Chapter 1.4

Question 1

What is the authoritative body that promulgates accounting principles and standards in the PH?

Answer 1

Accounting Standard Council (ASC)

Question 2

what is the primary authoritative source of accounting principles and standards in the US?

Answer 2

Financial Accounting Standards Board (FASB)

Question 3

What are the accounting concepts?

Answer 3

1. seperate entity
2. going concern
3. time period/periodicity
4. accrual basis
5. monetary unit
6. matching
7. equality of the value received and value given up

Question 4

distiguish accounting concepts, accounting conventions, and accouting principles from each other.

Answer 4

• Accounting concepts are important ideas which accounts assume in recording business transactions; they serve as the bedrock of accounting;
• Accounting conventions are accounting practices that practicioners accept becuase of their long existence and use;
• while accounting principles refers itself as a doctine, which is the basis of other rules, procedures, and methods.

Question 5

What is the main objective of GAAP?

Answer 5

“to fairly present the financial statements…in conformity with the generally accepted accounting principles”

Question 6

Unless stated or implied, the primary financial statements are prepared in accordance with two basic accounting assumptions: ……?

Answer 6

accrual basis accounting and going concern assumption

Question 7

Basic Accounting Concepts

What is Accrual Basis Accounting?

Answer 7

Accrual accounting is an accounting method that records revenues and expenses before payments are received or issued. In other words, it records revenue when a sales transaction occurs.

Question 8

BAsic Accounting Concept

What is the Going Concern Assumption?

Answer 8

Going concern is an accounting term for a company that has the resources needed to continue operating indefinitely until it provides evidence to the contrary. This term also refers to a company’s ability to make enough money to stay afloat or to avoid bankruptcy. If a business is not a going concern, it means it’s gone bankrupt and its assets were liquidated.

Question 9

Other Accounting Concepts

What is the Business Entity Principle?

Answer 9

the business is separate from the owner(s) of the business. Therefore the accounting records for even the simplest business, the sole trader, must be kept separate from the personal affairs of the owner or owners.

Question 10

Other Accounting Concepts

What is the Periodicity Concept?

Answer 10

The concept of periodicity states that businesses should report their financial position, results of operations, and cash flows at regular time intervals. It is important to indicate the date of when it was prepared and the time period it covers. At least yearly.

Question 12

Other Accounting Concepts

wha is the concept of equality of the value received and the value given up?

Answer 12

that for every value received (dedit), there is an equal value given up(credit).

Question 13

other accounting concepts

What is the monetary concept?

Answer 13

it is assumption that th business transactions can be objectively measured or quantified in terms of “peso”.

Question 14

What are the qualitative characteristics that makes financial info useful in decision-making?

Answer 14

1. understandibility
2. relevance
3. reliability
4. comparibility

Question 14

other accounting concept

What is the Matching Concept?

Answer 14

The matching principle is an accounting concept that dictates that companies report expenses at the same time as the revenues they are related to. Revenues and expenses are matched on the income statement for a period of time (e.g., a year, quarter, or month).

Question 15

Qualitative Characteristic of Accounting

What is understandibility?

Answer 15

one of the essential qualities of useful info is that it should be readily understood for its data-users.

Question 16

Qualitative Characteristic of Accounting

What is relevance?

Answer 16

financial info possesses the quality of relevane when its knowledge can make a difference in whatever decisions data-users will make. it is considered relevant when it has feedback/confirmatory value and/or predictive value.

Question 17

Relevance

What is feedback value?

Answer 17

it exists if the reported information could be used to assess the outcome of past activities and transactions.

Question 18

Relevance

What is the predictive/confirmatory value?

Answer 18

it exists if this could be used as a basis for forecasting what may happen in the future.

Question 19

qualitative characteristics of accounting

What is reliability?

Answer 19

financial info is considered reliable if it is verifiable, neutral, and if it represents faithfully.

Question 20

Relaibility

how does verifiability exist?

Answer 20

it exists if, assuming there are several independant accountants who will repeat a method, they will obtain basically the same results.

Question 21

reliability

how does neutrality exist?

Answer 21

it exists when the recognition and measurement of the financial information are not intended to favor only a certain chosen of decision-makers.

Question 22

reliability

how will financial info become a faithful representation?

Answer 22

if bias does not exist. it exists if the accountant did not use the measurement method properly o rif the reported information is consistently too high or too low to intentionally favor certain interest groups.

Question 23

Qualitative Characeristics in Accounting

what is the quality of comparability?

Answer 23

Assuming a given set of economic events, comparability can be defined as the extent of similarity between firms’ accounting systems (De Franco et al., 2011). In other words, comparability is the extent to which similar transactions are accounted for similarly, and dissimilar transactions are accounted for dissimilarly.

Question 24

what are the guides that accountants may use in their attempt to report financial data that possess the qualitative characteristic?

Answer 24

1. prudence
2. materiality
3. relative cost-benefit

Question 25

How is prudence used in accounting?

Answer 25

it is practiced when an accountant encounters a situation with uncertainty and doubt, they exercise prudence by choosing to apply the method that will tend to make the profit smaller, thus this method has a less favorable effect on the balance of the owner’s equity..

also known as conservatism

Question 26

what is materiality?

Answer 26

Materiality is a concept that determines whether the omission or misstatement of information in a financial report would impact a reasonable user’s decision-making. If information is significant, it is material. If the information is insignificant or irrelevant, it is said to be immaterial.

Question 27

what is cost vs. benefit?

Answer 27

the cost of gathering and providing the information should be compared and associated with the benefits derived from it. Financial info should be gathered or provided to the data-users only if the benefits to be derived from it exceed the costs of collecting and providing such information.