MODULE 1 Flashcards
Question: What is the primary purpose of accounting?
Answer: The primary purpose of accounting is to provide quantitative information about economic entities that is useful for making economic decisions.
Question: What are the key processes involved in accounting?
Answer: The key processes involved in accounting are identifying, measuring, and communicating economic information to help users make informed judgments and decisions.
Question: How is accounting described in terms of its function?
Answer: Accounting is described as the art of recording, classifying, and summarizing transactions and events of a financial character, and interpreting the results.
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Question: What is the purpose of communicating in the accounting process?
Answer: The purpose of communicating in accounting is the preparation and distribution of financial reports, where information from different transactions and events is processed, measured, and turned into meaningful financial statements.
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Question: What does measuring in accounting involve?
Answer: Measuring in accounting involves assigning a monetary value or amount to the identified accountable event.
Question: What is the first step in the accounting process?
Answer: The first step in the accounting process is identifying, which involves recognizing or not recognizing business transactions as accountable events for recording purposes.
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Question: How is accounting described in terms of its nature?
Answer: Accounting is a service activity that provides quantitative financial information, such as numbers or amounts, particularly in money. It is similar to other services like legal, healthcare, and consultancy services.
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Question: What role does accounting play in business decision-making?
Answer: Accounting provides relevant information to users and serves as a useful guide for making sound economic decisions, helping users understand the business’s financial picture
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Question: Why is accounting called the “language of business”?
Answer: Accounting is called the “language of business” because it quantifies and facilitates communication between the business and its users, providing reliable information for decision-making.
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Question: What is the nature of accounting as a social science?
Answer: Accounting is a social science that consists of a body of knowledge that has been systematically gathered, classified, and organized.
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Question: What are the key steps involved in the accounting process?
Answer: The key steps in the accounting process are recording (journalizing), classifying (grouping accounts), summarizing (preparing financial reports), and interpreting (analytical function).
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Question: How is accounting described in terms of its nature?
Answer: Accounting is described as a practical art that involves definite techniques and requires creative skills, functions, expertise, and judgment for proper application.
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Q: What is the matching principle in accounting?
A: The matching principle states that the costs of doing business should be recorded in the same period as the revenue they help to generate
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Q: What does the consistency principle ensure?
A: The consistency principle ensures that the same accounting methods are used consistently across periods to allow comparability over time within a single enterprise.
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Q: What does the materiality principle dictate?
A: The materiality principle states that financial reporting should focus on information significant enough to affect users’ evaluations and decisions.
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Q: What does the materiality principle dictate?
A: The materiality principle states that financial reporting should focus on information significant enough to affect users’ evaluations and decisions.
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Q: What is the adequate disclosure principle?
A: The adequate disclosure principle requires that relevant information, which could affect users’ understanding and assessment of the entity, be disclosed in financial statements.
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Q: What is the expense recognition principle?
A: The expense recognition principle dictates that expenses should be recognized in the period when goods and services are used to produce revenue, not when they are paid for.
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Q: When should revenue be recognized according to the revenue recognition principle?
A: Revenue should be recognized in the accounting period when goods are delivered or services are rendered.
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Q: What does the objectivity principle emphasize?
A: The objectivity principle emphasizes that accounting records and statements should be based on reliable data and supported by verifiable documentation.
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Q: What does the objectivity principle emphasize?
A: The objectivity principle emphasizes that accounting records and statements should be based on reliable data and supported by verifiable documentation.
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Q: What is the historical cost principle?
A: The historical cost principle states that acquired assets should be recorded at their original cost, not at their current market value or estimated worth.
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Q: What does the stable monetary unit concept assume?
A: The stable monetary unit concept assumes that the purchasing power of a currency, like the peso, remains constant over time, ignoring inflation effects.
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Q: What is the purpose of the periodicity concept in accounting?
A: The periodicity concept divides the life of an entity into equal time periods (e.g., months, quarters, or years) to provide timely data for decision-making.
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Q: What does the entity concept state?
A: The entity concept states that each entity should be evaluated separately, distinguishing the business from its owners.
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Q: What is the government’s interest in financial information?
A: The government and its agencies use financial information to determine the income earned by an entity for tax computations.
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Q: What is the role of employees as users of financial information?
A: Employees assess the stability and profitability of the employer, evaluate the ability to provide salaries and retirement benefits, and determine the continuity of the company, especially if they have a long-term involvement.
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Q: Who are considered other users of financial information?
A: Other users include employees, government agencies, and the general public.
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Q: What are the needs of primary users for financial information?
A: Primary users need financial information to determine the risk and return of their investment, decide whether to buy, hold or sell stocks, assess if loans will be paid, and decide whether to extend a loan to a business.
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Q: Who are considered primary users of financial information?
A: Primary users are the fund providers of the business, including investors, lenders and other creditors, and customers.
