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FDNACCT > Unit 1: Introduction to Accounting > Flashcards

Unit 1: Introduction to Accounting Flashcards

1
Q

What is accounting?

A

The process by which financial information about a business is classified, recorded, summarized, interpreted, and
communicated to owners, managers, and other interested parties.

The art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and
events which are, in part at least of financial character, and interpreting the results thereof.

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2
Q

GAAP

A

Generally Accepted Accounting Principles

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3
Q

AREAS of Accounting

A
  1. Public Accounting
  2. Private Accounting
  3. Governmental Accounting
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4
Q

Public Accounting

A

Provide accounting services for other companies

Auditing, Tax Accounting, and Management Advisory Services

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5
Q

Private Accounting

A

Works for a single business entity in a specific industry

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6
Q

Governmental Accounting

A

Keeping financial records and preparing financial reports for the national government, its various departments, and local government units

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7
Q

BRANCHES of Accounting

A
  1. Financial Accounting
  2. Auditing
  3. Cost Accounting
  4. Managerial Accounting
  5. Government Accounting
  6. Tax Accounting
  7. Accounting Information System
  8. Forensic Accounting
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8
Q

PRIMARY USERS of Accounting Information

A
  1. Investors (Individuals, businesses, banks, insurance companies)
  2. Lenders, and other creditors (Lenders ensure the business is capable of repaying a loan, creditors/suppliers assess the business’ ability to pay its bills)
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9
Q

INTERNAL Users of Accounting Information

A

INTERNAL Users
1. Owners - Monitor business performance to check return on investment

  1. Managers - Evaluate results of company’s operations to make decisions for the future
  2. Employees - Ensure that the business can pay salaries and other benefits
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10
Q

EXTERNAL Users of Accounting Information

A

EXTERNAL Users
1. Tax authorities - Collect taxes
2. Regulatory agencies - Oversee the financial information provided by PUBLIC companies
3. Customers
4. Employee unions
5. Trade associations
6. Financial intermediaries

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11
Q

Forms of Business Organization

A
  1. Sole Proprietorship
  2. Partnership
  3. Corporation
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12
Q

Forms of Business (Type/Activity)

A
  1. Service - Provides services
  2. Merchandising - Buys and sells goods
  3. Manufacturing - Converts raw materials to finished goods
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13
Q

It is known as the language of business

A

Accounting

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14
Q

What is an Account?

A

A written record of the assets, liabilities, and owner’s equity of a business

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15
Q

Chart of Accounts

A

A list of all accounts used by a business to record its financial transactions

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16
Q

Are INCREASES or DECREASES recorded on the NORMAL BALANCE side of an account?

A

Increases

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17
Q

Are INCREASES or DECREASES recorded on the OPPOSITE SIDE of the normal balance?

A

Decreases

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18
Q

What is Normal Balance?

A

The normal balance (NB) of an account its normal side in the accounting equation

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19
Q

Accounting Equation

A

Assets = Liabilities + Owners Equity

A = L + OE

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20
Q

What is the NORMAL BALANCE SIDE of Assets?

A

Left side (Debit)

21
Q

What is the NORMAL BALANCE SIDE of Liabilities?

A

Right side (Credit)

22
Q

What is the NORMAL BALANCE SIDE of Owner’s Equity?

A

Right side (Credit)

23
Q

Where are INCREASES recorded under Liabilities?

A

Since the NORMAL BALANCE SIDE of Liabilities is on the right side (credit), increases are recorded on the right (credit)

24
Q

Where are INCREASES recorded under Assets?

A

Since the NORMAL BALANCE SIDE of Assets is on the left side (debit), increases are recorded on the left (debit)

25
Q

Where are INCREASES recorded under Owner’s Equity?

A

Since the NORMAL BALANCE SIDE of OE is on the right side (credit), increases are recorded on the right (credit)

26
Q

Where are INCREASES recorded in Owner’s Capital?

A

Owner’s Capital is a Normal Credit account, thus, increases are recorded on the right side.

27
Q

Where are INCREASES recorded in Owner’s Drawing?

A

Owner’s Drawing is a Normal Debit account, thus, increases are recorded on the left side.

28
Q

What is the NORMAL BALANCE SIDE of Revenues?

A

Revenues is a Normal Credit account, thus, increases are recorded on the right side.

29
Q

What is the NORMAL BALANCE SIDE of Expenses?

A

Expenses is a Normal Dedit account, thus, increases are recorded on the left side.

30
Q

What is ALORE and their normal balance sides?

A

Assets DEBIT SIDE
Liabilities CREDIT SIDE
Owner’s Equity CREDIT SIDE
Revenues CREDIT SIDE
Expenses DEBIT SIDE

31
Q

What accounts go on the Balance Sheet?

A

Assets, Liabilities, and Owner’s Equity
ALOBS (ALO-Balance Sheet)

32
Q

What accounts go on the Income Statement or Statement of Profit & Loss or P&L Statement?

A

Revenues and Expenses
REPL (RE-Profit & Loss)

33
Q

Income is an inflow of assets that results from the sales of goods or services or from the use of money or property.

T or F

A

True

34
Q

The form of the statement which shows the liabilities and owner’s equity below the total assets is called the account form of the Statement of Financial Position.

T or F

A

False. Report Form

35
Q

The natural form of Statement of Profit or Loss is generally used by service businesses because of its simplicity.

T or F

A

True

36
Q

Accounting is defined as the process of recording financial and non-financial transactions pertaining to a business. Which includes summarizing, analyzing, and reporting these transactions to various stakeholders.

T or F

A

True

37
Q

The business offers term of 90 days for its sales on account. It records the revenue from these sales as soon as the sales are made rather than waiting until cash is received from the customers. This is in accordance with matching principle.

T or F

A

False. Revenue Recognition Principle

38
Q

Cost-Benefit Test is not difficult to determine as both cost and benefits are easy to measure.

T or F

A

False. Not easily determinable

39
Q

Tax compliance refers to giving advice to clients on how to structure their financial affairs in order to reduce tax liability.

T or F

A

False. Tax planning

40
Q

According to the Conceptual Framework, the primary users of financial statements are the owner/s and managers.

T or F

A

False. Primary users are investors, lenders, and other creditors.

41
Q

Limited liability and indefinite business life are characteristics of a corporation.

T or F

A

True

42
Q

The business entity concept means that…

A

The entity is an individual economic unit for which data are recorded, analyzed, and reported.

43
Q

The going concern assumption assumes that…

A

The business will continue to operate indefinitely.

44
Q

Under the accrual basis of accounting…

A

Revenue is recorded in the period in which it is earned and expenses are recorded in the period in which incurred.

45
Q

Which of the following is the best description of “faithful representation” in relation to information in financial statements?

a. Influence on the economic decisions of users
b. Freedom from material error
c. Comprehensibility to users
d. Inclusion of a degree of caution

A

b. Freedom from material error

46
Q

Owner’s drawings increase or decrease owner’s equity?

A

Decrease

47
Q

Equity Formula

A

Equity = Total Assets - Total Liabilities

48
Q

Liabilities Formula

A

Total Liabilities = Current Liabilities + Non-current Liabilities

FDNACCT (3 decks)

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