answer

It is associated with a location where costs are incurred. It is something that absorbs cost that are generated when companies execute processes.
question

Cost Objects
answer

All the orders and cost centers are called ___________.
question

Asset Class
answer

It is a grouping of assets that posses similar characteristics.
question

Account Determination
answer

The reconciliation account for each asset in sub-ledger account is determined by its association with an asset class. This association is referred to ___________.
question

Depreciation
answer

Over time, an asset’s value diminishes due to wear and tear. This decrease in value is recorded as ____________.
question

Asset Explorer
answer

Provides an overview of all the activities related to the asset, including acquisition data, planned and posted depreciation for different depreciation areas, and comparisons of data across multiple years.
question

Financial Statement Version
answer

Is a hierarchical grouping of general ledger accounts that must be included in the financial statements

Get instant access to
all materials

Become a Member