Chap 1 Flashcards
It is a service activity. The activity utilizes the complete process of identifying, measuring, and communicating financial information to formulate reports that will be used to provide relevant information to perform decision-making.
Accounting
It represents the wealth or finance of the business which is composed of its properties or assets.
Net Worth
First three parts of the Accounting Cycle found in the bookkeeping:
Track down business activities from the time cash is used to transact,
Analyze, calculate, and record business activities (transactions), and
Prepare progress reports through making financial reports.
used for census or the registry of people living in a province to serve as a guide for collection of taxes.
Bookkeeping
He wrote the first mercantile book “Libro de Larte dela Mercatura” in 1458.
Benedetto Cotrugli
Father of Modern Accounting.
Luca Pacioli
He introduced the concept of double-entry bookkeeping through his first printed exposition titled “Summa de Arithmetica” in 1594.
Luca Pacioli
Primary users or parties inside the company. Those stakeholders that are directly involved in managing the business.
Internal Users
Secondary users or parties outside the company. Those individuals that are indirectly involved in managing the business.
External Users
Writing down financial activities
chronologically
transaction.
Recording
Recording is writing down financial activities ________ after analyzing each transaction.
chronologically
Grouping recorded transactions or financial activities into specific account classifications.
classifying
Process of preparing financial reports that is used for decision-making by the users of accounting information.
Summarizing
Interpretation of reports based on the provided Financial Statements and presentation of this information in a qualitative and quantitative form.
Interpreting
An economic unit that engages in buying and selling of goods or rendering services to other people.
Business
The business is owned and operated by one person only.
Sole Proprietorship
Most small businesses in different industries are _____-owned businesses.
sole proprietorship
A business is owned by two or more individuals that are called partners. Each partners decided to contribute knowledge and cash and non-cash assets to start up a business with the intent of dividing the profit eventually
Partnership
This is a type of business which is created through a separate legal entity that is owned by more than one individual called shareholders/stockholders.
Corporation
This type of business organization is not managed by the owner, but by the Elected Board of Directors (BOD) that are sometimes shareholders too.
Corporation
Operation involves rendering service for a fee to customers.
Service
Engaged in the buying and selling of goods or merchandise to customers.
The products sold are already manufactured and ready to use.
Merchandising/Trading
Take part in the production of items or the purchase of raw materials and processing them into finished products to be sold for cash.
Manufacturing
Performs more than two of the abovementioned business operations.
Hybrid Business
Aspects of Accounting
Recording, Classifying, Summarizing, Interpreting
Types of Business Organization
Sole Proprietorship, Partnership, Corporation
Types of Business Operations
Service, Manufacturing, Merchandising/Trading, Hybrid Business
The set of rules to be followed by the business.
A system that an entity utilizes to collect, store,
and manage its financial data.
Accounting Information System
It states that the advantages enjoyed must outweigh its cost.
Cost-Benefit
It prescribes that information must be reported promptly and must be useful for the user to make a right decision and conclusion.
Relevance
It advises that the AIS System to be used by the business must be designed to fit the unique characteristics of the overall company.
Compatibility Principle
It suggests that the company system should
allow and adapt for changes when needed.
Flexibility Principle
It prescribes that the business’ AIS must have good internal control.
Control Principle
Enumerates the methods and procedures necessary to monitor the activities of the business to ensure efficient operation
Internal Control
It refers to the device used to record the changes, either increase or decrease, in the accounting elements. Similar transactions are grouped together under one account.
Account
Classified and presented according to liquidity with the most liquid by those with lesser liquidity.
Assets
Realized in the normal operating cycle (1 Year) Held Primarily for trading purposes.
Cash, Cash Equivalents, Marketable Securities, Receivables, Accrued Income, and Prepaid Expenses
Current Assets
Long-term assets with a full value that cannot be recognized until after one year.
Long term investments, Property, Plant, Equipment (P.P.E), and Intangible Assets
Non-Current Assets
A present obligation arising from a past event and a settlement is expected.
Economic Obligations.
Liabilities
Payables to be settled within one (1) normal operating year. It does not have
an unconditional
settlement.
Current Liabilities
Obligations needed to be settled for more than one (1) accounting period.
Mortgage Payable, and Bonds Payable. Not expected to be paid immediately.
Non-current Liabilities
Includes the interest of the owner in the business, claims of the owner on the assets of the business. Economic Residual
Owner’s Equity
Represents the original and additional investment of the owner to business.
Capital
Represents the withdrawals made by the owner of the business in cash or other assets.
Drawing
or Temporary Account – containing the next income or loss – used at the end of the period to close nominal accounts.
Income Summary
Refers to the cash earned or generated by the business in performing services or delivering goods.
Revenue
Represents an inflow of cash or assets for service rendered or merchandise sold.
income
Income that does not come from the normal course of business
Gain
It refers to the cost or charges incurred in the process of generating or earning revenue. Reduction in the value of an asset as it is used.
Expenses
Major Accounts
Assets, Liabilities, Owner’s Equity, Revenue, Expenses
