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Flashcards in Introduction to Fundamentals of Accounting Deck (33)
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1
Q

Why is accounting considered the oldest profession?

A

Used in prehistoric times by families to account the inventory of their produce and when they exchanged and bartered produce.

2
Q

This historical piece accounts for commercial transaction in 2250 BC.

A

The Code of Hammurabi from Egypt

3
Q

Record keeping was necessary for the government to sustain order to this.

A

Advent of taxation

4
Q

The business cradle of Europe where the “double entry system” was practiced and invented.

A

Venice

5
Q

What does the “double entry system” state?

A

That at least two items are affected in a transaction. At least one is credited and one debited.

6
Q

Father of Accounting

A

Fra Luca Pacioli

7
Q

This figure was a friend of Leonardo da Vinci and was born in 1445, Tuscany.

A

Fra Luca Pacioli

8
Q

Fra Luca Pacioli published what book in what year that dealt with record keeping and double-entry accounting.

A

Summa / Summa de Arithmetica, Geometria, Proportioni, et Proportionalita in 1494

9
Q

Fra Luca Pacioli’s book also introduced three books involved in the accoutning process.

A
  • Memorandum Book
  • Journal Book
  • Ledger Book
10
Q

The memorandum book contains what?

A

All information on transactions in NARRATIVE form.

11
Q

This book contains the original entry and has a certain rule

A

Journal Book; debit should be equal to total credit

12
Q

This book contains the final entry and does what?

A

Ledger book; summarizes the transactions per account

13
Q

What are the other apporoaches that serve as evidence to the development of accounting?

A
  1. Florentine Approach
  2. Venetian Approach
  3. Savary Commercial Code
  4. Napoleonic Commerical code
  5. Napoleonic-Savary Compromise
  6. Schmalenbach
14
Q

Florentine Approach

A

Each transaction should result in at lease one account credited and one debited, with total debits equal to total credits.

Known as journal entries

15
Q

Venetian Approach

A

Accounts are in bilateral form, with debits on the left and credits on the right.

Known as ledger postings.

16
Q

Savary Commercial Code

A

Created by Jacques Savary who was the chief architect of the commercial code of France.

Introduced historical cost as the basis of valuation

17
Q

If you acquire a property at a certain value on a specific date that property should be recorded at that amount.

A

Savary Commercial Code/Historical Cost

18
Q

In 2019 a piece of land is purchased at P5M and is reported as such on financial statements in 2020, 2021, 2022. The price increased to 10M in 2023 but you still report it as 5M even in 2025

A

Historical Cost

19
Q

Napoleonic Commercial Code

A

Code of Napoleon

Dictates that “assets must be carried at their market value on the day of inventory”

20
Q

Napoleonic and Savary Compromise states that we report an asset at its market value if/when:

A
  • you intend to dispose of the property
  • investors are coming in
  • a bank asks for internal financial statements
21
Q

Schmalenbach

A

Created by Eugen Schmalenbach

Simplified listing of all accounts used by companies in recording all commercial transactions

22
Q

This is the approach that serves as the BIble of the company in doing accounting entries

A

Schmalenbach

23
Q

Components of the Defintion of Accounting

A

Identifying. Measuring. Communcating.

24
Q

Analytical Component of Acounting

A

Identifying

25
Q

What does Identifyig involve in the definiton of accounting?

A

Recognition of business activites as “Accountable Events”

Identifying Economic Activity

26
Q

What is the criteria of Economic Activity and its properties?

A

Economic Activity affects assets, liabilites, and capital.

It can be external or interal.

27
Q

External Economic Activity

A

Also known as Exchange Transactions

Involves one enterprise and another

28
Q

Internal Economic Activity

A

Involves enterprise only

29
Q

What does Measuring involve in the definiton of accounting?

A

Assign a monetary value to economic activity
Must have common financial denominator

30
Q

Technical Component of Accounting

A

Measuring

31
Q

What does Communicating involve in the definiton of accounting?

A

Process of preparing and distributing accounting reports to potential users of accounting information

32
Q

Formal Component of Accounting

A

Communicating

33
Q

Implicit Processes of Communicating in Accounting

A
  1. Recording/Journalizing - systematically maintaining a record of all economic transactions
  2. Classifying - sorting / grouping of similar and interrelated economic transactions into classes
  3. Summarizing - preparation of Financial Statements