FAR - C1

Vocabulary flashcards covering the essential elements of the accounting definition and its key concepts from Page 1 notes.

Accounting

A process of identifying, recording and communicating economic information that is useful in making economic decisions.

Identifying

The process of analyzing each business transaction to determine whether it is an 'accountable event' or a 'non-accountable event'.

Accountable events

Events that affect assets, liabilities, equity, income or expenses; only these events are recorded in the books.

Non-accountable events

Events that do not affect assets, liabilities, equity, income or expenses (often sociological or psychological matters) and are not recorded in the books.

Recording

The act of recognizing (recording) identified accountable events in the books; this process is called journalizing.

Journalizing

The process of recording identified accountable events in the books.

Economic information

Information about economic transactions that is useful in making economic decisions.

Accounts

After journalizing, the accountant then classifies the effects of the event on the

Account

Is the basic storage of information in accounting

Communicating

At the end of each accounting period, the accountant summarizes the information processed in the accounting system in order to produce meaningful reports

Financial statements

Accounting information is communicated to interested users through accounting reports, the most common form of which is the

True

Information processed in the accounting system is useless unless it is communicated to interested users

Accounting

Is a process with a basic purpose of providing information about economic activities that is intended to be useful in making economic decisions.

Quantitative information, qualitative information, and financial information

Types of information provided by accounting

Quantitative information

Information expressed in numbers, quantities, or units

Qualitative information

Information expressed in words or descriptive form

Financial information

Information expressed in money

True

Financial information is also quantitative information because monetary amounts are normally expressed in numbers

Social science

As a _______________, accounting is a body of knowledge which has been systematically, gathered, classified and organized

Practical art

As a _______________, accounting requires the use of creative skills and judgment

System

Is the one that consists of an input, a process, and an output

In an accounting system The inputs are the identified accountable events; the processes are recording, classifying and summarizing; and the output is the accounting report that this communicated to the users

Bookkeeping

Refers to the process of recording the accounts or transactions of an entity

Accounting

Covers the whole process of identifying, recording, and communicating information to interested users

Language of business

Accounting is often referred to as the “_________________” because it is fundamental to the communication of financial information

1. To provide external users with information that is useful in making investment and credit decisions

2. To provide internal users with information that is useful in managing a business

Two broad functions of accounting in a business

Internal users and External users

Users of accounting information

Internal users

Those who are directly involved in managing the business, Such as business owners who are directly involved in managing the business, board of directors and manager personnel

External users

Those who are not directly involved in managing the business

General purpose accounting information and special purpose accounting information

Two types of Accounting information classified as to users’ needs

General purpose accounting information

Is information designed to meet the common needs of most statement users.

Special purpose accounting information

Designed to meet the specific needs of particular statement users

Special purpose accounting information

It is provided by management accounting or other branches of accounting and prepared primarily for internal users

General purpose accounting information

Provided by financial accounting is prepared primarily for external users

Existing investor

As an external user with a decision to make whether to hold Or sell investment in stocks

Potential investor

An external loser with a decision to make whether or not to buy shares of stocks

Lender

An external user with a decision to make whether or not to extend loan to a business

Supplier

An external user with a decision to make whether or not to extend credit to a business

Investors

These users need audited financial statements of the business to aid in analyzing the value of the company. (General purpose information)

Lender or supplier

These users need audited financial statements of the business to analyzing the company’s ability to pay its debts

Manager

This user makes a decision whether or not to increase the sale of a product

Investor

Their need is to assess the financial performance of the business

Creditor

Their need is to assess the ability of the business to generate revenue and cash flow from its operations

8500 BC

Accounting has already existed as early as ______ BC

1340 AD in Genoa

Double entry records first came out during

1494, by Fra Luca Pacioli

In ____, The first systematic record keeping dealing with the double entry recording system was formulated by _________________

Double entry recording system

Was included in Pacioli’s book titled “Summa di Arithmetica Proportioni and Proportionista”

November 10, 1494 in Venice

Pacioli’s book was published on

Fra Luca Pacioli

He is the father of modern accounting

Financial Accounting

Is the branch of accounting that focuses on general purpose financial statements

General purpose financial statements

Are those statements that catered to the common needs of external users, primarily the potential and existing Investors, and lenders and other creditors

PFRS accounting standards

Financial accounting is governed by the

Financial reporting

Endeavors to promote principles that are also useful to other financial reporting

Financial statements

Financial statements are the structured representation of an entity, financial position and results of its operations. They are the end product of the accounting process, and the means by which information gathered and process our periodically communicated to users.

Financial report

Includes the financial statements plus other information provided outside the financial statements that assist in the interpretation of a complete financial statements are improves users’ ability to make efficient economic decisions

Financial report has other information

The difference between financial report and financial statements

Financial reporting

Is the provision of financial information about an entity that is useful to external users, primarily the investors, lenders and other creditors, in making investment and credit decisions

To provide information about an entity’s economic resources (assets), Claims to those resources (Liabilities and equity), And changes in those resources (income expenses, and other changes)

The primary objective of financial reporting

To provide information useful in assessing the entity’s management stewardship

The secondary objective of financial reporting

Management stewardship

How efficiently and effectively the entities management has discharged its responsibilities to use the entity’s economic resources

Reporting entity

It’s one that is required, or chooses, to prepare financial statements, for example, a business

Management accounting

Involves the accumulation and communication of information for use by Internal users

Government accounting

Refers to the accounting for the government

Auditing

Involves the inspection of an entity, financial statements or business processes to ascertain their correspondence with established criteria

Tax accounting

Is the preparation of tax returns and rendering of tax advice, such as the determination of tax consequences of certain proposed business endeavors

Cost accounting

Is the systematic recording and analysis of the costs of materials, labor, and overhead incident to the production of goods or rendering of services

Accounting education

Reference to teaching accounting and accounting related subjects in an organized learning environment

Accounting research

Is a branch of accounting that pertains to the careful analysis of economic events, and other variables to understand their impact on decisions

Accounting education

It is a process of facilitating, the acquisition of knowledge and skills regarding one or more of the other branches of accounting

Financial accounting

Impact of their value measurement on the financial statements relates to what branch of accounting

Management Accounting

Inventory management and its effect on earnings relates to what branch of accounting

Auditing

Internal controls and modern technology relates to what branch of accounting

Accounting education

Becoming a certified public accountant, relates to what branch of accounting

Financial accounting

All businesses use this branch of accounting in their record keeping

Auditing

Expression of an opinion on the correspondence between management assertions And established criteria relates to what branch of accounting

Independent auditors’ report

The most common form of an audit opinion

Business

An activity where goods or services are exchanged for money

An entrepreneur Or businessman

A person who is engaged in business

Sole proprietorship, partnership, corporation, cooperative

What are the four forms of business organizations

Sole or single proprietorship

Is a business that is owned by only one individual

Securities and exchange commission

Partnership is registered with the

Sole proprietorship

It is the most common and simplest form of a business organization

Operation of law

A corporation is created by ___________ Rather than a contract

Partnership

Is a business that is owned by two or more individuals who entered into a contract to carry on the business and divide among themselves the earnings there from

Shares of stocks

Ownership incorporation is represented by

Stockholders or Shareholders

The owners in corporation are called

15

The incorporator’s or founders of a corporation shall not be more than

Cooperative

Is an association of individuals who joined together to contribute capital and cooperate in order to achieve certain goals

Securities and exchange commission

A corporation is registered with the

Corporation

It’s an artificial being or a judicial person, meaning in the eyes of the law, a corporation is like a person separated from its owners

Patronage fund

The profit that the cooperative returns to its owners

15

The following members of the cooperative shall not be less than

Cooperative development authority

A cooperative is registered with the

Cooperative

It is formed in accordance with the cooperative code

1. Service business

2. Merchandising (Trading)

3. Manufacturing

Are the types of business according to activities

manufacturing business

Is one that buys raw materials and processes them into final products

Service business

Is one that offer services As its main product rather than physical goods

Merchandising business (Or trading business)

This one that buys and sells goods without changing their physical form

Hybrid businesses

Our businesses that engage in one or more than one type of activity

Advantages of a Service Business

You don’t need to worry about inventory; you may only need a small capital because what you are selling is your skill set; and you are perceived as an expert in your chosen field