Prelim Flashcards
Is the process of evaluating financial and other information for decision making
Financial Analysis
Is an economic activity that involves the exchange, purchase, sale or production of goods and services with a motive to earn profits and satisfy the needs of customers
Business
Different classification or types of business in the philippines
Service business
merchandising business manufacturing business
other businesses
Provides intangible goods or services to customers. Usually generates profit by charging for labor or other services rendered to consumers government or other companies
Service business
Purchase products from other businesses or manufacturers and sell them to customers. Usually have merchandising inventories in their current asset account. Generate profits by providing markup prices on the goods available for sale
Merchandising business
Convert raw materials, labor and overhead into finished products that are available for sale to customers
Manufacturing business
This includes businesses that can’t be classified as service merchandising or manufacturers
Others businesses
Types of business according to ownership structures
Proprietorship
Partnership
Corporation
Forms of business organization
Sole proprietorship
Partnership
Corporation
Cooperative
Limited liability company or LLC
Popular business structure.It is easy to set up and have one owner
Sole proprietorship
Business that is owned by 2 or more individuals as partners. Classify as either general or limited.
Partnership
Allow both partners to invest in a business with 100% responsibility for any business debt and don’t require formal agreement
General partnership
Requires owners to file paperwork with the state and compose formal agreements that describe who is responsible for certain debts and details of partnership
Limited partnership
Acts as a unique and separate entity from its shareholders. Pays its own taxes before distributing profits or dividends to shareholders.
Corporation
Is a private business organization or farm that a group of individuals own and runs to meet a common goals these owners work together to operate a business and they share the profits and other benefits
Cooperative
The most common form of business structure for small businesses. Define as a separate legal entity and may have an unlimited amount of owners. Typically tax as a sole proprietorship and require insurance in case of lawsuit.
Limited liability company
3 main types of business activities
Operating business activities Investing business activities
Financing business activities
It is a process of identifying, analyzing, summarizing, and journalizing or recording financial transactions pertaining to a business
Accounting
Essential elements of the definition of accounting
Identifying
Analyzing
Summarizing
Journalizing /recording
Analysis each business transaction identify whether the transaction is accountable event or non-accountable event
Identifying
Process of examining, interpreting, and understanding financial information presented in financial statements reports and other accounting records
Analyzing
Process of presenting the final value of classify the account in a separate statement called trial balance
Summarizing
Process of keeping a record of all your business transactions tracking and chronological order and generally includes the date the account your debiting or crediting and a brief description of transaction that occurred.
Journalizing/Recording
Types of accounting information
Financial accounting
Management accounting
Tax accounting
Non-for-profit accounting
Information describing the financial resources obligations and activities of an economic entity
Financial accounting
Information intended to aid management in running the business
Management accounting
The subsector of accounting that deals with the preparations of tax returns and tax payments
Tax accounting
Use for government agencies, churches, NGO’s charitable institutions and schools
Non-for-profit accounting
Users of accounting information
Internal users
External users
Users that directly involved in managing business
Internal users
Users that not indirectly involved in business
External users
Accounting principles
Measurement
Revenue Recognition
Expense recognition
Full disclosur
Also called the cost principle prescribes that accounting information is based on actual cost cause is measured on a cash or an equal to cash basis
Measurement
It is also called sale is the amount received from selling products and services
Revenue Recognition
It prescribes that a company record the expenses it incurred to generate revenue reported it is the key to modern accounting
Expense recognition
Prescribes the company report a details behind financial statements that would impact users decision. they are often in the footnotes to the statements
Full disclosure
Accounting assumptions
Monetary unit
Time period
Business entity
Going concern
Means that the accounting information reflects a presumption that the business will continue operating instead of being close or sold
Going concern
Means that we can express transactions and events in monetary or money units money is the common denominator in business
Monetary unit
Presumes that the life of a company can be divided into time periods, such as months and years and that useful reports can be prepared for those periods.
Time period
Means the business is accounted for separately from the other business entities including its owners. A business entity can take one of the three legal forms: proprietorship, partnership or corporation.
Business entity
Accounting constraints
Materiality
Benefit exceeds cost
Prescribes that only information that influences decisions need to be disclosed
Materiality
Prescribes that only information would benefits of disclosure greater than the cost of providing it needs to disclose
Benefit exceeds cost
they are documents that report on an individual or an organization’s business in monetary terms and it provides the meaning of taking the post of the business. It tells us how a business is performing and wherr it stands.
Financial statements
They are present economic resources controlled by the entity as a result of past events. An economic resource is a right that has a potential to produce economic benefits
Assets
They are present obligation of the entity to transfer an economic resources as a result of past events and obligation is duty of responsibility that the entity has no practical ability to avoid.
Liabilities
It is defined as the owner’s interest in the company assets. In other words upon liquidation after all the liabilities are paid of the shareholders own remain assets this is why it is often referred to as net assets or assets minus liabilities.
Owner’s equity
An event that has a direct effect on operation on the business unit and can be expressed in terms of money
Business Transaction
Five principal reports resulting from the process of financial accounting
- Statement of financial position or balance sheet statement
- Statement of profit or loss and other comprehensive income
- Statement of changes on owner’s equity
- Statement of cash flows
- Note to the financial statements and other explanatory notes
