Chapter 2 Flashcards
“The word accounting comes from the word accountability. If you are going to be rich, you need to be accountable for your money.”
Robert Kiyosaki
The most basic concept in accounting is whatconcept?
Entity Concept
An accounting entity is an organization or a section of an organization that stands apart from other organizations and individuals as a separate economic unit.
Entity Concept
Transactions of different entities should not be accounted for together. Each entity should be evaluated separately.
Entity Concept
An entity’s life can be meaningfully subdivided into equal time periods for reporting purposes.
Periodicity Concept
For the purpose of reporting to outsiders, one year is the usual accounting period.
Periodicity Concept
“Books should be closed each year, especially in a partnership, because frequent accountingmakes for long friendship.”
Luca Pacioli, 1494
starts in January and ends in December
Calendar Year
starts in any month and ends after 12 months.
Fiscal Year
The Philippine Peso is a reasonable unit of measure and that its purchasing power is relatively stable.
Stable Monetary Unit Concept
This is the basis for ignoring the effects of inflation in the accounting records.
Stable Monetary Unit Concept
A greater increase in the supply of money or credit than in the production of goods and services, resulting in higher prices and a fall in the purchasing power of money.
inflation
GAAP stands for?
generally accepted accounting principles
Accounting records and statements are based on the most reliable data available so that they will be as accurate and as useful as possible.
Objectivity Principle
Reliable data are verifiable when they can be confirmed by independent observers.
Objectivity Principle
This principle states that acquired asset should be recorded at their actual cost and not at what management thinks they are worth as
Historical Cost
The total cost of producing or buying an item, which may include, e.g., its price plus the cost of delivery or storage.
actual cost
A principle that states, “when goods are delivered or services are rendered or performed.”
Revenue Recognition Principle
A principle that states, “goods and services are used up to produce revenue and not when the entity pays for those goods and services.”
Expense Recognition Principle
Requires that all relevant information that would affect the user’s understanding and assessment of the accounting entity be disclosed in the financial statements.
Adequate Disclosure
Financial reporting is only concerned with information that is significant enough to affect evaluations and decisions.
Materiality
The firms should use the same accounting method from period to period to achieve comparability over time within a single enterprise.
Consistency Principle
Under this assumption, the effects of transactions and other events are recognized when they occur and they are recorded in the accounting records and reported in the financial statements of the periods to why they relate.
Accrual Basis
“Revenue as they earned, even not yet received and; Expenses as they incurred, even not yet paid”.
Accrual Basis
Under this assumption, it does not record a transaction until cash is received or paid. Generally, cash receipts are treated as revenues and cash payments as expenses.
Cash basis accounting
It will continue in operation for a foreseeable future.
Going Concern
It is assumed therefore that the enterprise has neither the intention nor the need to liquidate its operations.
Going Concern
This business organization has a single owner called the proprietor who generally is also manager.
Sole Proprietorship
It tends to be small service-type (e.g. physicians, lawyers and accountants) business and retail establishments.
Sole Proprietorship
A business owned and operated by two or more persons who bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves.
Partnership
A business owned by its stockholders.
Corporation
It is an artificial being created by operation of law, having the rights of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.
Corporation
companies perform services for a fee (e.g. law firms, accounting and law firms, stock brokerage, beauty salons and recruitment agencies)
Service
companies purchase goods that are ready for sale and then sell these to customers (e.g. car dealers, clothing stores and supermarkets)
Merchandising
companies buy raw materials, convert them into products and then sell the products to other companies or to final consumers (e.g. paper mills, steel mills, car manufacturers and drug manufacturers)
Manufacturing
The principal activities of the enterprise.
Operating activities
Identify which activity in business organization this falls: Sale of services
Operating activities
Identify which activity in business organization this falls: Purchase of supplies
Operating activities
Identify which activity in business organization this falls: Payment of various expenses like salaries and other benefits to employees, utilities, taxes and repairs and maintenance, insurance, transportation and gasoline expense.
Operating activities
The acquisition and disposal of long-term assets and other investments.
Investing Activities
Identify which activity in business organization this falls: Purchase of equipment, furniture, automobile and land
Investing Activities
Identify which activity in business organization this falls: Cost of developing and constructing office or building
Investing Activities
Identify which activity in business organization this falls: Sale of used fixed assets
Investing Activities
Identify which activity in business organization this falls: Loans and advances to other parties
Investing Activities
Identify which activity in business organization this falls: Investments in equity or debt instruments
Investing Activities
Activities that result in charges in the size and composition of the contributed equity and borrowings of the enterprise
Financing Activities
Identify which activity in business organization this falls: Cash proceeds from issuing shares of stocks by a corporation
Financing Activities
Identify which activity in business organization this falls: Cash proceeds and repayment of bank loans and other long-term barrowings.
Financing Activities
Micro Enterprises
those with assets, before financing of P 3 million or less and employ not more than nine (9) workers.
Small Enterprises
those with assets, before financing of above P 3 million to P 15 million and employ 10 to 99 workers.
Medium Enterprises
those with assets, before financing of above P15 million to P100 million and employ 100 to 199 workers.
