Module # 1 - INTRODUCTION TO ACCOUNTING Flashcards
(44 cards)
is the system that measures business activities, processes that information into report and communicates the results to decision makers.
Accounting
is called the language of business
Accounting
Who defined accounting
Accounting Standards Council (ASC)
The Committee on Accounting Terminology of the American Institute of Certified Public Accountants (AICPA)
The American Accounting Association (AAA)
The Accounting Standards Council (ASC )defines accounting as follows:
Accounting is a service activity. Its function is to provide information, useful in making economic decision.
The Committee on Accounting Terminology of the American Institute of Certified Public Accountants defines accounting (AICPA) as follows:
Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and interpreting the results thereof.
The American Accounting Association (AAA) in its Statement of Basic Accounting Theory defines accounting as follows:
Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information.
Accounting is a process of identifying, recording and communicating economic information that is useful in making economic decisions.
Essential elements of the definition of accounting
- Identifying
- Recording
- Communicating
Element where The accountant analyzes each business transaction and identifies whether the transaction is an “accountable event” or “non-accountable event.”
Identifying
are recorded in the accounting books.
are those that affect the assets, liabilities, equity, income and expenses of a business. Sociological and psychological matters are outside the scope of accounting.
“accountable event”
are not recorded in the accounting books.
“Non-accountable events”
Element which The accountant recognizes (i.e., records) the “accountable events” he has identified. This process is called “journalizing.”
Recording
Recording – The accountant recognizes (i.e., records) the “accountable events” he has identified. This process is called
Journalizing
After journalizing, the accountant then classifies the effects of the event on the “accounts.” This process is called
“posting.”
is the basic storage of information in accounting, e.g., “cash,” “land,” “sales,” etc.
“Account”
At the end of each accounting period, the accountant summarizes the information processed in the accounting system in order to produce meaningful reports. This is important because information processed in the accounting system is useless unless it is communicated to interested users.
Communicating
Types of information provided by accounting
- Quantitative information
- Qualitative information
- Financial information
information expressed in numbers, quantities, or units.
Quantitative information
information expressed in words or descriptive form.
information expressed in words or descriptive form.
Qualitative information
information expressed in money
is also quantitative information because monetary amounts are normally expressed in numbers.
Financial information
Accounting as science and art
As a social science, accounting is a body of knowledge which has been systematically gathered, classified and organized.
As a practical art, accounting requires the use of creative skills and judgment.
A system is one that consists of an
input
process
output
inputs are the
accountable events
the processes are
recording, classifying and summarizing
the output is the
accounting report that is communicated to the users
