ITFA Chapter 1 Flashcards
General Accounting Principles & Concepts
definition & importance of accounting
process of classifying, recording & summarizing business transactions in monetary units & interpreting the financial data to assist stakeholders in making decisions
Difference between accounting and bookkeeping
bookkeeping: process of recording accounting data in the accounting book/ It’s part of accounting but not included the process of presenting/communicating the information
Objectives of accounting?
-To identify the financial position of the the firm/ knowing whether it’s making a profit or loss
-Transaction that are recorded are easily referred to in the future
How many uses and users of accounting information
2, Internal and external users
Internal users
People within the organizations who are able to make decisions internally
Example of internal users
Managers: needs to know how well things are progressing financially & about the financial status of the business
Staff: needs to know the company’s performance that could affect their salary or bonus
External users
People outside the company but have benefit from the financial information of the company
Example of external users
Supplier: want to know whether the organization will stay in business ad whether they will be paid.
Bank: to make decision whether need to give loan to the business
Historical cost principle
Assets are recorded at the price paid to acquire them
Objectivity principle
Transaction must be recorded based on objective evidence or verified & unbiased information
Full disclosure principle
Published accounting information must always be relevant, timely, reliable, unbiased and free from mistakes/errors
Matching of revenue & expenses principle
All expenses incurred to generate revenue must be reported within the period in which the revenue is reported
Dual aspect concept principle
It’s a basis for double entry system of bookkeeping. All business transaction recorded in accounts have 2 aspects which are receiving benefit and giving benefit
Separate entity assumption
A business & its owners are 3 separate entities. The business’s transaction must be accounted separately from the owner’s transaction
Going concern assumption
Assuming a business will be continue to expand & operate in the future
Monetary unit assumption
All transaction are recorded in the country’s monetary unit.
Consistency assumption
Using the same accounting method from one accounting period to another accounting period
Accounting period assumption
Business activity can be divided into specific periods, eg: a month, a quarter, 6 months or a year
How many branches of accounting?
3, Financial accounting, Cost accounting, Management accounting
Financial accounting branch
Preparation of financial reports to help stakeholders of a business in decision-making
Financial accounting branch example
Income statement, Balance sheet, Statement of cash flow and Statement of Owner’s Equity.
Cost accounting branch
A method to determine costs in order to plan and control business operations
Cost accounting brach example
Production costs such as Raw material Cost, Overhead Cost, Labor Cost
Management accounting branch
Interpretation of information obtained from financial accounting & cost accounting to help the management of a business to make decisions & plans, and to control business operations
Management accounting branch example
Budgeting, Cost Volume Profit
Types of business entity
3, Sole proprietorship, Partnership, Corporation
Sole proprietorship amount of user
1 owner
Sole proprietorship liability
Unlimited
Sole proprietorship profit and loss
100% owner
Partnership amount of user
2-20 @ 2-50 patners
Partnership liability
Limited
Partnership profit & loss
Share among partners
Corporation amount of user
More than 1
Corporation liability
Limited
Corporation profit & loss
Return as dividend
