Chapter 1 Flashcards
We need accounting because…
it’s the only way for business to grow and flourish.
backbone of the business financial world.
Accounting
Inventor of double-entry bookkeeping.
Amatino Manucci
He managed to construct a comprehensive and fully-articulated set of double-entry records, with a regular balancing procedure on closure of the general ledger.
AmatinoManucci
A Franciscan friar and a celebrated mathematician, is generally associated with the introduction of double-entry bookkeeping.
Luca Pacioli
He has been regarded as the father of accounting.
Luca Pacioli
He stated that the purpose of bookkeeping was to give the trader without the delay information as to his assets and liabilities.
Luca Pacioli
“Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the result thereof.”
American Institute of Certified Public Accountants (Year 1961)
“The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of accounting”.
American Accounting Association (Year 1966)
is a service activity
Accounting
Function: provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions.
Accounting
Accounting is a ____________ with a body of knowledge which has been systematically gathered, classified, and organized. It is influenced by, and interacts with, economic, social and political environments.
social science
Accounting is a ____________ which requires the use of creative skill and judgment.
practical art
(Fixed, inflexible, organized and systematic)
social science
(Opinionated, flexible and subjective)
practical art
Accounting identifies and measures economic activities, processes information into financial reports and communicates these reports to decision makers.
Accounting as an information system
What are the 6 economic activities?
Production, exchange, income distribution, consumption, investment, savings
the process of converting economic resources into outputs of goods and services that are intended to have greater utility than the required inputs.
Production
the process of trading resources or obligations for other resources or obligation.
Exchange
the process of allocating rights to the use of output among individuals and groups in society.
Income distribution
the process of using the final output of the production process.
Consumption
the process of using current inputs to increase the stock of resources available for output as opposed to immediately consumable output.
Investment
the process by which individuals and groups set aside rights to present consumption in exchange for rights to future consumption.
Savings
What are the 3 types of information provided by accounting?
quantitative, qualitative, financial information
expressed in numbers, quantities or units.
Quantitative
expressed in words or descriptive form.
Qualitative
expressed in terms of money
Financial information
a separately identifiable combination of persons and property that uses or controls economic or scarce resources to achieve certain goals or objectives. Scarce resources have no significant characteristics.
Economic entity
one that carries out some socially desirable needs of the community or its members whose activities are not directed towards making profit.
Not-for-profit or non-profit entity
an entity that produces and distributes goods or services primarily for profit.
Business entity
What are the 3 functions of accounting?
Identification, measurement, communication (recording, classifying, summarizing)
The accounting process of recognition or non-recognition of business activities as accountable events or whether has accounting relevance.
Identification
One that is quantifiable and has an effect on assets, liabilities and equity. This also known as economic activity, which is the subject matter of accounting.
Accountable events
The accounting process of assigning of peso amounts or numbers to the economic transactions and events.
Measurement
The accounting process of preparing and distributing accounting reports to potential users of accounting information and interpreting the significance of this processed information.
Communication
The process of systematically committing to writing business transactions and events after they have been identified and measured, in books of account in a systematic and chronological manner according to accounting rules.
Recording
The grouping of similar and interrelated items into their respective classes.
Classifying
Putting together or expressing in condensed or brief form the recorded and classified statements in financial statements.
Summarizing
What are the 10 branches of accounting or the 10 areas of specialization
- financial accounting
- auditing
- management accounting
- financial management
- taxation/tax accounting
- government accounting
- fiduciary accounting
- social responsibility
- environmental accounting
- price-level accounting
The recording of transactions, preparation of financial statements and communication of financial information to external user groups. Focuses on general purpose reports.
Financial accounting
The examination of financial statements by independent certified public accountant for the purpose of expressing an opinion on the fairness of presentation of financial statements.
Auditing
Incorporates cost accounting data and adapts them for specific decisions which management may be called upon to make.
Management accounting
accounting system that incorporates all types of financial and non-financial information from a wide range of sources.
Management accounting
responsible for setting financial objectives, making plans based on those objectives, obtaining the finance needed to achieve the plans, and generally safeguarding all the financial resources of the entity.
Financial managers
Involves the preparation of tax returns and rendering of tax advice, such as determination of tax consequences of certain proposed business endeavors.
Tax acctng
Accounting for the national government and its instrumentalities, focusing attention on the custody of public funds and the purpose or purposes to which such funds are committed.
Government acctng
Handling of accounts managed by a person entrusted with the custody and management of property for the benefit of another.
Fiduciary acctng
Reporting of programs and projects that have to do with the upliftment of the welfare of the people of a community or of the nation.
Social responsibility
The area of accounting that focuses on programs, activities and projects that are focused care for Mother Earth.
Environmental acctng
Otherwise known as Accounting for Hyperinflationary Economies – simply defined, is accounting that recognizes in the financial statements changes in the purchasing power of money.
Price-level acctng
List all internal users of acctng information
- Managers
- Employees
- Officers
- Internal auditors
List all external users of acctng information
- Investors
- Lender
- Suppliers
- Customers
- Government
- Public
those who make decisions directly affecting the internal operations of the business.
Internal users
directly involved in operation of the business. They need accounting data to improve the efficiency and effective of the organization.
Managers
use financial data to assess whether they are receiving the right compensation and to check if they bargain for higher remuneration, retirement benefits and employment opportunities.
Employees
also called as the company executives who are interested to know if the company is doing well in its operation so they can plan for possible expansion or branching out to widen its geographical and demographic market.
Officers
there role is to protect and safeguard the resources of the company against fraud or irregularities.
Internal auditors
The act of making money by making people believe something which is not true.
Fraud
individuals or enterprises that have financial interest in the business but they are not involved in the day activities of the organization.
External users
(The providers of risk capital) are interested in information which enables them to assess the ability of the enterprise to pay dividends. They need information on whether they should buy, hold or sell their shares in.
Investors
are interested in information that enables them to determine whether their loans, and their interest attaching to them will be paid when due.
Lenders
interested in information that enables them to determine whether amount owing to them will be paid when due.
Suppliers and other trade creditors
interested in the quality of goods and services that they are getting from the entity.
Customers
they require information in order to regulate the activities of the enterprise, determine taxation policies and as a basis for national income and similar activities.
Government
they are assisted by information through financial statements about the trend and recent developments in the prosperity of the enterprise and the range of its activities.
Public
is a science and art of correctly recording in books-of accounts all those business transactions that result in transfer of money or money’s worth’.
As defined by Carter, ‘Book-keeping
an activity concerned with recording and classifying financial data related to business operation in order of its occurrence.
Book-keeping
Book-keeping is a mechanical task which involves:
*Collection of basic financial information.
*Identification of events and transactions with financial character i.e., economic transactions.
*Measurement of economic transactions in terms of money.
*Recording financial effects of economic transactions in order of its occurrence.
*Classifying effects of economic transactions.
*Preparing organized statement known as trial balance.
