Fundamental Accounting Flashcards
reviewer
A service activity that provides quantitative information, primarily financial in nature, about economic entities to users of such information (stakeholders) that is intended to be useful in making economic decisions
Accounting
Involves bookkeeping function and periodic financial reporting
Financial Accounting
The mechanical task involving the collection of basic financial data
Bookkeeping
The utilization of accounting data for specific decision-making needs by management
Managerial Accounting
The rendering of opinion by an independent CPA in the fairness of an organization’s financial statement
Auditing
Preparation of tax return and analysis of tax effect of certain transactions
Taxation
Identification of the tax revenue sources and usage of funds consistent with the national and local laws
Government Accounting
Professional accountants must be straightforward and honest in all professional and business relationships
Integrity
Professional accountants should not allow bias, conflict of interest or undue influence of others to override professional judgement
Objectivity
Professional accountants should continuously hone their knowledge to ensure that their clientele receive competent services
Professional competence and due care
Professional accountants must follow laws and regulations and avoid acts that can discredit the profession
Professional Behavior
Organizations created for purposes of specific undertaking and is not meant to generate profit in its operation
Not-for-profit organization
Government instrumentalities that generates from taxes used for public projects and welfare
Government Institution
An entity engaged in providing specific kinds of service to its customer and does not create any tangible product
Service Business
An entity engaged in buying goods from a manufacturer or other merchandise to be sold to its customer at a mark-up
Trading/ Merchandising Business
An entity engaged in procuring raw materials, labor and other goods and services with the intention of creating a finished product for sale
Manufacturing Business
A business owned by a single owner who generally manages the affair of the business
Sole Proprietorship
A business owned by two or more persons who bind themselves to contribute money, property or industry in an undertaking with the intention of dividing profits among themselves
Partnership
An artificial being created by operation and owned by stockholders. The corporation is a separate legal entity and the stockholders are not personally liable to the corporation’s liabilities
Corporation
Regulates business activities and collects taxes from the entity, ensure the entity’s compliance with regulation and check accuracy of tax payment
Government
provides fund needed by the entity to finance its operation and activities, determine the entity’s ability to repay loans and interests as they fall due
Financial institution
has interest in the general affairs of the entity, use financial information for specific purposes
General public
it can influence decisions made by users, information is relevant when it has both predictive and confirmatory value
Relevance
information can confirm or correct the user’s expectations
Confirmatory value
information can be used by the user to make predictions
Predictive value
financial statement should reflect a true and fair view the economic substance of transactions, balances are recorded completely, objectively, unbiased, and free from material error
Faithful representation (reliability)
information has more value if it can be compared with other entities or with other similar information about the entity
Comparability
information is verifiable when different knowledgeable and independent observers can reach a consensus that such information is faithfully represented
Verifiability
information needs to be provided to decision-makers in time to be capable of influencing their decision
Timeliness
information needs to be clearly and concisely presented
Understandability
transactions must be separate from owner and other entities, comingled transactions must be charged to the proper party
Economic entity concept
an entity is viewed as a continuing business unless there is evidence to the contrary, expected to continue operating within 12 months from reporting date, if there is evidence that its no longer a going concern, it shall disclose such fact and discontinue the use of _
Going concern assumption
An entity’s life can be divided into meaningfully equal time period (accounting periods) for reporting purposes ex. fiscal year - 12 months on different year, Calendar year - 12 months within the same year, Interim period - less 12 months (monthly, quarterly, semi-annual)
Periodicity concept
assumes the value of a currency (PH peso) is stable over time, impact of inflation is disregarded
stable monetary unit concept
accounting records and statements are based on the most reliable data so that they will be as accurate and as useful as possible
Objectivity principle
transaction balances are carried at actual cost, unless required/ permitted by the standard to use a different measurement basis (kung magkano ang binayaran)
Historical cost
Revenue is recognized in the period realized or earned irrespective of the timing of cash receipt
Revenue recognition principle
cash is received after the delivery of goods or services (revenue)
receivable
cash is received before the delivery of goods or serviced (revenue)
liability
Expense is recognized in the period incurred or used up irrespective of the timing of cash payment
Expense recognition value
cash is paid after receipt of goods or services (expense)
liability
cash is paid before the receipt of goods or services (expense)
asset
The entity should provide footnotes, supplementary schedule and other relevant information that will complement the figures in the financial statement and give the users a better understanding of the Company’s financial statement
Adequate disclosure
Financial reporting is concerned with information that is significant enough to affect evaluations and decisions, accounting information is deemed material if its inclusion or exclusion can change user’s decisions
Materiality
The firm should use the same accounting method from period to period to achieve comparability over time within a single enterprise, changes are permitted if justifiable and disclosed in the financial statements
Consistency principle
