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Conceptual Framework and Accounting Standards > Overview of Accounting > Flashcards

Overview of Accounting Flashcards

1
Q

What is Accounting?

A

It is the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information. (American Association of Accountants)

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2
Q

Three Important Activities in the Definition of Accounting

A

Identifying, Measuring and Communicating

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3
Q

Identifying

A

The process of analyzing events and transactions to determine whether or not they will be recognized.

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4
Q

Recognition

A

Refers to the process of including the effects of an accountable event in the statement of financial position or the statement of comprehensive income through a journal entry.

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5
Q

Accountable event

A

Affects all the accounting elements (A, L, OE, I and E), also known as economic activity.

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6
Q

Only economic activities are emphasized and recognized in accounting.

A

Sociological and psychological matters are not recognized.

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7
Q

Non-accountable events are not recognized but disclosed in the notes if they have accounting relevance in the_____

A

Memorandum Entry

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8
Q

External events

A

Events that involve an entity and another external party.

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9
Q

Exchange (reciprocal transfer)

A

Giving and Receiving of economic resources or discharging of economic obligations between an entity and an external party.

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10
Q

Sale, Purchase, Payment of Liabilities, Receipt of N/R in exchange for A/R

A

Exchange or Reciprocal Transfer

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11
Q

Non-reciprocal transfer

A

One way transaction

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12
Q

Donations, Gifts, Charitable Contributions, Payment of Taxes, Imposition of Fines, Theft, Provision of Capital by Owners

A

Non-reciprocal transfer

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13
Q

External event other than transfer

A

Changes in the economic resources or obligations of an entity that does not involve transfer of resources or obligations

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14
Q

Changes in fair values and price levels, obsolescence, technological changes, vandalism

A

External event other than transfer

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15
Q

Production

A

Resources are transformed into finished goods

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16
Q

Conversion of raw materials into finished products, production of farm products

A

Production

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17
Q

Casualty

A

Unanticipated loss from disasters or other similar events

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18
Q

Measuring

A

Assigning numbers to the economic transactions in monetary terms

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19
Q

Most commonly used measurement bases

A

Historical cost

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20
Q

Financial statements are said to be prepared using ________

A

A mixture of costs and values

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21
Q

Costs include

A

Historical cost and current cost

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22
Q

Values include

A

Other measurement bases

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23
Q

When measurement is affected by estimates,

A

Valued by Opinion

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24
Q

Examples of items valued by Opinion are ____

A
  • Estimates of uncollectible amounts of receivables
  • Depreciation and Amortization Expenses
  • Estimated Liabilities (Provisions)
  • Retained Earnings
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25
Q

Measurement is unaffected by estimates

A

Items are valued by Fact

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26
Q

Examples of items valued by Fact ____

A
  • Ordinary share capital valued at par value
  • Land stated at acquisition cost
  • Cash measured at face amount
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27
Q

Communicating

A

Process of transforming economic data into useful accounting information for dissemination to users. It also involves interpreting the significance of processed information.

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28
Q

Three aspects of Communicating (RCS)

A

Recording, Classifying and Summarizing

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29
Q

Process of systematically committing into writing accountable events in journal

A

Recording

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30
Q

Grouping of similar and interrelated items into respective classes through postings in the ledger

A

Classifying

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31
Q

Putting together in condensed form the classified transactions, including the preparation of financial statements

A

Summarizing

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32
Q

Computation of financial statement ratios

A

Interpreting the processed information in communicating

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33
Q

Which regulatory body requires certain financial ratios to be disclosed in the notes to financial statements

A

BSP (Bangko Sentral ng Pilipinas)

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34
Q

The basic purpose of accounting

A

Provide information useful in making economic decisions

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35
Q

Various sources of information are used such as ____

A

Other sources like current events, industry publications, internet resources, professional advice and expert systems

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36
Q

Economic entities use accounting to record _______, process data, and disseminate information intended for making economic decisions

A

Economic Activities

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37
Q

Separately identifiable combination of persons and property that uses or controls economic resources to achieve certain goals

A

Economic Entity

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38
Q

Entity - Carries out some socially desirable needs of the community and not directed towards making profit

A

Not-for-profit entity

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39
Q

Entity - Operates primarily for profit

A

Business Entity

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40
Q

Economic activities include (PECISI)

A

Production, Exchange, Consumption, Income distribution, Savings, Investment

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41
Q

EA - Process of converting economic resources into outputs

A

Production

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42
Q

EA - process of trading resources or obligations for other

A

Exchange

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43
Q

EA - process of using final output of production

A

Consumption

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44
Q

EA - process of allocating rights to the use of output among individuals

A

Income distribution

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45
Q

EA - process of setting aside rights to present consumption in exchange to future consumption

A

Savings

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46
Q

EA - process of using current inputs to increase stock of resources

A

Investment

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47
Q

Types of information provided by accounting

A

Quantitative
Qualitative
Financial

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48
Q

Financial information is also ____ because monetary amounts are normally expressed in numbers

A

Quantitative Information

49
Q

Types of accounting information classified to users’ needs

A

General purpose (financial accounting)
Special purpose (other types other than financial accounting)

50
Q

Accounting as S and A - Accounting is a body of knowledge that has been systematically gathered, classified, and organized

A

Accounting as a Social Science

51
Q

Accounting as S and A - Accounting requires the use of creative skills and judgment

A

Accounting as a Practical Art

52
Q

Accounting identifies and measures economic activities, and processes information into financial reports, and communicates these reports to decision-makers

A

Accounting as an Information System

53
Q

Accounting is often referred to as ___ because it is fundamental to the communication of financial information

A

Language of Business

54
Q

Creative or Critical - Involves the use of imagination and insight to solve problems, most important in identifying alternative solutions

A

Creative

55
Q

Creative or Critical - Involves the logical analysis of issues, most important in evaluating alternative solutions

A

Critical thinking

56
Q

Steps in problem-solving with creative skills and judgment (RIESI

A
  1. Recognizing a problem
  2. Identifying alternative solutions
  3. Evaluating the alternatives
  4. Selecting a solution from among alternatives
  5. Implementing the solution
57
Q

AC - Accountable event is recorded in debit and credit

A

Double-entry system

58
Q

AC - entity is assumed to carry on operations for an indefinite period of time

A

Going concern assumption

59
Q

AC - Measurement basis involving mixture of costs and values is appropriate only when entity is _____

A

a going concern

60
Q

AC - If the entity is a liquidating concern,the appropriate measurement basis is ____

A

Realizable value (estimated selling price - estimated costs to sell for assets and expected settlement amount for liabilities)

61
Q

AC - Entity is viewed separately from its owners

A

Separate Entity / Business Entity Concept

62
Q

AC - Accounting information should be stated in a common denominator. The purchasing power of the peso is regarded as stable or constant

A

Stable monetary unit

63
Q

AC - The life of the entity is divided into series of reporting periods

A

Time Period

64
Q

AC - Information is material if its commission or misstatement could influence economic decisions and is a matter of professional judgment

A

Materiality concept

65
Q

AC - The cost should not exceed benefits

A

Cost-benefit

66
Q

AC - Effects of transactions are recognized when they are earned and incurred

A

Accrual basis of accounting

67
Q

AC - The value of an asset is determined on the basis of the acquisition cost

A

Historical cost concept

68
Q

AC - all of the components of a complete set of financial statements are interrelated

A

Concept of Articulation

69
Q

AC - Nature and amount of information included in the financial statements reflect a series of judgmental trade-offs

A

Full disclosure principle

70
Q

AC - Financial statements are prepared on the basis of accounting principles that are applied consistently from one period to the next

A

Consistency Concept

71
Q

AC - costs are recognized as expenses when the related revenue is recognized

A

Matching Concept

72
Q

AC - Proper income determination, proper matching of costs against revenues is the ultimate end and is exemplified by A = L + OE

A

Entity Theory

73
Q

AC - Proper valuation of assets, emphasizes the importance of the balance sheet (A-L = OE)

A

Proprietary Theory

74
Q

AC - Two classes of shares issued (ordinary and preferred) and applied in the computation of book value per share and return on equity (A- L - PSE = OSE)

A

Residual Equity Theory

75
Q

AC - Objective is the custody and administration of funds and exemplified by the formula (Cash inflows -Cash outflows = Fund), used in government accounting and fiduciary accounting

A

Fund theory

76
Q

AC - Processing of converting non-cash assets into cash or claims for cash

A

Realization

77
Q

AC -Use of caution when making estimates under conditions of uncertainty such that A & I are not overstated and L & E are not understated

A

Prudence / Conservatism

78
Q

AC (Expense) - costs are direcly related to the earning of revenue are recognized as expenses in the same period the related revenue is recognized

A

Matching concept

79
Q

AC (Expense) - indirect costs related to the earning of revenue are initially recognized as assets and recognized as expenses over the period their economic benefits are consumed

A

Systematic and Rational Allocation

80
Q

AC (Expenses) - Costs that do not meet the definition of an asset or ceases to are expensed immediately (casualty and impairment losses)

A

Immediate Recognition

81
Q

Financial Accounting vs. Financial Reporting

A

They both focus on general purpose financial statements but FA endeavors to promote principles that are also useful in other financial reporting

82
Q

Other financial reporting ___

A

comprises information provided outside the financial statements that assists in the interpretation or improves ability to make efficient economic decisions1

83
Q

Other financial reporting ___

A

comprises information provided outside the financial statements that assists in the interpretation or improves ability to make efficient economic decisions1

84
Q

Financial reporting is the provision of financial information about an entity that is useful to external users, primarily the investors, lenders and other creditors, in making investment and credit decisions

A

Primary: To provide information about an entity’s economic resources, claims to those resources and changes in those resources

Secondary: To provide information in assessing the entity’s management stewardship

85
Q

Branch of accounting that focuses on general purpose financial statements

A

Financial Accounting

86
Q

Accumulation and communication of information for use by internal users or management

A

Management Accounting

87
Q

Systematic recording and analysis of the costs

A

Cost Accounting

88
Q

Evaluating the correspondence of certain assertions with established criteria and expressing an opinion thereon

A

Auditing

89
Q

Preparation of tax returns and rendering of tax advice

A

Tax accounting

90
Q

Accounting for the government and its instrumentalities

A

Government Accounting

91
Q

Handling of accounts for fiduciaries who wind up the affairs of a deceased person

A

Estate Accounting

92
Q

Refers to the handling of accounts managed by a person entrusted with the custody and management of property for the benefit of another

A

Fiduciary accounting

93
Q

Communicating the social and environmental effects of an entity’s economic actions on the society

A

Social Accounting

94
Q

For non-profit entities other than the government

A

Institutional accounting

95
Q

Installation of accounting procedures for the accumulation of financial data and designing of accounting forms to be used in data gathering

A

Accounting systems

96
Q

Careful analysis of economic events and other variables

A

Accounting Research

97
Q

Process of recording the accounts of transactions of an entity

A

Bookkeeping

98
Q

Profession or practice of accounting

A

Accountancy

99
Q

The practice of accounting can be broadly classified into

A

Public Practice and Private Practice

100
Q

Four sectors in the Practice of Accountancy

A
  1. Practice of Public Accountancy
  2. Practice in Commerce and Industry
  3. Practice in Education/Academe
  4. Practice in the Government
101
Q

PFRSs

A

Philippine Financial Reporting Standards

102
Q

PASs

A

Philippine Accounting Standards

103
Q

PFRSs comprise of

A

a. Philippine Financial Reporting Standards
b. Philippine Accounting Standards
c. Interpretations

104
Q

The process of establishing financial accounting standards

A

The democratic process in that a majority of practicing accountants must agree with a standard before it becomes implemented

105
Q

Hierarchy of Reporting Standards

A
  1. PFRSs
  2. Judgement
  3. Conceptual Framework
  4. Accounting Literature
106
Q

Philippine Accountancy Act of 2004

A

RA 9298

107
Q

Financial Reporting Standards Council (FRSC)

A

official accounting standard setting body composed of fifteen individuals

108
Q

Philippine Interpretations Committee (PIC)

A

Role of reviewing the interpretations for approval and adoption

109
Q

Board of Accountancy (BOA)

A

professional regulatory board to supervise the registration, licensure and practice of accountancy

110
Q

Securities and Exchange Commission

A

Government agency tasked in regulating corporations and partnerships

111
Q

Bureau of Internal Revenue

A

administers the provisions of the National Internal Revenue Code

112
Q

Bangko Sentral ng Pilipinas

A

influences the selection and application of accounting policies by banks and other entities performing banking functions

113
Q

Cooperative Development Authority (CDA)

A

influences the selection and application of accounting policies by cooperatives

114
Q

Regulatory accounting principles

A

Accounting policies prescribed by a regulatory body

115
Q

International Financial Reporting Interpretations Committee (IFRIC)

A

prepares interpretations of how specific issues should be accounted for under the application of IFRS

116
Q

IFRS Advisory Council / Standards Advisory Council

A

advising on priorities within the IASDB’s work program

117
Q

International Federation of Accountants (IFAC)

A

non-profit, non governmental, non-political organization that represents the worldwide accountancy profession. Its mission is to develop and enhance the profession to provide services of consistently high quality in the public interest

118
Q

International Organization of Securities Commissions (IOSCO_

A

international body of security commissions

119
Q

Norwalk Agreement

A

the FASK and IASB formalized their commitment to the convergence of US GAAP and IFRSs by agreeing to use their best efforts

Conceptual Framework and Accounting Standards (2 decks)

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