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ACCOUNTING AND ITS ENVIRONMENT Flashcards

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1
Q

What is the evolution of accounting?

A

Accounting has evolved in response to the social and economic needs of society.

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2
Q

Why is information important in a market economy?

A

Information helps decision makers make informed choices regarding the allocation of scarce resources.

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3
Q

What role does accounting play in business?

A

Accounting measures business activities, processes information into reports, and communicates results to decision-makers.

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4
Q

Why is accounting referred to as the language of business?

A

Accounting quantifies business communication and is essential for understanding financial situations.

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5
Q

What do accountants do?

A

Accountants are called the scorekeepers of business, providing essential financial information.

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6
Q

What is the impact of accounting on personal financial planning?

A

Personal financial planning, education expenses, car loans, income taxes, and investments are based on accounting information.

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7
Q

How does the Statement of Financial Accounting Standards define accounting?

A

Accounting is a service activity that provides quantitative information about economic entities for decision-making purposes.

(Statement of Financial Accounting Standards No. 1, 1983)

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8
Q

What is the definition of accounting according to the Statement of Financial Accounting Concepts?

A

Accounting is an information system that measures, processes, and communicates financial information about an economic entity.

(Statement of Financial Accounting Concepts No. 1, 1978)

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9
Q
A
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10
Q

What is accounting?

A

Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.

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11
Q

What are the basic functions of accounting?

A

Accounting is the art of recording, classifying, and summarizing in a significant manner and interpreting the results thereof.

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12
Q

Why is accounting history important?

A

Accounting history is important to accounting pedagogy, policy, and practice. It helps to understand the present and forecast the future.

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13
Q

When does the history of accounting trace back to?

A

The history of accounting has been traced as far back as 8500 B.C.

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14
Q

What was one of the earliest forms of accounting?

A

Primitive accounting involved counting and keeping records, such as using clay tokens to represent commodities.

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15
Q

What were bullae in ancient accounting?

A

Bullae were clay balls that contained tokens representing commodities and were broken on delivery to check shipments against invoices.

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16
Q

What civilizations maintained accounting records?

A

Ancient civilizations of China, Babylonia, Greece, and Egypt maintained various types of records of business activities.

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17
Q

What was required by the law during the 1st dynasty of Babylonia?

A

Merchants were required to give buyers a sealed memorandum containing the agreed price before a transaction could be considered enforceable.

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18
Q

Who recorded transactions in ancient Babylonia?

A

Transactions were recorded by the Scribe, the predecessor of the modern accountant.

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19
Q

What ancient civilization recorded payments of wages on clay tablets?

A

Babylonia recorded payments of wages on clay tablets around 3600 B.C.

The rulers used accounting to track costs of labor and materials in building structures.

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20
Q

How did early accounting relate to tax collecting?

A

Even in early days, tax collecting was closely linked to accounting.

Tablets recorded grain brought to the king’s warehouse and his share.

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21
Q

What factors contributed to the presence of bookkeeping in the ancient world?

A

Factors include the invention of writing, introduction of Arabic numerals, decimal system, algebra knowledge, inexpensive writing materials, rise of literacy, and a standard medium of exchange.

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22
Q

What are the seven preconditions for the emergence of systematic bookkeeping according to A.C. Littleton?

A
  1. The Art of Writing
  2. Arithmetic
  3. Private Property
  4. Money
  5. Credit
  6. Commerce
  7. Capital
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23
Q

What impact did the Crusades have on literacy in Northern Italy?

A

The Crusades from the 11th to 13th centuries led to widespread literacy in Northern Italy.

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24
Q

What accounting method did the Inca Empire use?

A

The Inca Empire used knotted cords called quipu to keep accounting records.

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25
Who contributed to the development of formal account-keeping methods in the 13th to 15th centuries?
Merchants and bankers of Florence, Venice, and Genoa contributed to the development of formal account-keeping methods.
26
What did Oswald Spengler say about double-entry bookkeeping?
Oswald Spengler stated that the invention of double-entry bookkeeping was a decisive event in European economic history.
27
How were business and social life intertwined in Renaissance Florence?
In Renaissance Florence, business was conducted on the logic of friendship, and account books were extensions of social life.
28
What ancient civilization recorded payments of wages on clay tablets?
Babylonia recorded payments of wages on clay tablets around 3600 B.C. ## Footnote The rulers used accounting to track costs of labor and materials in building structures.
29
How did early accounting relate to tax collecting?
Even in early days, tax collecting was closely linked to accounting. ## Footnote Tablets recorded grain brought to the king's warehouse and his share.
30
What factors contributed to the presence of bookkeeping in the ancient world?
Factors include the invention of writing, introduction of Arabic numerals, decimal system, algebra knowledge, inexpensive writing materials, rise of literacy, and a standard medium of exchange.
31
What are the seven preconditions for the emergence of systematic bookkeeping according to A.C. Littleton?
1. The Art of Writing 2. Arithmetic 3. Private Property 4. Money 5. Credit 6. Commerce 7. Capital
32
What impact did the Crusades have on literacy in Northern Italy?
The Crusades from the 11th to 13th centuries led to widespread literacy in Northern Italy.
33
What accounting method did the Inca Empire use?
The Inca Empire used knotted cords called quipu to keep accounting records.
34
Who contributed to the development of formal account-keeping methods in the 13th to 15th centuries?
Merchants and bankers of Florence, Venice, and Genoa contributed to the development of formal account-keeping methods.
35
What did Oswald Spengler say about double-entry bookkeeping?
Oswald Spengler stated that the invention of double-entry bookkeeping was a decisive event in European economic history.
36
How were business and social life intertwined in Renaissance Florence?
In Renaissance Florence, business was conducted on the logic of friendship, and account books were extensions of social life.
37
What is the significance of Amatino Manucci in accounting history?
Amatino Manucci is recognized as the inventor of double-entry bookkeeping, having constructed a comprehensive set of double-entry records with a regular balancing procedure on closure of the General Ledger.
38
What books did Amatino Manucci use in his double-entry bookkeeping system?
He used five books: general ledger, two merchandise ledgers, expenses ledger, and cash book, along with at least two subsidiary books.
39
What was the earliest evidence of double-entry bookkeeping?
The earliest evidence was found in the ledgers of Renieri Fini & Brothers (1296-1305) and Giovanni Farolfi & Company (1299-1300), showing the use of debits and credits.
40
What did Luca Pacioli contribute to accounting?
Luca Pacioli, a Franciscan friar, is associated with the introduction of double-entry bookkeeping through his book published in 1494, titled 'Summa de Arithmetica.'
41
What does 'Particularis de Computis et Scripturis' describe?
'Particularis de Computis et Scripturis' describes double-entry bookkeeping practices of Venice at the time.
42
What was the role of financial control in Amatino Manucci's bookkeeping?
He emphasized financial control by logically subdividing books and maintaining records of cash, goods, debtors, creditors, expenses, profits, and expected rates of return.
43
What was the primitive accounting system before double-entry bookkeeping?
The primitive system involved a 'narrative paragraph' type of accounting record without special relation for entries and lacked balancing of accounts.
44
What is the historical context of the emergence of double-entry bookkeeping?
The emergence of double-entry bookkeeping occurred during the 13th century in Tuscany, Italy, with evidence found in bank ledger fragments.
45
Who is regarded as the father of double-entry accounting?
Luca Pacioli is regarded as the father of double-entry accounting.
46
What was the purpose of bookkeeping according to Pacioli?
The purpose of bookkeeping was to give the trader without delay information as to his assets and liabilities.
47
What advice did Pacioli give regarding closing the books?
Pacioli advised that it is always good to close the books each year, especially if in a partnership.
48
What did Goethe refer to double-entry bookkeeping as?
Goethe referred to double-entry bookkeeping as one of the finest discoveries of human intellect.
49
When was the earliest systematized form of accounting regulation developed?
The earliest systematized form of accounting regulation was developed in France in 1673.
50
What was the purpose of the Ordonnance de Commerce of 1673?
The purpose was to protect the economy from bankruptcies by requiring an annual fair value statement.
51
Who introduced the Ordonnance de Commerce?
Jean-Baptiste Colbert introduced the Ordonnance de Commerce during the reign of Louis XIV.
52
What is the Napoleonic Code?
The Napoleonic Code is the French civil code established under Napoléon Bonaparte on March 21, 1804.
53
What principle did Jacques Savary formulate regarding merchandise valuation?
Savary formulated the lower-of-cost-or-market principle for merchandise valuation.
54
Who was the first person to group similar transactions in accounting records?
Nicolas Petri was the first person to group similar transactions in a separate record.
55
What is the significance of Benjamin Workman's publication in 1769?
He published The American Accountant, the earliest-known American accounting textbook.
56
What was closely tied to the rise of a modern industrial society in Britain?
The accounting profession.
57
When did accounting practice date back to?
Antiquity.
58
What emerged by the early decades of the 19th century in accounting?
A flurry of textbooks and handbooks on accounting.
59
What revolution changed the method of producing commercial goods?
The Industrial Revolution.
60
What system replaced the handicraft method during the Industrial Revolution?
The factory system.
61
What specialized field emerged to meet the need for cost analysis?
Cost accounting.
62
What did the Industrial Revolution require for expanded business operations?
An increasingly large amount of funds to build factories and purchase machinery.
63
What form of organization developed as a result of the Industrial Revolution?
The corporate form of organization.
64
What did managers have to create to report to corporate owners?
Accounting systems.
65
What was the state of accountancy in Britain as late as the 1830s?
It was still an indeterminate calling.
66
What did men engaged in accounting also do in the 1830s?
Act as auctioneers, appraisers, agents, and debt collectors.
67
What was the first American industry to issue balance sheets to absentee creditors?
Railroads.
68
By 1880, how much had the US railroad system accumulated in investments?
$4.6 billion.
69
What financial reporting problem did railroads face?
Determining when wear and tear on equipment took place.
70
What concept was largely ignored until the 1909 US corporate income tax law?
Depreciation.
71
What did some managers begin to use depreciation for at the beginning of the 20th century?
To smooth reported earnings.
72
What did the 1912 Journal of Accountancy editorial complain about?
Depreciation being used as a tool by management to counter fluctuations in profits.
73
When did United States Steel publish consolidated financial statements?
On Mar. 12, 1903.
74
What was significant about United States Steel at the time of its formation?
It was the first billion-dollar corporation.
75
What percentage of the steel business did United States Steel control?
75%.
76
What significant financial reporting development occurred with US Steel?
US Steel's consolidated financial statements became a landmark in accounting history, providing stockholders with adequate information about the entity's financial condition.
77
Who was Eugen Schmalenbach?
Eugen Schmalenbach (1873-1955) was a German academic and economist known for his contributions to financial accounting and business management.
78
What was the purpose of Schmalenbach's book, The Model Chart of Accounts?
The book aimed to address the difficulties in comparing financial data across companies and laid the foundation for uniform accounting in Germany.
79
What did Schmalenbach believe about financial accounts?
He believed that important information could be gained from a firm's accounts, emphasizing the usefulness of through-flows over balances.
80
What was the first recorded income tax and who instituted it?
The first recorded income tax was instituted by Emperor Wang Mang of the Xin Dynasty in 10 CE at a rate of 10% of profits for professionals and skilled labor.
81
What was the purpose of the Bureau of Internal Revenue established in 1862?
It was established to assess personal and corporate income taxes to help finance the Civil War.
82
What is the primary difference between financial accounting and tax accounting?
Financial accounting focuses on matching efforts and results, while tax accounting aims to improve the amount and timing of collections.
83
What is the prevailing authority in case of conflicts between the Tax Code and GAAP?
In case of conflicts, the Tax Code will prevail over generally accepted accounting principles (GAAP).
84
What significant financial reporting development occurred with US Steel?
US Steel's consolidated financial statements became a landmark in accounting history, providing stockholders with adequate information about the entity's financial condition.
85
Who was Eugen Schmalenbach?
Eugen Schmalenbach (1873-1955) was a German academic and economist known for his contributions to financial accounting and business management.
86
What was the purpose of Schmalenbach's book, The Model Chart of Accounts?
The book aimed to address the difficulties in comparing financial data across companies and laid the foundation for uniform accounting in Germany.
87
What did Schmalenbach believe about financial accounts?
He believed that important information could be gained from a firm's accounts, emphasizing the usefulness of through-flows over balances.
88
What was the first recorded income tax and who instituted it?
The first recorded income tax was instituted by Emperor Wang Mang of the Xin Dynasty in 10 CE at a rate of 10% of profits for professionals and skilled labor.
89
What was the purpose of the Bureau of Internal Revenue established in 1862?
It was established to assess personal and corporate income taxes to help finance the Civil War.
90
What is the primary difference between financial accounting and tax accounting?
Financial accounting focuses on matching efforts and results, while tax accounting aims to improve the amount and timing of collections.
91
What is the prevailing authority in case of conflicts between the Tax Code and GAAP?
In case of conflicts, the Tax Code will prevail over generally accepted accounting principles (GAAP).

1st Year (2 decks)

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