Chapter 1 to Chapter 4 Flashcards
What is accounting according to AICPA?
Accounting is the art of recording, classifying, summarizing in a significant manner and in terms of money, transactions, and events which are in part of or at least a financial character, and interpreting the results thereof.
What are the 3 components of accounting?
Identifying (Analytical component)
Measuring (Technical component)
Communicating (Formal component)
When can a business activity be considered as accountable or worth recognizing?
When it is for a sum of money or if it has an effect in assets, liabilities, and equity.
What is the very purpose/main objective of accounting?
To provide quantitative information that will be useful for making economic decisions.
These are economic activities of an entity.
Transactions
Differentiate external transactions from internal transactions.
External transactions are business activities involving itself and another entity, while internal transactions involve only one entity.
This is the process by which resources are transformed into products.
Production
This is any sudden and anticipated loss from fire, flood, earthquake, and other event ordinarily termed as an act of God.
Casualty
This is the accounting process that recognizes accountable events from non-accountable events.
Identifying
This is the accounting process of assigning of peso amounts to the accountable economic transactions and events.
Measuring
What are the measurement bases of monetary amounts?
Historical cost
current value
Differentiate historical cost from current value.
Historical cost is the original acquisition cost and the most common measure of financial transactions while current value includes fair value, value in use, fulfillment value and current cost.
This is the process of preparing and distributing accounting reports to potential users.
Communicating
This is the process of systemically maintaining a record of all economic business transactions after they have been identified and measured.
Recording or journalizing
This is the sorting or grouping of similar and interrelated economic transactions into their respective classes.
Classifying
How is the classifying stage accomplished?
by posting to the ledger
This is a group of accounts which are systemically categories into asset accounts, liability accounts, equity accounts, expense accounts, and revenue accounts.
Ledger
This is the preparation of financial statements.
Summarizing
What law regulates the practice of accountancy in the Philippines.
RA 9298 or the Philippine Accountancy Act of 2004
This is the body authorized by law to promulgate rules and regulations affecting the practice of the accountancy profession in the Philippines.
Board of Accountancy
When is the Philippine CPA examination offered?
Twice a year, once in May and once in October
Who are the primary users of accounting information?
Investors and creditors
What are the main fields of practice of accountancy?
Private practice
Public practice
Government
Education
This field of accounting renders independent and expert financial services to the public.
Public accounting
What are the services offered in public accounting?
Auditing, taxation, and management advisory services
This is the examination of financial statements by independent CPAs for the purpose of expressing an opinion as to the fairness with which the financial statements are prepared.
Auditing
This service includes the preparation of annual income tax returns and determination of tax consequences of certain proposed business endeavors.
Taxation service
This service includes maintaining the records, producing the financial reports, preparing the budgets and controlling and allocating the resources of the entity.
Private accounting
This service encompasses transactions involving the receipt and disposition of government funds and property.
Government accounting
This is the acquisition of advanced knowledge, skill, and proficiency.
Continuing Professional Development
What are CPD credit units?
These are CPD credit hours required for the renewal of CPA license every 3 years.
How many CPD credits units are required for the renewal of CPA license?
15
How many CPD credit units are needed for the accreditation of a CPA to practice the accountancy profession.
120
Differentiate the work of an accountant and an auditor.
The accountant analyzes the economic transactions and summarizes them into financial statements that the auditor will examine.
What is bookkeeping?
It is the maintaining and keeping of accounting records.
Explain: Accounting vs Accountancy
Accounting is the field of accountancy while accountancy is the profession.
Explain: Financial accounting vs managerial accounting
Financial accounting focus on financial statements while managerial accounting is the preparation of financial reports for internal users only.
These represent the rules and standards followed in the preparation and presentation of financial statements.
GAAP
How many members are there in the FRSC?
15 members with a chairman and 14 representatives.
This is a summary of the terms and concepts that underlie the preparation and presentation of financial statements for external users.
Conceptual Framework
Who are the others users of accounting information?
Employees, customers, government, agencies, and the public
This is information about the entity’s economic resources and the claims against the reporting entity.
Financial report
The financial position can help users to assess an entity’s performance including
Liquidity, solvency, financial structure, and financial flexibility
This is the availability of cash in the near future to cover currently maturing obligations.
Liquidity
This is the availability of cash over a long term to meet financial commitments when they fall due.
Solvency
This means that income is recognized when earned regardless when received and expense is recognized when incurred regardless of when paid.
Accrual accounting
These are the qualities or attributes that make financial accounting information useful to the users.
Qualitative characteristics
What are the two fundamental qualitative characteristics?
Relevance and Faithful representation
What are the two types of qualitative characteristics?
Fundamental characteristics and enhancing characteristics
This is the capacity of the information to influence a decision.
Relevance
When does a financial information have a predictive value?
If it can be used as an input to processes employed by uses to predict future outcome.
When does a financial information have confirmatory value?
If it provides feedback about previous evaluations/If it can be used by users to confirm or correct earlier expectations.
What are the 3 characteristics under relevance?
Materiality
Predictive Value
Confirmatory or Feedback Value
What is materiality also known as?
Doctrine of convenience
This dictates that strict adherence to GAAP is not required when the items are not significant enough to affect the evaluation, decision and fairness of the financial statements.
Materiality
This means that the presentation of financial information not readily understood or not clearly expressed.
Obscuring information
This means that financial reports represent economic phenomena or transactions in words and numbers.
Faithful representation
What are the ingredients of faithful representation?
Free from error
Completeness
Neutrality
This characteristic requires that relevant information should be presented in a way that facilitates understanding and avoids erroneous implication.
Completeness
In order for financial statements to be complete, what should they be accompanied with?
Notes to financial statements
This standard means that all significant and relevant information leading to the preparation of financial statements shall be clearly reported.
Standard of adequate disclosure
This means depicting without bias in the preparation and presentation o financial information.
Neutrality
This is the exercise of care and caution when dealing with the uncertainties in the measurement process such that assets or income are not overstated and liabilities are not understated
Prudence
This means “in case of doubt, record any loss and do not record any gain.”
Conservatism
This is recognized as a provision if the loss is probable and the amount can be reliably measured.
Contingent loss
This is not recognized but disclosed only.
Contingent gain
This means that there are no errors or omissions in the description of the phenomenon or transaction.
Free from error
This arises when monetary amounts in financial reports cannot be observed directly and must be estimated.
Measurement uncertainty
This type of qualitative characteristics relate to the presentation or form of the financial information.
Enhancing qualitative characteristics
What are the characteristics under enhancing qualitative characteristics?
Verifiability
Comparability
Understandability
Timeliness
This means the ability to bring together for purpose of noting points of likeness and difference.
Comparability
This is comparability within an entity.
Intracomparability or horizon comparability
This is comparability across entities.
Intercomparability or dimensional comparability.
This is the use of the same method between and across entities within an entity.
Consistency
This is the use of the same method between and across entities in the same industry.
Comparability
This requires that financial informations must be comprehensible or intelligible if it is to be most useful.
Understandability
This means that different knowledgeable and independent observers could reach consensus, although now necessarily complete agreement, that a particular depiction is a faithful representation.
Verifiability
Financial information must be supported by this to be verifiable.
Evidence
This means verifying an amount or other representation through direct observation.
Direct verification
This means checking the inputs to a model, formula or other technique and recalculating the inputs using the same methodology.
Indirect verification
This means that financial information must be available or communicated early enough when a decision is to be made.
Timeliness
These are the basic notions or fundamental premises on which the accounting process is based.
Accounting assumptions
This assumption means that in the absence of evidence to the contrary, the accounting entity is viewed as continuing in operation indefinitely.
Going concern
