BUSINESS ACCOUNTING OA (2025/2026) – YOUR COMPLETE
GUIDE TO ACTUAL EXAM QUESTIONS, CLEAR STEP-BY-STEP
ANSWERS, DETAILED EXPLANATIONS, AND PROVEN
METHODS TO FULLY UNDERSTAND THE MATERIAL AND
MASTER THE EXAM WITH TOTAL CONFIDENCE
UNIT 1: ACCOUNTING BASICS & PRINCIPLES
Q1. What is accounting?
Answer:
Accounting is the process of identifying, recording, summarizing, and communicating financial
information about a business to users for decision-making. It helps stakeholders understand a
company’s financial performance and position.
Q2. Who are the primary users of accounting information?
Answer:
Primary users include internal users (managers, employees) and external users (investors,
creditors, government agencies).
Internal
users plan and control operations, while external users assess profitability and risk.
Q3. What is the purpose of financial accounting?
Answer:
Financial accounting focuses on preparing financial statements for external users using
standardized rules (GAAP) to ensure consistency, reliability, and comparability.
Q4. What role does managerial accounting play?
Answer:
Managerial accounting provides customized financial information to internal management for
planning, controlling operations, and making strategic decisions.
,Q5. What does GAAP stand for and why is it important?
Answer:
GAAP stands for Generally Accepted Accounting Principles. It ensures financial statements are
consistent, transparent, and comparable across organizations.
UNIT 2: THE ACCOUNTING EQUATION
Q6. State the accounting equation.
Answer:
Assets = Liabilities + Equity
This equation represents a company’s financial position and must always remain balanced.
Q7. What are assets?
Answer:
Assets are resources owned by a business that provide future economic benefits, such as cash,
inventory, equipment, and accounts receivable.
Q8. Define liabilities.
Answer:
Liabilities are obligations a business owes to outsiders, including loans, accounts payable, and
accrued expenses.
Q9. What is owner’s equity?
Answer:
Owner’s equity represents the owner’s residual interest in the business after liabilities are
deducted from assets.
Q10. How does a business loan affect the accounting equation?
Answer:
Assets increase (cash received) and liabilities increase (loan payable), keeping the equation
balanced.
,UNIT 3: DEBITS & CREDITS
Q11. What is a debit?
Answer:
A debit is an entry recorded on the left side of an account. Its effect depends on the account
type.
Q12. What is a credit?
Answer:
A credit is an entry recorded on the right side of an account.
Q13. Which accounts increase with debits?
Answer:
Assets and expenses increase with debits.
Q14. Which accounts increase with credits?
Answer:
Liabilities, equity, and revenue accounts increase with credits.
Q15. Why must debits equal credits in every transaction?
Answer:
This ensures the accounting equation remains balanced and maintains accurate financial
records.
UNIT 4: FINANCIAL STATEMENTS
Q16. What is the income statement?
Answer:
The income statement shows revenues, expenses, and net income over a specific period of
time.
, Q17. What does net income represent?
Answer:
Net income is the excess of revenues over expenses and indicates profitability.
Q18. What is a balance sheet?
Answer:
A balance sheet reports assets, liabilities, and equity at a specific point in time.
Q19. What is the statement of cash flows?
Answer:
It shows how cash moves through operating, investing, and financing activities.
Q20. Why are financial statements prepared in a specific order?
Answer:
Each statement relies on information from the previous one, ensuring accuracy and logical flow.
UNIT 5: REVENUE & EXPENSE RECOGNITION
Q21. What is the revenue recognition principle?
Answer:
Revenue is recognized when it is earned, not necessarily when cash is received.
Q22. What is the matching principle?
Answer:
Expenses should be recorded in the same period as the revenues they help generate.
Q23. Why is accrual accounting preferred over cash accounting?
GUIDE TO ACTUAL EXAM QUESTIONS, CLEAR STEP-BY-STEP
ANSWERS, DETAILED EXPLANATIONS, AND PROVEN
METHODS TO FULLY UNDERSTAND THE MATERIAL AND
MASTER THE EXAM WITH TOTAL CONFIDENCE
UNIT 1: ACCOUNTING BASICS & PRINCIPLES
Q1. What is accounting?
Answer:
Accounting is the process of identifying, recording, summarizing, and communicating financial
information about a business to users for decision-making. It helps stakeholders understand a
company’s financial performance and position.
Q2. Who are the primary users of accounting information?
Answer:
Primary users include internal users (managers, employees) and external users (investors,
creditors, government agencies).
Internal
users plan and control operations, while external users assess profitability and risk.
Q3. What is the purpose of financial accounting?
Answer:
Financial accounting focuses on preparing financial statements for external users using
standardized rules (GAAP) to ensure consistency, reliability, and comparability.
Q4. What role does managerial accounting play?
Answer:
Managerial accounting provides customized financial information to internal management for
planning, controlling operations, and making strategic decisions.
,Q5. What does GAAP stand for and why is it important?
Answer:
GAAP stands for Generally Accepted Accounting Principles. It ensures financial statements are
consistent, transparent, and comparable across organizations.
UNIT 2: THE ACCOUNTING EQUATION
Q6. State the accounting equation.
Answer:
Assets = Liabilities + Equity
This equation represents a company’s financial position and must always remain balanced.
Q7. What are assets?
Answer:
Assets are resources owned by a business that provide future economic benefits, such as cash,
inventory, equipment, and accounts receivable.
Q8. Define liabilities.
Answer:
Liabilities are obligations a business owes to outsiders, including loans, accounts payable, and
accrued expenses.
Q9. What is owner’s equity?
Answer:
Owner’s equity represents the owner’s residual interest in the business after liabilities are
deducted from assets.
Q10. How does a business loan affect the accounting equation?
Answer:
Assets increase (cash received) and liabilities increase (loan payable), keeping the equation
balanced.
,UNIT 3: DEBITS & CREDITS
Q11. What is a debit?
Answer:
A debit is an entry recorded on the left side of an account. Its effect depends on the account
type.
Q12. What is a credit?
Answer:
A credit is an entry recorded on the right side of an account.
Q13. Which accounts increase with debits?
Answer:
Assets and expenses increase with debits.
Q14. Which accounts increase with credits?
Answer:
Liabilities, equity, and revenue accounts increase with credits.
Q15. Why must debits equal credits in every transaction?
Answer:
This ensures the accounting equation remains balanced and maintains accurate financial
records.
UNIT 4: FINANCIAL STATEMENTS
Q16. What is the income statement?
Answer:
The income statement shows revenues, expenses, and net income over a specific period of
time.
, Q17. What does net income represent?
Answer:
Net income is the excess of revenues over expenses and indicates profitability.
Q18. What is a balance sheet?
Answer:
A balance sheet reports assets, liabilities, and equity at a specific point in time.
Q19. What is the statement of cash flows?
Answer:
It shows how cash moves through operating, investing, and financing activities.
Q20. Why are financial statements prepared in a specific order?
Answer:
Each statement relies on information from the previous one, ensuring accuracy and logical flow.
UNIT 5: REVENUE & EXPENSE RECOGNITION
Q21. What is the revenue recognition principle?
Answer:
Revenue is recognized when it is earned, not necessarily when cash is received.
Q22. What is the matching principle?
Answer:
Expenses should be recorded in the same period as the revenues they help generate.
Q23. Why is accrual accounting preferred over cash accounting?
