Definitions Flashcards
Definition of Accounting accdg to ASC
Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision.
Definition of Accounting accdg to AICPA
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 results thereof.
Definition of Accounting accdg to AAA
Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information.
Public Accounting Services
- Auditing
- Taxation Service
- Management Advisory Servie
Auditing
fairness of preparation
Taxation
preparation of annual income tax returns and determination of consequences
Management Advisory Service
phases of business conduct and operations
Controller
highest accounting officer in a business entity
Private Accounting
CPAs are employed in business entities in various capacity
Types of Accounting
- Public Accounting
- Private Accounting
- Government Accounting
Government Accounting
encompasses the process of analyzing, classifying, summarizing and communicating all transactions involving the receipt and disposition of government funds and property and interpreting the results thereof
GAAP
rules, procedures, practice and standards followed in the preparation and presentation of financial statements
Accounting Assumptions are also known as
Postulates
Accounting Assumptions
basic notions or fundamental premises on which the accounting process is based
3 types of Underlying Accounting Assumptions
- Explicit
- Implicit
- Excluded
Explicit Underlying Accounting Assumption
Going Concern
Implicit Underlying Accounting Assumption
- Accounting Entity
- Time Period
- Monetary Unit
Excluded Underlying Accounting Assumption
Accrual
Going Concern
the accounting entity is viewed as continuing in operation indefinitely
Accounting Entity
The entity is separate from the owners, managers, and employees who constitute the entity.
Time Period
the indefinite life of an entity is subdivided into time periods or accounting periods which are usually of equal length for the purpose of preparing financial reports on financial position, financial performance and cash flows
Two types of Periods
- Accounting period
2. Fiscal Period
Types of Years
- Calendar Year
2. Natural business year
Calendar year
12-month period ending on Dec.31
Natural business year
12-month period ending on any month when the business is at the lowest or experiencing slack season
Conceptual Framework
A summary of the terms and concepts that underlie the preparation and presentation of financial statements
Classification of Users of Financial Information
- Primary users
2. Other Users
Primary Users
- Existing & potential investors
2. Lenders & other creditors
Other Users
- Employees
- Customers
- Government & their agencies
- Public
Financial Position
Information about the entity’s economic resources and the claims against the reporting entity
Liquidity
availability of cash in the near future to cover currently maturing obligations
Solvency
availability of cash over a long term to meet financial commitments when they fall due
Financial Performance
level of income earned by the entity
Entity Theory
geared toward proper income determination
ASSETS = LIABILITIES + CAPITAL
Proprietary Theory
directed toward proper valuation of assets
ASSETS-LIABILITIES = CAPITAL
Residual Equity Theory
directed toward proper valuation of assets and applicable where there are two classes of shareholders
ASSETS - LIABILITIES - PREF. SHAREHOLDER’S EQUITY = ORDINARY SHAREHOLDER’S EQUITY
