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)
2
Q
Three Important Activities in the Definition of Accounting
A
Identifying, Measuring and Communicating
3
Q
Identifying
A
The process of analyzing events and transactions to determine whether or not they will be recognized.
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.
5
Q
Accountable event
A
Affects all the accounting elements (A, L, OE, I and E), also known as economic activity.
6
Q
Only economic activities are emphasized and recognized in accounting.
A
Sociological and psychological matters are not recognized.
7
Q
Non-accountable events are not recognized but disclosed in the notes if they have accounting relevance in the_____
A
Memorandum Entry
8
Q
External events
A
Events that involve an entity and another external party.
9
Q
Exchange (reciprocal transfer)
A
Giving and Receiving of economic resources or discharging of economic obligations between an entity and an external party.
10
Q
Sale, Purchase, Payment of Liabilities, Receipt of N/R in exchange for A/R
A
Exchange or Reciprocal Transfer
11
Q
Non-reciprocal transfer
A
One way transaction
12
Q
Donations, Gifts, Charitable Contributions, Payment of Taxes, Imposition of Fines, Theft, Provision of Capital by Owners
A
Non-reciprocal transfer
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
14
Q
Changes in fair values and price levels, obsolescence, technological changes, vandalism
A
External event other than transfer
15
Q
Production
A
Resources are transformed into finished goods
16
Q
Conversion of raw materials into finished products, production of farm products
A
Production
17
Q
Casualty
A
Unanticipated loss from disasters or other similar events
18
Q
Measuring
A
Assigning numbers to the economic transactions in monetary terms
19
Q
Most commonly used measurement bases
A
Historical cost
20
Q
Financial statements are said to be prepared using ________
A
A mixture of costs and values
21
Q
Costs include
A
Historical cost and current cost
22
Q
Values include
A
Other measurement bases
23
Q
When measurement is affected by estimates,
A
Valued by Opinion
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
25
Measurement is unaffected by estimates
Items are valued by Fact
26
Examples of items valued by Fact ____
- Ordinary share capital valued at par value
- Land stated at acquisition cost
- Cash measured at face amount
27
Communicating
Process of transforming economic data into useful accounting information for dissemination to users. It also involves interpreting the significance of processed information.
28
Three aspects of Communicating (RCS)
Recording, Classifying and Summarizing
29
Process of systematically committing into writing accountable events in journal
Recording
30
Grouping of similar and interrelated items into respective classes through postings in the ledger
Classifying
31
Putting together in condensed form the classified transactions, including the preparation of financial statements
Summarizing
32
Computation of financial statement ratios
Interpreting the processed information in communicating
33
Which regulatory body requires certain financial ratios to be disclosed in the notes to financial statements
BSP (Bangko Sentral ng Pilipinas)
34
The basic purpose of accounting
Provide information useful in making economic decisions
35
Various sources of information are used such as ____
Other sources like current events, industry publications, internet resources, professional advice and expert systems
36
Economic entities use accounting to record _______, process data, and disseminate information intended for making economic decisions
Economic Activities
37
Separately identifiable combination of persons and property that uses or controls economic resources to achieve certain goals
Economic Entity
38
Entity - Carries out some socially desirable needs of the community and not directed towards making profit
Not-for-profit entity
39
Entity - Operates primarily for profit
Business Entity
40
Economic activities include (PECISI)
Production, Exchange, Consumption, Income distribution, Savings, Investment
41
EA - Process of converting economic resources into outputs
Production
42
EA - process of trading resources or obligations for other
Exchange
43
EA - process of using final output of production
Consumption
44
EA - process of allocating rights to the use of output among individuals
Income distribution
45
EA - process of setting aside rights to present consumption in exchange to future consumption
Savings
46
EA - process of using current inputs to increase stock of resources
Investment
47
Types of information provided by accounting
Quantitative
Qualitative
Financial
48
Financial information is also ____ because monetary amounts are normally expressed in numbers
Quantitative Information
49
Types of accounting information classified to users' needs
General purpose (financial accounting)
Special purpose (other types other than financial accounting)
50
Accounting as S and A - Accounting is a body of knowledge that has been systematically gathered, classified, and organized
Accounting as a Social Science
51
Accounting as S and A - Accounting requires the use of creative skills and judgment
Accounting as a Practical Art
52
Accounting identifies and measures economic activities, and processes information into financial reports, and communicates these reports to decision-makers
Accounting as an Information System
53
Accounting is often referred to as ___ because it is fundamental to the communication of financial information
Language of Business
54
Creative or Critical - Involves the use of imagination and insight to solve problems, most important in identifying alternative solutions
Creative
55
Creative or Critical - Involves the logical analysis of issues, most important in evaluating alternative solutions
Critical thinking
56
Steps in problem-solving with creative skills and judgment (RIESI
1. Recognizing a problem
2. Identifying alternative solutions
3. Evaluating the alternatives
4. Selecting a solution from among alternatives
5. Implementing the solution
57
AC - Accountable event is recorded in debit and credit
Double-entry system
58
AC - entity is assumed to carry on operations for an indefinite period of time
Going concern assumption
59
AC - Measurement basis involving mixture of costs and values is appropriate only when entity is _____
a going concern
60
AC - If the entity is a liquidating concern,the appropriate measurement basis is ____
Realizable value (estimated selling price - estimated costs to sell for assets and expected settlement amount for liabilities)
61
AC - Entity is viewed separately from its owners
Separate Entity / Business Entity Concept
62
AC - Accounting information should be stated in a common denominator. The purchasing power of the peso is regarded as stable or constant
Stable monetary unit
63
AC - The life of the entity is divided into series of reporting periods
Time Period
64
AC - Information is material if its commission or misstatement could influence economic decisions and is a matter of professional judgment
Materiality concept
65
AC - The cost should not exceed benefits
Cost-benefit
66
AC - Effects of transactions are recognized when they are earned and incurred
Accrual basis of accounting
67
AC - The value of an asset is determined on the basis of the acquisition cost
Historical cost concept
68
AC - all of the components of a complete set of financial statements are interrelated
Concept of Articulation
69
AC - Nature and amount of information included in the financial statements reflect a series of judgmental trade-offs
Full disclosure principle
70
AC - Financial statements are prepared on the basis of accounting principles that are applied consistently from one period to the next
Consistency Concept
71
AC - costs are recognized as expenses when the related revenue is recognized
Matching Concept
72
AC - Proper income determination, proper matching of costs against revenues is the ultimate end and is exemplified by A = L + OE
Entity Theory
73
AC - Proper valuation of assets, emphasizes the importance of the balance sheet (A-L = OE)
Proprietary Theory
74
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)
Residual Equity Theory
75
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
Fund theory
76
AC - Processing of converting non-cash assets into cash or claims for cash
Realization
77
AC -Use of caution when making estimates under conditions of uncertainty such that A & I are not overstated and L & E are not understated
Prudence / Conservatism
78
AC (Expense) - costs are direcly related to the earning of revenue are recognized as expenses in the same period the related revenue is recognized
Matching concept
79
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
Systematic and Rational Allocation
80
AC (Expenses) - Costs that do not meet the definition of an asset or ceases to are expensed immediately (casualty and impairment losses)
Immediate Recognition
81
Financial Accounting vs. Financial Reporting
They both focus on general purpose financial statements but FA endeavors to promote principles that are also useful in other financial reporting
82
Other financial reporting ___
comprises information provided outside the financial statements that assists in the interpretation or improves ability to make efficient economic decisions1
83
Other financial reporting ___
comprises information provided outside the financial statements that assists in the interpretation or improves ability to make efficient economic decisions1
84
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
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
Branch of accounting that focuses on general purpose financial statements
Financial Accounting
86
Accumulation and communication of information for use by internal users or management
Management Accounting
87
Systematic recording and analysis of the costs
Cost Accounting
88
Evaluating the correspondence of certain assertions with established criteria and expressing an opinion thereon
Auditing
89
Preparation of tax returns and rendering of tax advice
Tax accounting
90
Accounting for the government and its instrumentalities
Government Accounting
91
Handling of accounts for fiduciaries who wind up the affairs of a deceased person
Estate Accounting
92
Refers to the handling of accounts managed by a person entrusted with the custody and management of property for the benefit of another
Fiduciary accounting
93
Communicating the social and environmental effects of an entity's economic actions on the society
Social Accounting
94
For non-profit entities other than the government
Institutional accounting
95
Installation of accounting procedures for the accumulation of financial data and designing of accounting forms to be used in data gathering
Accounting systems
96
Careful analysis of economic events and other variables
Accounting Research
97
Process of recording the accounts of transactions of an entity
Bookkeeping
98
Profession or practice of accounting
Accountancy
99
The practice of accounting can be broadly classified into
Public Practice and Private Practice
100
Four sectors in the Practice of Accountancy
1. Practice of Public Accountancy
2. Practice in Commerce and Industry
3. Practice in Education/Academe
4. Practice in the Government
101
PFRSs
Philippine Financial Reporting Standards
102
PASs
Philippine Accounting Standards
103
PFRSs comprise of
a. Philippine Financial Reporting Standards
b. Philippine Accounting Standards
c. Interpretations
104
The process of establishing financial accounting standards
The democratic process in that a majority of practicing accountants must agree with a standard before it becomes implemented
105
Hierarchy of Reporting Standards
1. PFRSs
2. Judgement
3. Conceptual Framework
4. Accounting Literature
106
Philippine Accountancy Act of 2004
RA 9298
107
Financial Reporting Standards Council (FRSC)
official accounting standard setting body composed of fifteen individuals
108
Philippine Interpretations Committee (PIC)
Role of reviewing the interpretations for approval and adoption
109
Board of Accountancy (BOA)
professional regulatory board to supervise the registration, licensure and practice of accountancy
110
Securities and Exchange Commission
Government agency tasked in regulating corporations and partnerships
111
Bureau of Internal Revenue
administers the provisions of the National Internal Revenue Code
112
Bangko Sentral ng Pilipinas
influences the selection and application of accounting policies by banks and other entities performing banking functions
113
Cooperative Development Authority (CDA)
influences the selection and application of accounting policies by cooperatives
114
Regulatory accounting principles
Accounting policies prescribed by a regulatory body
115
International Financial Reporting Interpretations Committee (IFRIC)
prepares interpretations of how specific issues should be accounted for under the application of IFRS
116
IFRS Advisory Council / Standards Advisory Council
advising on priorities within the IASDB's work program
117
International Federation of Accountants (IFAC)
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
International Organization of Securities Commissions (IOSCO_
international body of security commissions
119
Norwalk Agreement
the FASK and IASB formalized their commitment to the convergence of US GAAP and IFRSs by agreeing to use their best efforts
