CAE 101 Fundamentals of Accounting Reviewer

100 question-and-answer flashcards covering fundamental accounting concepts, principles, transaction analysis, ethics, financial statement elements, and the accounting cycle.

What is accounting often referred to as?

The "language of business".

How does the Accounting Standards Council (ASC) define accounting?

A service activity that provides financial information useful in making economic decisions.

How does the Financial Accounting Standards Board (FASB) define accounting?

An information system that measures, processes, and communicates financial information.

How does the Accounting Principles Board (APB) define accounting?

The process of identifying, measuring, and communicating economic information to users.

How does the American Institute of Certified Public Accountants (AICPA) define accounting?

The art of recording, classifying, summarizing, and interpreting financial transactions.

What does the acronym ASC stand for?

Accounting Standards Council

What does the acronym FASB stand for?

Financial Accounting Standards Board

What does the acronym APB stand for?

Accounting Principles Board

What does the acronym AICPA stand for?

American Institute of Certified Public Accountants

What are the six main purposes of accounting listed in the lecture?

Record business transactions, protect business assets, comply with legal requirements, measure financial performance, assist management in planning and controlling operations, and provide information for decision-making.

What does the Business Entity principle state?

Business transactions are treated separately from the owner.

What does the Going Concern principle state?

The business is expected to continue to operate.

What does the Monetary Unit principle state?

Only transactions measurable in money are recorded.

What does the Historical Cost Principle state?

Assets are recorded at acquisition cost.

What does the Time Period principle state?

Business life is divided into periods such as monthly, quarterly, or annually.

What does the Matching Principle state?

Expense is recognized in the same period as related revenue.

What does the Revenue Recognition Principle state?

Revenue is recognized when earned on an accrual basis.

What does the Conservatism principle state?

When uncertain, choose the option that is less likely to overstate.

What does the Materiality principle state?

Only important information affects decision-making.

What does the Full Disclosure Principle state?

Financial statements should contain all relevant information.

What does the Objectivity Principle state?

Transactions are recorded based on reliable and correct info.

What is the "Identifying" phase of accounting?

Recognizing and analyzing financial transactions and events that need to be recorded.

What is the "Recording" phase of accounting?

Systematically documenting the identified transactions in the appropriate accounts, typically using journals and ledgers.

What is the "Classifying" phase of accounting?

Organizing recorded data into categories to facilitate analysis, often through the preparation of financial statements.

What is the "Summarizing" phase of accounting?

Compiling and interpreting the classified data to produce financial reports that provide insights into the organization's financial performance and position.

How are Assets defined in the lecture notes?

Tangible or intangible items owned by business.

How are Liabilities defined in the lecture notes?

Owes to outsiders; loans, payables.

How is Owner's Equity defined in the lecture notes?

Net worth.

How is Income defined in the lecture notes?

Earn by selling goods or services.

How are Expenses defined in the lecture notes?

Purchases for daily activities, salaries, rents, utilities.

What is the basic Accounting Equation?

$$\text{Assets} = \text{Liabilities} + \text{Owner's Equity}$$

Who owns a Sole Proprietorship and what is the owner called?

Owned by 1 person, called a "Proprietor".

Who owns a Partnership and what are the owners called?

Owned by 2 or more persons, called "Partners".

Who owns a Corporation and how is it managed?

Owned by stockholders and managed by BOD (Board of Directors).

What is the liability status for Sole Proprietorships and Partnerships?

Unlimited liability.

What is the liability status for a Corporation?

Limited liability.

How are profits/losses (P/L) handled in a Partnership versus a Corporation?

In a Partnership, P/L is based on agreement; in a Corporation, it is a separate legal entity.

What examples of Sole Proprietorship are given in the text?

Sari-sari store and Barbershop.

What examples of Partnership are given in the text?

Law firms and Accounting firms.

What examples of Corporation are given in the text?

Jollibee Food Corporation and San Miguel Corporation.

What accounts have a normal balance of Debit according to the DEA mnemonic?

Drawings / Withdrawal, Expenses, and Assets.

What accounts have a normal balance of Credit according to the LER mnemonic?

Liability, Equity / Owner's Equity, and Revenue / Income.

What are the three main types of business listed in the notes?

Service, Manufacturing, and Merchandising.

What is Financial Accounting?

Focused on external reports and recording of business transactions; follows GAAP.

What is Management Accounting?

Focused on internal decisions; incorporates a wide range of information.

What is Cost Accounting?

Concerned with product costing and manufacturing cost of business enterprise.

What is Tax Accounting?

Focused on tax compliance; includes the computation of taxable income.

What is Internal Auditing?

Focuses on policies and procedures of an entity's financial statement.

What is External Auditing?

Independent examination of an entity's financial statement.

What is Government Accounting?

Focused on allocation and utilization of government budgets.

Who are listed as Internal Users of accounting information?

Board of Directors, Managers, and Accountants.

Who are listed as External Users of accounting information?

Investors/Shareholders, Lenders, Suppliers, Employees & Trade Unions, Customers, Government and Tax Authorities, and General Public.

Receiving cash from rendering a transaction represents which type of Owner's Equity transaction?

Income.

Withdrawing cash for personal expenses represents which type of Owner's Equity transaction?

Owner's withdrawal.

Paying a service station for gasoline for a business vehicle represents which type of Owner's Equity transaction?

Expense.

What are the two transaction effects listed under "Source of Assets"?

$\uparrow \text{Asset} = \uparrow \text{Liability}$ and $\uparrow \text{Asset} = \uparrow \text{Owner's Equity}$

What is the transaction effect listed under "Exchange of Assets"?

$$\uparrow \text{Asset} = \text{another Asset} \downarrow$$

What are the two transaction effects listed under "Use of Assets"?

$\text{Asset} \downarrow = \text{Liability} \downarrow$ and $\text{Asset} \downarrow = \text{Owner's Equity} \downarrow$

What are the four transaction effects listed under "Exchange of Claims"?

$\uparrow \text{Liability} = \text{Owner's Equity} \downarrow$, $\uparrow \text{Owner's Equity} = \text{Liability} \downarrow$, $\uparrow \text{Liability} = \text{Liability} \downarrow$, and $\uparrow \text{Owner's Equity} = \text{Owner's Equity} \downarrow$

What is Step 1 of Transaction Analysis?

Identify transaction from source documents.

What is Step 2 of Transaction Analysis?

Indicate the accounts (Asset/Liability/Equity/Income/Expenses).

What is Step 3 of Transaction Analysis?

Ascertain whether the account decrease or increase.

What is Step 4 of Transaction Analysis?

Determine whether Debit or Credit.

List the eight source documents mentioned in the notes.

Sales invoice, Cash Register tapes, Official Receipt, Bank deposit slip, Checks, Purchase order, Bank statements, and Time Card.

What is Step 1 of the Accounting Cycle?

Identification of events to be recorded.

What is Step 2 of the Accounting Cycle?

Transactions are recorded in the journal.

What is Step 3 of the Accounting Cycle?

Journal entries are recorded in the Ledger.

What is Step 4 of the Accounting Cycle?

Preparation of a Trial Balance.

What is Step 5 of the Accounting Cycle?

Preparation of Worksheet including Adjusting entries.

What is Step 6 of the Accounting Cycle?

Preparation of the financial statements.

What is Step 7 of the Accounting Cycle?

Adjusting Journal Entries are journalized and posted.

What is Step 8 of the Accounting Cycle?

Closing Journal entries are journalized and posted.

What is Step 9 of the Accounting Cycle?

Preparation of Post Closing Trial Balance.

What is Step 10 of the Accounting Cycle?

Reversing Journal Entries.

Which steps of the Accounting Cycle take place "During the Accounting Period"?

Steps 1, 2, and 3.

Which steps of the Accounting Cycle take place "At the end of the Accounting Period"?

Steps 4, 5, 6, 7, 8, and 9.

Which step of the Accounting Cycle takes place "At the start of the next Period"?

Step 10 (Reversing Journal Entries).

How is a Professional Accountant defined in the transcript?

An individual who holds a valid certificate issued by the Board of Accountancy (i.e., CPA).

What is contained in Part A of the Code Structure for Professional Accountants?

Fundamental principle & conceptual framework.

What is contained in Part B of the Code Structure for Professional Accountants?

Professional accountants in public practice.

What is contained in Part C of the Code Structure for Professional Accountants?

Professional accountants in business.

What standard-setting and regulatory bodies approved, adopted, and finalized the Code of Ethics for Professional Accountants?

Approved by Board of Directors of PICPA, adopted by Board of Accountancy (BOA), and finally approved by Professional Regulation Commission (PRC).

What are the five Fundamental Principles of the Code of Ethics for Professional Accountants?

1. Integrity, 2. Objectivity, 3. Professional Competence and Due care, 4. Confidentiality, 5. Professional Behavior.

What are the four career opportunities listed for the accountancy profession?

Public Practice, Commerce and Industry, Government service, and Education/Academe.

Which three elements form the Statement of Financial Position?

Assets, Liabilities, and Equity.

Which two elements form the Income Statement?

Income and Expense.

What is a Journal (or General Journal)?

Book of original entry.

What is a Ledger (or General Ledger)?

Book of final entry.

What is Posting?

Process of transferring information from the journal to the appropriate ledger accounts.

What is a Trial Balance?

List of all ledger account balances prepared to check whether total debits equal total credits.

How is the Accounting Cycle defined on Page 5 of the notes?

Systematic series of steps followed in recording, classifying, summarizing, and reporting business transactions.

How are Source Documents defined on Page 5 of the notes?

Documentary evidence that supports the occurrence of a business transaction, such as a receipt, invoice, or check.

What is Transaction Analysis according to Page 5 of the notes?

Analysis of a business transaction to determine which accounts are affected and whether they should be debited or credited.

What are Adjusting Entries according to Page 5 of the notes?

Entries made to update certain accounts at the end of an accounting period before financial statements are prepared.

How are Financial Statements defined on Page 5 of the notes?

Formal reports that present the financial information and performance of a business.

What are Closing Entries according to Page 5 of the notes?

Process of transferring the balances of temporary accounts to the appropriate permanent account at the end of the accounting period.

What is a Chart of accounts?

Indicates the names and numbering system of accounts.

What is a T-Account?

Simplest form of the account; it has 3 parts.

What is meant by Debits and Credits under the Double Entry System?

The dual effect of business transaction.

What course code and title are associated with these lecture notes?

CAE 101 (Fundamentals of Accounting).