Accounting Fundamentals: Concepts, Principles, and the Global Framework

This set of vocabulary flashcards covers the fundamental concepts, regulatory frameworks (GAAP/PFRS), and the core accounting principles and equations discussed in the lecture.

Accounting

A systematic process of identifying, recording, and communicating economic information to allow for informed judgments and decisions by users.

GAAP

Stands for Generally Accepted Accounting Principles; a uniform set of rules for financial reporting that ensures financial statements are consistent across companies.

PFRS

Stands for Philippine Financial Reporting Standards; these are fully aligned with International Financial Reporting Standards (IFRS) and issued by the Financial Reporting Standards Council (FRSC).

Financial Reporting Standards Council (FRSC)

The body in the Philippines responsible for issuing the Philippine Financial Reporting Standards (PFRS).

Business Entity Principle

The concept that a business is treated as a separate person distinct from its owners, meaning personal expenses must not be mixed with business records.

Going Concern

The assumption that a business will continue to operate indefinitely, allowing assets to be recorded at cost and depreciated over their useful life rather than at liquidation value.

Time Period Principle

The practice of dividing the economic life of a business into artificial breaks or time periods such as Monthly, Quarterly, or Annually ($Fiscal/Calendar$) for timely reporting.

Monetary Unit Principle

The requirement that only events expressible in money are recorded, based on the assumption that the purchasing power of the currency is stable.

Objectivity Principle

The principle that accounting entries must be based on objective evidence ($receipts, invoices, contracts$) so that an independent party could arrive at the same figures.

Historical Cost Principle

The rule that assets are recorded at their original acquisition price rather than their current market value to maintain objectivity.

Accrual Basis

An accounting method where revenue is recognized when earned and expenses are recognized when incurred, regardless of when cash is actually exchanged.

Matching Principle

The requirement to match expenses with the revenues they helped generate in the same accounting period to show the cause-and-effect relationship.

Full Disclosure Principle

The practice of providing all information necessary for a user to understand financial statements, often using footnotes to explain policies or significant events like lawsuits.

Conservatism (Prudence)

The 'Accounting Golden Rule' to anticipate no profits but provide for all possible losses, choosing alternatives that least overstate assets and income.

Materiality Principle

The threshold where an item is considered significant if its omission or misstatement could influence the economic decisions of users.

Accounting Equation

The fundamental balance of double-entry bookkeeping expressed as $Assets = Liabilities + Equity$.

Assets

Resources owned or controlled by a business as a result of past events that are expected to provide future economic benefits.

Current Assets

Assets expected to be converted to cash or used up within one year, such as Cash or Supplies.

Non-Current Assets

Long-term investments or property used in operations, such as Buildings and Machinery.

Liabilities

Present obligations arising from past events, the settlement of which is expected to result in an outflow of resources.

Owner's Equity

The residual interest of the owners in the assets of the business after deducting all liabilities, calculated as $Equity = Assets - Liabilities$.

Expanded Accounting Equation

The detailed version of the accounting equation: $Assets = Liabilities + Capital + Revenue - Expenses - Drawings$.

Asset Exchange

A transaction where one asset is traded for another, such as buying equipment for cash, resulting in no change to the total value of assets.