prelim Flashcards
It is a service activity. It’s function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision
ACCOUNTING
In the Philippines, bookkeeping was introduced by the Spaniards and the bookkeeper was called
Tenedor de Libro
IMPORTANCE OF ACTG (3)
personal level
professional level
business level
FORMS OF BUSINESS ORGANIZATION
Sole or Single Proprietorship
Partnership
Corporation
a business registered as an artificial person under the operation of law.
Corporation
PRIMARY ACTIVITIES OF BUSINESSES
Servicing
Merchandising
Manufacturing
Classified based on extent of their participation in the affairs of the business
users
2 types of users
Internal users – management group
External users – financing and public groups
The authoritative body of accountancy formulated standard principles, assumptions and procedures
“generally accepted accounting principles” (GAAP).
BASIC PRINCIPLES
Objectivity Principle Exchange Price or Cost Principle Going Concern Principle Monetary Measurement Principle Revenue Recognition Principle Business Entity Principle
Objectivity Principle
Accounting information is supported by independent, unbiased evidence. It is intended to make financial statements useful by ensuring they report reliable and verifiable information.
Cost Principle
Accounting information is based on actual cost.
Cost is measured on a cash or equal-to cash basis
Going-Concern Principle
The assets are reported at cost but not reported at liquidation value that assume closure.
Reflects assumption that the business will continue operating instead of being closed or sold.
Monetary Unit Principle
Express transactions and events in monetary, or money, units.
Revenue Recognition Principle
- Recognize revenue when it is earned.
- Proceeds need not be in cash (Credit sales).
- Measure revenue by cash received plus cash value of items received.
Business Entity Principle
A business is accounted for separately from other business entities, including its owner.
remember always:
ADELOR
Income Statement
shows how wealth is produced by listing the revenues earned and expenses incurred by the business
Statement of Owner’s Equity
shows why the net worth changed by listing the activities that caused it to increase or decrease
Statement of Cash Flows
shows what happened to the cash by enumerating the activities of cash received and cash used by the business
Statement of Financial Position
shows how the wealth of the business stands by enumerating the assets, liabilities and net worth of the business
defined as debts or obligations of the business owing to outside parties like the banks, financing companies and suppliers of goods and services. These are obligations expected to be paid in the future.
Liabilities
defined as things of value owned by the business. They benefit the business, are being used in operating the business and are expected to have long life. Assets initially come from investors and secondarily from creditors
Assets
defined as the residual right or interest of the owner in the entity’s assets; after the creditors’ and suppliers’ claims are satisfied
Owner’s Equity
There is an exchange of values
There are two parties
It is in terms of money
Three features of a transaction
“names” assigned to transactions involved in an exchange of values
account
paid in advance but not yet incurred
prepaid
Due to be settled within 12 months of the Statement of Financial Position date
current
NOT Due to be settled within 12 months of the Statement of Financial Position date
noncurrent
business activity: includes investment made by owner, borrowed amounts from banks and other entities, drawings made by the owner and repayments to lenders
Financing
business activity: includes acquisition of properties such as land, furniture, machineries and equipment as well as the eventual disposal of any of these on replacement or retirement date
Investing
business activity: relating to the earning activities of the enterprise such as selling of goods or services and incurring of services or expenses
Operating
net income can be computed by
Revenues – Costs & Expenses = Net Income
Account may be expressed in a “T” device form
T-account
form of T account
Debits are on the left hand while credits are on the right hand side of the letter “t”
debtor
or borrower
creditor
or lender
