Introduction to accounting Flashcards
is a process of identifying,
recording and communicating economic
information that is useful in making
economic decisions.
Accounting
The accountant analyzes each business transaction
and identifies whether the transaction is an “accountable event” or
“non-accountable event.
Identifying
are recorded in the books of accounts.
Accountable events
are not recorded in the books of accounts.
Non-accountable events
The accountant recognizes (i.e., records) the
“accountable events” he has identified
Recording
What recording process is?
Journalizing
After journalizing, the accountant then classifies the
effects of the event on the
Accounts
After journalizing, the accountant then classifies the
effects of the event on the “accounts.” This process is called
Posting
At the end of each accounting period, the
accountant summarizes the information processed in the
accounting system in order to produce meaningful reports.
Communicating
Accounting information is communicated to interested users
through accounting reports, the most common form of which is
the
Financial statements
Types of information provided by
accounting
Quantitative information
Qualitative information
Financial information
Archaeologists have found clay tokens as old as
8500 B.C
Archaeologists have found clay tokens as old as 8500 B.C. in
Mesopotamia
The personal transactions of the
business owner(s) are not recorded.
Separate entity concept
assets are
initially recorded at their acquisition cost.
Historical cost concept
The business is
assumed to continue to exist for an indefinite period
of time.
Going concern assumption
Some costs are initially recognized as
assets and charged as expenses only when the
related revenue is recognized.
Matching
income is recorded in
the period when it is earned rather than when it is
collected, while expense is recorded in the period
when it is incurred rather than when it is paid.
Accrual basis of accounting
The observance of some degree of
caution when exercising judgments under conditions
of uncertainty. Such that, if there is a choice
between a potentially unfavorable outcome and a
potentially favorable outcome, the unfavorable one
is chosen. This is necessary so that assets or income
are not overstated and liabilities or expenses are not
understated.
Chap
Prudence
The life of the business is
divided into series of reporting periods.
Reporting Period
Assets, liabilities,
equity, income and expenses are stated in
terms of a common unit of measure, which
is the peso in the Philippines. Moreover, the
purchasing power of the peso is regarded as
stable. Therefore, changes in the purchasing
power of the peso due to inflation are
ignored.
Stable monetary unit
An item is considered
material if its omission or misstatement
could influence economic decisions.
Materiality concept
is a matter of professional
judgment and is based on the size and
nature of an item being judged.
Cost-benefit
Information
communicated to users reflect a balance
between detail and conciseness, keeping in
mind the cost-benefit principle.
Full disclosure principle
