Fundamental Concepts and Principles of Accounting

Comprehensive vocabulary flashcards covering fundamental accounting concepts, GAAP, qualitative characteristics, and financial statement principles as found in the lecture notes.

Entity Concept

An accounting entity is an organization or a section of an organization that stands apart from other organizations and individuals or a separate economic unit whose transactions are evaluated separately.

Periodicity Concept

The subdivision of an entity's life into equal time periods, usually one year, to provide users with timely information for making decisions about future activities.

Stable Monetary Unit Concept

The assumption that the Philippine Peso is a reasonable unit of measure with relatively stable purchasing power, serving as the basis for ignoring the effects of inflation in accounting records.

Accrual Basis

Accounting that depicts the effects of transactions and other events on economic resources and claims in the period they occur, regardless of when cash receipts and payments happen.

Generally Accepted Accounting Principles (GAAP)

A set of rules, procedures, and principles that provide a basis for comparing financial statements across different firms and periods to ensure they are meaningful and useful.

Relevance (Criteria for General Acceptance)

The extent to which an accounting principle results in information that is meaningful and useful to those who need to know something about a certain organization.

Objectivity (Criteria for General Acceptance)

The extent to which information is neutral and not influenced by personal bias or judgment, connoting reliability, trustworthiness, and verifiability.

Feasibility (Criteria for General Acceptance)

The extent to which an accounting principle can be implemented without undue complexity or cost.

Objectivity Principle (Basic Principle)

The practice of basing accounting records on the most reliable, verifiable data available that can be confirmed by independent observers through objective evidence.

Historical Cost

The principle that acquired assets should be recorded at their actual cost rather than what management believes they are worth at the reporting date.

Revenue Recognition Principle

Revenue is recognized in the accounting period when goods are delivered or services are rendered or performed.

Expense Recognition Principle

Expenses are recognized in the period when goods and services are used up to produce revenue, rather than when the entity pays for them.

Adequate Disclosure

The requirement that all relevant information affecting a user's understanding and assessment of the accounting entity be disclosed in the financial statements.

Materiality

The concept that financial reporting is concerned with information significant enough to affect evaluations and decisions based on the size and nature of the item.

Consistency Principle

The requirement that firms use the same accounting methods from period to period to achieve comparability over time within a single enterprise.

Predictive Value

A quality of financial information where it can be used as an input to processes employed by users to predict future outcomes.

Confirmatory Value

A quality of financial information where it provides feedback that confirms or changes previous evaluations.

Faithful Representation

The fundamental characteristic that financial information must represent the phenomena it purports to represent by being complete, neutral, and free from error.

Completeness

A depiction including all descriptions and explanations necessary for a user to understand the phenomenon being depicted.

Neutrality

A depiction that is free from bias and not manipulated to increase the probability that information will be received favorably or unfavorably.

Prudence

The exercise of caution when making judgments under uncertainty so that assets and income are not overstated and liabilities and expenses are not understated.

Freedom from Error

Information where there are no errors or omissions in its description or the process used to produce it, though it does not imply perfect accuracy in all respects.

Comparability

An enhancing characteristic that enables users to identify and understand similarities and differences among items across different entities or periods.

Verifiability

An enhancing characteristic where different knowledgeable and independent observers could reach a consensus that a particular decision is a faithful representation.

Timeliness

Ensuring information is available to decision-makers in time to be capable of influencing their decisions.

Understandability

The quality of information that is classified, characterized, and presented clearly and concisely for users with reasonable knowledge.

Cost Constraint

The pervasive constraint stating that the benefits of reporting specific financial information should justify the costs of providing it.

Going Concern

The assumption that an enterprise will continue in operation for the foreseeable future and has neither the intention nor necessity of liquidation.

Financial Statements

The means by which accumulated and processed accounting information regarding financial position, performance, and cash flows is communicated to users.

Recognition

The process of capturing an item for inclusion in the statement of financial position or performance if it meets the definition of an element.

Derecognition

The removal of all or part of a recognized asset or liability from an entity's statement of financial position.

Measurement Basis

An identified feature of an item being measured, such as historical cost, fair value, value in use, fulfillment value, or current cost.

Historical Cost Measurement Basis

A measure derived from the historical price of the transaction/event, updated over time for consumption, fulfillment, or impairment.

Current Value Measurement Basis

Monetary information about elements that is updated to reflect conditions at the measurement date, including fair value and current cost.