Accounting Principles Flashcards

Flashcards covering accounting definitions, processes, and principles as discussed in the lecture notes.

Accounting

A service activity that provides quantitative information, primarily financial, about economic entities useful for making economic decisions.

Identifying

Recognition or nonrecognition of business activities as 'accountable' events; events are quantifiable when they affect assets, liabilities, and equity.

Measuring

Assigning peso amounts to accountable economic transactions and events, expressed in a common financial denominator.

Communicating

Preparing and distributing accounting reports to potential users of accounting information; includes recording, classifying, and summarizing.

External transactions

Economic events involving one entity and another entity.

Internal transactions

Economic events involving the entity only, taking place entirely within the entity.

Board of Accountancy

The body authorized to promulgate rules and regulations affecting the practice of accountancy in the Philippines and responsible for preparing/grading the CPA exam.

Public Accounting

Rendering independent and expert financial services to the public, including auditing, taxation, and management advisory services.

Private Accounting

Employed in business entities, assisting management in planning and controlling operations, maintaining records, and preparing financial reports.

Government Accounting

Analyzing, classifying, summarizing, and communicating transactions involving the receipt and disposition of government funds and property.

Continuing Professional Development (CPD)

Inculcation and acquisition of advanced knowledge, skill, proficiency, and ethical and moral values after the initial registration of the CPA for assimilation into professional practice and lifelong learning.

Auditing

Examines financial statements to ascertain whether they conform to generally accepted accounting principles.

Controller

The highest accounting officer in an entity.

Management advisory services

Helps clients on accounting, finance, business policies, organization procedures, product costs, distribution and other phases of business conduct and operations.

Bookkeeping

Procedural, concerned with development and maintenance of accounting records.

Accounting

Conceptual, concerned with the why, reason, or justification for any action adopted.

Financial Accounting

Concerned with recording business transactions and preparing financial statements for both internal and external users.

Managerial Accounting

Accumulation and preparation of financial reports for internal users only.

Generally Accepted Accounting Principles (GAAP)

Rules, procedures, practices, and standards followed in the preparation and presentation of financial statements.

Accounting standards

Identifies proper accounting practices for the preparation and presentation of financial statements.

Financial Reporting Standards Council (FRSC)

Replaced the Accounting Standards Council; the accounting standard-setting body in the Philippines.

Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS)

Statements of the FRSC, corresponding to International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS).

Philippine Interpretations Committee (PIC)

Prepares interpretations of PFRS for approval by the FRSC and to provide timely guidance on financial reporting issues.

International Accounting Standards Committee (IASC)

An independent private sector body with the objective of achieving uniformity in accounting principles worldwide.

International Accounting Standards Board (IASB)

Replaced the International Accounting Standards Committee (IASC) and publishes International Financial Reporting Standards (IFRS).

Conceptual Framework for Financial Reporting

A summary of the terms and concepts that underlie the preparation and presentation of financial statements for external users.

Primary users

Parties to whom general purpose financial reports are primarily directed–existing and potential investors, lenders and other creditors.

Other users

Users of financial information other than the existing and potential investors, lenders and other creditors--employees, customers, governments and the public.

Objective of financial reporting

Provides financial information that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

Relevance

The capacity of the information to influence a decision.

Predictive value

If it can be used as an input to processes employed by users to predict future outcome.

Confirmatory value

If it provides feedback about previous evaluations.

Materiality

Dictates that strict adherence to GAAP is not required when the items are not significant enough to affect the evaluation, decision and fairness of the financial statements.

Faithful representation

Financial reports represent economic phenomena or transactions in words and numbers; descriptions and figures must match what really existed or happened.

Completeness

Requires that relevant information should be presented in a way that facilitates understanding and avoids erroneous implication.

Neutrality

Depiction is without bias in the preparation or presentation of financial information.

Prudence

The exercise of care and caution when dealing with the uncertainties in the measurement process such that assets or income are not overstated and liabilities or expenses are not understated.

Free from error

Means there are no errors or omissions in the description of the phenomenon or transaction.

Timeliness

Financial information must be available or communicated early enough when a decision is to be made.

Enhancing qualitative characteristics

Relate to the presentation or form of the financial information; are intended to increase the usefulness of the financial information that is relevant and faithfully represented.

Cost constraint

The pervasive constraint on the information that can be provided by financial reporting.

Qualitative characteristics

Are the qualities or attributes that make financial accounting information useful to the users. These are relevance and faithful representation.

Comparability

The ability to bring together for the purpose of noting points of likeness and difference

Understandability

Requires that financial information must be comprehensible or intelligible if it is to be most useful.

General Objective of Financial Statements

Financial statements provide information about economic resources of the reporting entity, claims against the entity and changes in the economic resources and claims.

Reporting entity

A single entity or a portion of an entity; or can comprise more than one entity that is required or chooses to prepare financial statements.

Reporting period

The period when financial statements are prepared for general purpose financial reporting. It is an annual basis or a period of twelve months.

Accounting Assumptions

Basic notions or fundamental premises on which the accounting process is based, such as going concern, accounting entity, time period, and monetary unit.

Going concern assumption

Financial statements are normally prepared on the assumption that the entity will continue in operations for the foreseeable future.

Accounting entity assumption

The specific business organization, which may be a proprietorship, partnership or corporation.

Time period assumption

Requires that the indefinite life of an entity is subdivided into accounting periods which are usually of equal length for the purpose of preparing financial reports on financial position, performance and cash flows.

Monetary unit assumption

Has two aspects quantifiability and stability of the peso.

Elements of financial statements

Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics.

Asset

The economic resource is a right that has the potential to produce economic benefits. It is controlled by the entity as a result of past events.

Liability

An obligation to transfer an economic resource as a result of past events.

Income

Increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity holders and encompasses both revenue and gains.

Expense

Decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to equity holders and encompass losses as well as those expenses that arise in the course of the ordinary regular activities

Recognition

defined as the process of capturing for inclusion in the financial statements of an asset, a liability or equity is.

Derecognition

The removal of all or part of a recognized asset or liability from the statement of financial position.

Measurement

Quantifying in monetary terms the elements in the financial statements

Historical cost

Cost incurred in acquiring or creating the asset comprising the consideration paid plus transaction cost.

Current value

Includes fair value for liabilities and current amount.

Presentation and disclosure

An effective communication tool about the information in financial statements.

Classification

Is the sorting of assets, liabilities, equity, income and expenses on the basis of shared or similar characteristics.

Transaction approach

Is the traditional preparation of an income statement.

Capital maintenance approach

Means that net income occurs only after the capital used from the beginning of the period is maintained.

Financial capital

Includes invested money or invested purchasing power, capital is synonymous with net assets or equity of the entity.

Physical capital

This requires that productive assets be measured at current cost, rather than historical cost.

Financial statements

Provide information about economic resources of the reporting entity, claims against the entity and changes in the economic resources and claims.

Statement of financial position

An asset which is measured to see about the financial position of the entity

General purpose financial statements

Intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs. It is directed to all common users and not to specific users.

Asset

An economic resource controlled by an entity as a result of past event; has the potentional to produce economic benefits and is classified only into current assets and noncurrent assets.

Income statement

The economic performance for a given period of time, presenting the income expenses, gains, losses and net income or loss recognized during the period

Currently liable

Liabilities in equity after accounting statement, and is classified as current and noncurrent

Equity

Residual interest and what owners get after

Notes to financial statements.

Provides to describe items presented with additional information

Natural presentation.

Used for financial benefits or business and is usually done with investment and a number of items is needed to classify it.

Income statement

Formal statements showing the financial performance of an entity for a given period of time, useful in projecting future performance and is prepared in conformity within accounting standards.

Transaction approach

The traditional preparation of the income statement in conformity with accounting standards.

Comprehensive income

Is the change in equity during a period resulting from transactions and other events, other than changes resulting from transactions with owners in their capacity as owners.

Other comprehensive income (OCI)

Comprises items of income and expenses including reclassification adjustments that are not recognized in profit or loss as required or permitted by Philippine Financial Reporting Standards.

Presentation of comprehensive income

An instrument that is measured in 2 statement for two options, 1 having an OCI, or two having profit or loss from certain components and is defined as being shown at years end.

Sources of Income

Sales of good to customers or revenue and fees, commissions and other things done to entities for income.

Components of Expense

Consist of cost of goods sold, distribution costs, and administrative expenses and financial records.

Line items.

Income statements that report on the net income and total in other sections and expenses not found or said in the notes section.

Forms of income statement.

A specific method to show and classify and see all expenses and income with a financial record and show more info.

Distribution cost

The act of what an enterprise does in order to receive goods at a more beneficial stand point.

Administrative expense

An expense that is related to the administration of the business and management with record and taxes etc.

Other expense

Are expensed which not related to other income functions and is found in the chart of accounts.

Statement of retained earnings

Shows the changes affecting directly the retained earnings of an entity and relates the income statement to the statement of financial position

Statement of changes in equity

A basic statement that shows the movements in the elements or components of the shareholders' equity.

Statement of cash flows

Summarizing the operating, investing and financing activities of an entity.

Cash equivalents

Highly liquid investments that are readily convertible to known amount of cash and which are subject to an insignificant risk of change in value.

classifed cash flows

In the statement of cash flows report, during of the given the period.

Operating activities

The cash flows are derived primarily from the principal revenue producing activities of the entity.

investing activities

Acquisition and disposal of long term assets and are not related to investments.

Financing activities

Capital and the borrowings and it can be a good or bad financing depending where you are.