Introduction to Accounting Practice Flashcards

Vocabulary flashcards covering the history, definitions, functions, and regulatory environment of basic financial accounting and reporting.

Fra. Luca Pacioli

A Franciscan monk and mathematician considered the father of modern accounting who formulated the systematic double entry recording system in $1494$.

Summa di Arithmetica Geometria Proportioni and Proportionista

The book published by Pacioli on November $10$, $1494$ in Venice, which included the first formal description of the double entry recording system.

Accounting (FRSC definition)

A service activity whose function is to provide quantitative information, primarily financial in nature, about economic entities intended to be useful in making economic decisions.

Recording

The phase of accounting involving journalization, or committing business transactions to writing in chronological sequence in books of accounts.

Classifying

The phase of accounting involving sorting or grouping similar and interrelated transactions into their respective classes by posting to the ledger.

Summarizing

The phase of accounting involving the periodic preparation of financial statements, including the income statement, balance sheet, and cash flow statement.

Liquidity

The ability of a company to pay its current obligations, often assessed by the amount of cash a company has.

Solvency

The ability of a business entity to pay its long-term obligations.

Profitability

The ability of a company to increase capital through the results of operations rather than additional investment.

Identifying

The accounting process of recognizing and non-recognizing business activities as accountable events based on their effect on assets, liabilities, or equity.

Measuring

The process of assigning peso amounts to accountable economic transactions using bases like historical cost, current cost, realizable value, or present value.

Communicating

The process of preparing and distributing accounting reports or financial statements to the potential users of information.

Historical Cost

The original acquisition cost and the most common measure used for financial transactions.

External Users

Users who lack direct access to internal business operations, such as investors, lenders, and government agencies, and rely on general-purpose financial statements.

Internal Users

Managers of a business entity who need information for effective stewardship and making internal economic decisions.

Stewardship

Management’s responsibility to properly utilize and develop its resources, including people, property, and financial assets.

Statement of Financial Position

A formal statement showing the financial position of an enterprise as of a specific date, displaying assets, liabilities, and equity.

Income Statement

A formal statement showing the results of operation for a specific period, presenting revenues, expenses, gains, losses, and net income.

Cash Flow Statement

A report providing information about the cash receipts and cash payments of an enterprise during a specific period.

Bookkeeping

The procedural element of accounting involving the recording of transactions in the books of accounts, typically ending with a trial balance.

Proprietorship

A form of business ownership by a single person who has full control but faces unlimited liability.

Partnership

A legal arrangement where two or more persons contribute capital or services and divide the profits or losses.

Corporation

An artificial being created by operation of law, owned by at least $5$ persons, with rights of succession and limited liability.

Cooperative

An organization registered with the Cooperative Development Authority (CDA) with at least $15$ founding members.

Financing Activities

Business activities involving obtaining resources from owners, borrowing resources, and repaying amounts borrowed.

Investing Activities

Activities involving the acquisition and disposition of property, plant, equipment, and other long-term assets.

Operating Activities

The principal revenue-producing activities of an enterprise, such as producing/delivering goods or providing services.

Republic Act 9298

Known as 'The Philippine Accountancy Act of $2004$', it is the law regulating the practice of accountancy in the Philippines.

Auditing

The branch of accounting involving the examination of financial statements to ascertain their correspondence with established criteria.

Separate Entity Concept

The assumption that a business is an entity separate and distinct from its owner or owners.

Periodicity Concept

The practice of subdividing the indefinite life of an enterprise into equal time periods, usually $12$ months, for financial reporting.

Accrual Basis of Accounting

The principle that economic events are recorded when they occur (income when earned, expense when incurred), regardless of cash flow.

Going Concern

The assumption that an accounting entity will continue in operation indefinitely for the foreseeable future.

Stable Monetary Unit

The assumption that assets, liabilities, and equity are stated in a unit of measure (the peso) and that its purchasing power is constant.

Securities and Exchange Commission (SEC)

The regulatory body tasked with regulating corporations and partnerships, requiring them to file audited financial statements.

Bureau of Internal Revenue (BIR)

The agency tasked with collecting national taxes and administering the provisions of the Tax Code.

Bangko Sentral ng Pilipinas (BSP)

The regulatory body tasked with overseeing banks and other entities performing banking functions.

Current Cost

A measurement base identified as the replacement cost or the current purchase price of an asset.

Realizable Value

The amount that could currently be obtained by selling an asset in an orderly disposal.

Present Value

The discounted value of future net cash inflows that an asset is expected to generate during the normal course of business.