Explain Why Theory Is Needed

question 10

Essay

Explain why theory is needed. What does it help us accomplish?

Recognize and correct common accounting errors and their impact on financial statements.

Understand the role and structure of the chart of accounts.

Distinguish between transactions involving cash, credit, and account transfers.

Record transactions involving the provision of services for cash or on account.

---

Definitions:

Net Income

The amount of money left after all expenses, taxes, and deductions have been subtracted from total revenue.

CVP Analysis

Cost-Volume-Profit Analysis, a method used in managerial accounting to understand the impact of varying levels of costs and volume on operating profit.

Variable Cost

Expenses that vary directly with the amount of products or services a company generates.

Fixed Costs

Costs that remain constant regardless of a company's level of activity, including expenses like rent, salaries, and insurance.