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Financial Accounting and Reporting > CHAPTER 1: Introduction to Accounting and Business > Flashcards

CHAPTER 1: Introduction to Accounting and Business Flashcards

1
Q

Process of receiving money, planning and allocating it according to one’s needs.

A

Budgeting

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2
Q

Equal to Revenue – Expenses

A

PROFIT OR NET INCOME

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3
Q

Represents your wealth or finance which is made up of properties or assets.

A

NET WORTH

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4
Q

______ make up NET WORTH, while _______ decrease it.

A
  1. Assets
  2. Liabilities
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5
Q

BUSINESS ACUMEN

A

skill + gut feeling + luck

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6
Q

$ RECEIVED > $ PAID =

A

Profit

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7
Q

first part of the accounting process

A

BOOKKEEPING or RECORD MAKING

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8
Q

Accounting will help you to

A
  1. Track down business activities,
  2. Analyze, calculate (measure) and record these activities, and
  3. Prepare progress reports
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9
Q

starts with record keeping but with emphasis on proper preparation and presentation of FINANCIAL REPORTS.

A

FINANCIAL ACCOUNTING AND REPORTING

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10
Q

Interpretation of financial reports.

A

FINANCIAL ANALYSIS

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11
Q

SIX 6 MOST IMPORTANT ACCTG. TERMS

A
  • assets
  • liabilities
  • net worth
  • revenues
  • expense
  • profit
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12
Q

FIVE 5 ACCTG. AREA:

A
  • budgeting
  • bookkeeping
  • financial accounting and reporting
  • financial analysis
  • resource controls
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13
Q

GENERAL PURPOSE FINANCIAL STATEMENTS

A
  • Statement of Financial Position or Balance Sheet
  • Income Statement or Statement of Financial Performance
  • Statement of Cash Flows
  • Statement of Owner’s Net Worth
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14
Q

progress report showing list of assets and liabilities

A

Statement of Financial Position or Balance Sheet

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15
Q

report of revenues against cost and expense

A

Income Statement or Statement of Financial Performance

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16
Q

report where we got and where we used money.

A

Statement of Cash Flows

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17
Q

report showing change in owner’s wealth.

A

Statement of Owner’s Net Worth

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18
Q

analyzes transactions and makes a record of the assets, liabilities, revenues, and expenses of the business.

A

FINANCIAL ACCOUNTING AND REPORTING

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19
Q

Principal Objective of FAR

A

a. proper preparation of various financial reports and their disclosure requirements.
b. proper planning, evaluation and control of the financial resources of the business

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20
Q

EARLIEST records of BOOKKEEPING were in _______.

A

Babylonia and EGYPT

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21
Q

Use of Bookkeeping in Babylonia and Egypt Before

A
  • to keep track of pyramids and palaces being constructed
  • record was kept of the number of slaves who worked for Kings and Pharaohs, number of materials and days it took for the work to be finished.
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22
Q

introduced bookkeeping in the Philippines

A

TENEDOR DE LIBRO

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23
Q

first mercantile book

A

LIBRO DE LARTE DELA MERCATURA

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24
Q

A Ragusan merchant who write the Libro De Larte Dela Mercatura in 1458

A

Benedetto Cotrugli

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25
Q

double-entry recording system

A

SUMMA DE ARITMETIKA

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26
Q

Writer of SUMMA DE ARITMETIKA in 1494

A

Fr. Luca Pacioli

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27
Q

economic unit that buys and sells goods or services.

A

Business

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28
Q

Major concern of businesses

A

how best to use its resources (machines, raw materials, labor skills, and number of men to employ)

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29
Q

Most often success is measured in terms of

A

PROFIT and INCREASE IN FUNDS.

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30
Q

Primary motive of a business

A

PROFIT.

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31
Q

Profit generates more

A

RESOURCES

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32
Q

PRIMARY SOURCE OF CAPITAL

A

Owner or Investor

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33
Q

getting back what was invested

A

RETURN OF CAPITAL

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34
Q

receiving more than the amount invested

A

RETURN ON CAPITAL

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35
Q

element of uncertainty in an outcome

A

RISK

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36
Q

Secondary Source of Capital

A

relative, friend or a micro finance provider such as a bank or a cooperative

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37
Q

It helps low- income Filipino entrepreneurs fund their projects. (Ex. Tulay sa Pag-unlad Inc., BPI Globe Banko, and the Rural Bank of the Philippines)

A

Micro Finance Programs

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38
Q

Organizes, manages, and takes the risk of putting up a business.

A

Entrepreneur or owner-manager

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39
Q

Set-up and managed by one person. Most small businesses.

A

SOLE PROPREITORSHIP

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40
Q

Advantages of SOLE PROPREITORSHIP

A
  • needs small start-up capital
  • easy to manage
  • owner gets all the profit
  • easy to form/make
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41
Q

Disadvantages of SOLE PROPREITORSHIP

A
  • difficult to expand
  • no indefinite life
  • unlimited liability
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42
Q

Two or more persons. Usually consultancy firms

A

PARTNERSHIP

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43
Q

Advantages of PARTNERSHIP

A
  • easy to manage
  • management is more efficient
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44
Q

Disdvantages of PARTNERSHIP

A
  • no indefinite life
  • unlimited liability
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45
Q

Separate legal entity. An investor buys shares of stocks and become shareholders. Controlled by BOARD OF DIRECTORS.

A

CORPORATION

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46
Q

Laws affecting corporate organization

A

RA 11232 February 2019

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47
Q

Advantages of CORPORATION

A
  • there’s more capital
  • able to hire experts
  • perpetual existence
  • more stable
  • higher profits
  • one-man corporation is allowed
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48
Q

Disadvantages of CORPORATION

A
  • has no unlimited liability
  • higher risk on corporate debts
  • more legal and tax regulations
  • abuse of power by board of directors
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49
Q

Provides service for a fee

A

Service Business

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50
Q

buys and sells foods or merchandise

A

Merchandising Business

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51
Q

buys RAW materials, processes it into FINISHED GOODS, and sells it to customers.

A

Manufacturing Business

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52
Q

owner’s equity (capital) + non-current liabilities

A

Financing Activities

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53
Q

non-current assets (PPEs)

A

Investing Activities

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54
Q

current assets and current liabilities

A

Operating Activities

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55
Q

getting things done by using resources and directing people as efficiently as possible to be able to accomplish the goals of the business.

A

Management

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56
Q

THREE 3 OBJECTIVES OF A MANAGER

A

a. that resources are being used productively,
b. customers are satisfied with the product or service, and
c. business is generating adequate profit

57
Q

Management must be

A

EFFICIENT AND EFFECTIVE

58
Q

resource inputs are being used at the least time, effort, and cost to produce resource outputs.

A

EFFICIENT

59
Q

able to attain its goals in terms of being able to produce and sell the required number of products or services given a specific level of quality.

A

EFFECTIVE

60
Q

FOUR 4 PROCESSES OF MANAGEMENT

A

Planning, organizing, directing, and controlling.

61
Q

determining the goals of the business and lining up activities to accomplish these goals.

A

PLANNING

62
Q

creating divisions, appointing managers, hiring and defining the roles or duties of each one (managers and staff)

A

ORGANIZING

63
Q

overseeing the daily operation of carrying out the planned activities—managers must act, decide, agree, argue, question, approve, solve.

A

DIRECTING

64
Q

guarding and guiding people to ensure tasks and activities are done according to plans and some standard of performance.

A

CONTROLLING

65
Q

TYPES OF MANAGERS

A
  • PRODUCTIONS MANAGER
  • MARKETING MANAGER
  • FINANCE MANAGER
  • SALES MANAGER
  • PERSONNEL MANAGER
66
Q

plans what and how to produce, machines needed, and number of workers

A

PRODUCTIONS MANAGER

67
Q

study of the market: place, product, price, and people

A

MARKETING MANAGER

68
Q

financial resources, how to source it and how to use it

A

FINANCE MANAGER

69
Q

selling operation, products, sales force, and customers

A

SALES MANAGER

70
Q

oversees employees and workers

A

PERSONNEL MANAGER

71
Q

service activity whose function is to prepare reports that will provide relevant information about the business.

A

Accounting

72
Q

process of recording, classifying and summarizing transactions and events which are financial in natura and interpreting the results thereof.

A

Accounting

73
Q

Users of financial statements. A person or entity with a “stake” in the business

A

STAKEHOLDERS

74
Q

USER: - puts in capital
- is the business profitable?
- will it remain stable?

A

OWNER OR INVESTOR

75
Q

USER: - runs the business
- are the plans good for the business?
- is it operating profitably?

A

MANAGER

76
Q

USER: - assesses the paying ability
- will debt be paid on time?
- does it have liquid asset

A

LENDER or CREDITOR

77
Q

USER: - offers goods or merchandise
- will they be able to pay credit on time?
- does it have liquid assets?

A

SUPPLIER

78
Q

USER: - does it pay the right taxes?
- does it pass required documents?

A

GOVERNMENT

79
Q

USER: can it give higher wages, benefits, good working conditions, and security of tenure?

A

EMPLOYEE

80
Q

USER: can it supply goods at right place and right quality?

A

CUSTOMER

81
Q

FOUR 4 TYPES OF ACCOUNTING REPORTS

A
  • Management Accounting
  • Financial Accounting
  • Tax Accounting
  • Special Reports
82
Q

managerial reports for management use

A

Management Accounting

83
Q
  • financial reports are the main source of information of stakeholders, or called the general-purpose financial statements.
  • audited by CPAs
A

FINANCIAL ACCOUNTING

84
Q
  • pay taxes to the BIR
  • determination of taxes and tax returns
A

TAX ACCOUNTING

85
Q

some businesses are required to prepare special reports to regulatory bodies like the BSP, and SEC.

A

SPECIAL REPORTS

86
Q

involves two systems: measurement system, and communication system.

A

ACCOUNTING INFORMATION SYSTEM

87
Q

ACCOUNTING INFORMATION SYSTEM can be classified into

A
  1. Measurement System
  2. Communication System
88
Q

Processing phase. Involves analyzing, measuring, recording, classifying and summarizing

A

MEASUREMENT SYSTEM

89
Q

Reporting and communicating phase. Involves presentation of formal reports which are communicated to decision makes

A

COMMUNICATION SYSTEM

90
Q

an AIS must be

A

EFFICIENT and EFFECTIVE

91
Q

information must be processed at the least cost and effort

A

EFFICIENT

92
Q

Relevant, information must be able to answer the needs of the decision makers.

A

EFFECTIVE

93
Q

FIVE 5 PRINCIPLES OF AIS

A
  • Cost-Benefit Principle
  • Relevance Principle
  • Compatibility Principle
  • Flexibility Principle
  • Control Principle
94
Q

advantages from the
system > cost of installing the system

A

COST-BENEFIT PRINCIPLE

95
Q

info must be reported promptly and is useful

A

RELEVANCE PRINCIPLE

96
Q

System must be compatible with the unique system of the company
- sole proprietorship = simple AIS
- multi-national company = complex AIS

A

COMPATABILITY PRINCIPLE

97
Q

System should allow for changes to come up with timely and updated information in response to changes and pressure

A

FLEXIBILITY PRINCIPLE

98
Q

AIS of the firm must have good internal control

A

CONTROL PRINCIPLE

99
Q

Enumerates the methods and procedures necessary to monitor the activities of the business and ensure efficient operation.

A

INTERNAL CONTROL

100
Q

INTERNAL CONTROL ACHIEVED WHEN:

A
  1. Properties of the business are protected
  2. Records are accurate and reliable
  3. Company policies are complied with
  4. Performance of business units are properly evaluated
101
Q
  • sum total of the accounting process
  • involves: people, documents, records, methods, and equipment
A

ACCOUNTING INFORMATION SYSTEM

102
Q

involved in all four phases

A

PEOPLE

103
Q

support data gathered in first phase

A

DOCUMENTS

104
Q

all phases involve certain methods or procedure of doing

A

METHODS

105
Q

to process data and generate information, needed in all phases

A

EQUIPMENTS

106
Q

starts with gathering of documents

A

DATA PROCESSING

107
Q

activity or event taking place in business expressed in terms of money

A

TRANSACTIONS

108
Q
  • describes in words and amounts the nature of the transaction
    -comes from various places: Collection Officer, Cashier from Finance dept., Sales Officer from Sales dept., and Disbursing Officer from Finance dept.
A

BUSINESS DOCUMENTS

109
Q

requires that documents be properly controlled, numbered, and stored
- only qualified people should be hired

A

INTERNAL CONTROL

110
Q

Documents are received by

A

ACCOUNTING OFFICER or CLERK

111
Q
  • instrument used to record data captured in documents
    -pen in manual, keyboard in computer-based
A

INPUT DEVICE

112
Q
  • data input, be it manual or computerized
A

JOURNAL ENTRY

113
Q

book of accounts maintained by accounting dept.

A

RECORDS

114
Q

book where accounting data are gathered and recorded

A

JOURNAL

115
Q
  • book where data from the journal is organized and classified into related groups
  • presented to decision makers
A

LEDGER

116
Q

procedures of processing captured data from the documents

A

METHODS

117
Q

In accounting, information is processed in a meaningful manner:

A
  1. Journalizing
  2. Classifying
  3. Summarizing
  4. Reporting
  5. Interpreting
118
Q

Organized data becomes meaningful information when

A

SUMMARIZED and REPORTED in the FINANCIAL STATEMENTS prepared by the accountant

119
Q

interprets the data into profitability, solvency, and liquidity.

A

FINANCIAL STATEMENT ANALYSIS

120
Q

transactions may be recorded, classified, and stored in a computer.

A

ELECTRONIC DATA PROCESSING (EDP) ENVIRONMENT

121
Q
  • device used to draw out information from the system
  • printer
A

OUTPUT DEVICES

122
Q

COMPUTERS can process data, but cannot

A

THINK, EVALUATE, or RENDER JUDGEMENT.

123
Q

ACCOUNTING SOFTWARE APPLICATIONS

A

Peach Tree, MYOB, and Quick Books

124
Q

FINANCIAL REPORTS

A

INCOME STATEMENT
STATEMENT OF OWNER’S EQUITY
STATEMENT OF CASH FLOWS
STATEMENT OF FINANCIAL POSITION

125
Q

shows how wealth is produced

A

INCOME STATEMENT

126
Q

shows reason behind change in wealth

A

STATEMENT OF OWNER’S EQUITY

127
Q

shows what happened to cash

A

STATEMENT OF CASH FLOWS

128
Q

shows the wealth of the business, A=LC

A

STATEMENT OF FINANCIAL POSITION

129
Q

term used for any business venture or undertaking
- called a COMPANY if it is a partnership or a corporation

A

BUSINESS ENTERPRISE

130
Q

Financial reports are usually ______, but _______ are also allowed.

A

-annually
-interim reports (monthly or quarterly)

131
Q

COMMON NEEDS of stakeholders are addressed by reports called

A

GENERAL PURPOSE FINANCIAL STATEMENTS.

132
Q
  • also known as profit or loss statements, or statement of earnings
  • reports the financial performance of the business
  • revenues and expenses are recorded
A

INCOME STATEMENTS

133
Q
  • activities that caused the owner’s equity to change
A

STATEMENT OF CHANGES IN OWNER’S EQUITY

134
Q

4 activities affecting Owner’s Equity

A
  • investment
  • withdrawal
  • profit
  • loss
135
Q
  • cash inflows: investment, loan, and sales
  • cash outflows: purchases of machine, and payment of expenses
  • financing, investing, and operating activities
A

STATEMENT OF CASH FLOWS

136
Q
  • formerly called balance sheet
  • shows how healthy or robust the enterprise is
  • assets, liabilities, and owner’s equity
A

STATEMENT OF FINANCIAL POSITION

137
Q

financial structure when ASSETS > LIABILITIES

A

SOLVENT

138
Q

when CASH > LIABILITIES

A

LIQUID

Financial Accounting and Reporting (4 decks)

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