FABM Chapter 4 Reviewer Flashcards
Financial statements are prepared on the assumption that the
the entity will continue in operation into the foreseeable future
without the need or intention to stop the operation
The Going Concern Concept
If there is significant doubt that the business will continue in
operations (“____________”), the going concern
the assumption is forgone and financial statements will be
prepared under a Terminating concern basis
Going concern problem
Presents financial information regarding an
entity
Accounting
Can be a business, a person, an organization
or the government.
An entity
Is a separate accounting entity from its
owners
A business
In preparing financial reports about the business,
transactions of the ________ are excluded.
Owners
The owner and the business are two separate and distinct parties
The accounting Entity Concept
Transfer of goods from the main office to an outlet or
the branch shall be treated as part of the _______
Same Business
In accounting means that a company
uses financial reporting based on its own chosen periods.
The periodicity concept
This is an equal time period called the “_________” over
which the financial performance and financial condition of the
business are accounted for and reported to users of the
financial statements.
Accounting Period
Reporting period can either be a _____________
Calendar Year or Fiscal Year
The presumed indefinite life of the business is broken into distinct equal time periods called “accounting period’ over which the financial performance and financial condition of the
business are accounted for and reported to users of the financial statements.
Periodicity Assumption
Income is recorded in the accounting period they are earned regardless of when they are collected whereas expenses are recorded in the period incurred regardless of when they are paid.
The accrual method
An income that is already earned but is not yet
collected
Accrued Income
An expense that is already incurred but not yet been paid
Accrued Expense
An income that is already received but not yet earned
Deferred Income
An expense that is already paid but not yet incurred
Prepaid Expense
Only financial transactions are recorded and reported in terms of money such as the
Peso.
The monetary or measurement concept
Non-financial information is not recorded but information relevant to users of financial statements is noted via a memo entry in the books.
Memo entry in the books.
Income is recognized when it is realized or earned. Income is said to be realized when one of the contracting party performed his obligation on the contract, and thus have established a right to demand from the other party.
Realization Concept
Ownership to the goods transfers to the buyer at the moment the goods leave the premises of the seller
Free on Board (FOB) shipping point+
Ownership to the goods transfers to the buyer upon arrival at the warehouse of the buyer
FOB Destination
Relates to the timing of recognition of an expense.
The matching Concept
These are expenditures that benefit future accounting periods. These are recorded in accounting as assets.
Capital Expenditures
These are expenditures that benefit only the current accounting period. These are recorded as expenses.
Period Expenditures
Expenses may be recognized using:
a.___________ against the
revenues or cause and effect association.
Direct association or Matching of cost
If the expenditure benefits several accounting periods, the cost of capital expenditure is spread as expense over the period it is benefited.
Systematic and rational allocation
Properties held for use by the business such as buildings,
machinery, equipment, and improvements are initially
recorded as ___________ upon acquisition.
Assets
Expenditures that cannot be associated with a particular income and have no expected future economic benefits are recognized outright as expenses in the year incurred.
Immediate Recognition
Are not expenditures and will never be recognized as
expenses, such as:
a. Repayments of debts
b. Returns of capital to owners or equity participants.
c. Distributions of income to owners or equity participants.
Returns of claims
Income is recorded when collected regardless of when earned while expense is recorded when paid regardless of when it is incurred. This concept does not properly measure income or loss for the period.
Cash basis of accounting
In accounting, each transaction is portrayed as a two-fold effect on at least two elements of financial statements. This is one of the most important basic accounting concepts you appreciate.
The Duality Concept
An income earned
Increase in asset AND increase in income
A liability borrowed
Increase in asset AND increase in liability
A capital contributed by the business owner
Increase in asset AND increase in capital
A payment of expense
Decrease in asset AND increase in expense
A payment of liability
Decrease in asset AND decrease in liability
Returns of capital to the business owner
Decrease in asset AND decrease in capital
A period that starts January 1 and ends December 31
Calendar Period
A period that starts any day other than January 1 and ends any day other than December 31
Fiscal Period
