Accounting Process: Chapter 3 Flashcards
Three elements of the Statement of Financial Position
Assets, Liabilities, and Owner’s Equity
Two elements of the Statement of financial Performance
Revenues and Expenses
Economic resources owned and controlled by the business.
Assets
An obligation to do or pay.
Liabilities
Total liabilities - total assets = ?
Net assets or net worth
The residual right or interest of the owner(s) is the entity’s net assets
Equity
Accounting Equation
Assets = Liabilities + Owner’s Equity
A device used to record the changes (increases or decreases) in the accounting elements.
Account
An exchange of values between two parties expressed in monetary terms.
Transaction
For every value received there is an equal value parted.
Double Entry Bookkeeping or Venetian Model
The transaction must be stated on terms of money.
Monetary Measurement Principle
All transactions should be properly documented
Objectivity Principle
Financial Statement: a list of assets, liabilities, and owner’s equity of a business.
Statement of Financial Position or Balance Sheet
Account title used for a liability presented by an oral promise to pay.
Accounts Payable
Account title used when it is supported by a promissory note.
Notes Payable
Qualitative Attributes: requires that users have a reasonable knowledge, terminologies used were clear, and the presentation of reports must be orderly.
Understandability
Qualitative Attributes: prescribes the quality of information that will make a difference and influence a statement user to make a meaningful decision.
Relevance
________ will depend whether an item will influence the user’s decision or not.
Materiality
Reports must be given promptly or within the period it is needed to form judgment else it loses its usefulness.
Timeliness
Qualitative Attributes: the financial statements should be dependable.
Reliability
The information should not mislead users to think that it is when it is not.
Faithful Representation
If the substance or economic reality (intention) of the contract is not consistent with the legal form, the economic reality should prevail.
Substance over form
_______ requires that the information should be useful to all users.
Neutrality
________ requires the accountant to exercise caution when using estimates or information that is marked by uncertainty.
Prudence
All information are provided taking into consideration the importance of each item to statement users.
Completeness
Qualitative Attributes: helps one identify changes taking place in the entity between two or more periods.
Comparability
_______ requires uniformity of accounting treatment from one period to another or from one entity to another.
Consistency
_________ are laws or rules that guide the conduct and practice if the profession.
Principles
True or False: Only data measurable in terms of money are recognized and recorded in the books of the entity.
True
A business enterprise is separate and distinct from its owner or investor.
Business Entity Concept
Assets, liabilities, revenues and expenses should be recorded based on cost.
Exchange price or Cost Principle
Based on this premise, it is expected that the business will continue to exist indefinitely.
Going Concern Assumption
Assets, liabilities, revenues or expenses should be recognized based on the period they relate or based on the occurrence of the transaction/event rather than based on cash received or paid.
Accrual Assumption
Assets acquired must be verifiable and substantiated by documents.
Objectivity
What is the basic accounting period?
1 year
