Principles of Accounting - Sessions 1 & 2

Comprehensive vocabulary flashcards covering the core terminology, principles, ethics, assumptions, financial statement elements, and frameworks from Accounting Sessions 1 and 2.

Accounting

The discipline that identifies, measures, records, and communicates economic information so users can make informed judgments and decisions.

Bookkeeping

The mechanical step of accounting that consists of keeping a systematic, chronological record of economic events, then classifying and summarising them.

Functions of Accounting (Process)

The logical sequence of accounting activities consisting of recording daily transactions, classifying and summarizing into a trial balance, reporting via financial statements, and analyzing and interpreting to provide insights for decisions.

Accounting Information System (AIS)

A system supported by software packages (e.g., QuickBooks, Xero, Sage, Oracle NetSuite, SAP S/4HANA Finance) that converts backward-looking financial data into decision-useful information.

Relevance

A fundamental qualitative characteristic meaning information makes a difference to decisions by offering predictive value (forecasting future outcomes) and confirmatory value (confirming past results).

Faithful Representation

A fundamental qualitative characteristic meaning financial information accurately represents the economic substance of events; it must be complete, neutral (unbiased), and free from error.

Comparability

An enhancing qualitative characteristic that enables users to identify and understand similarities and differences across different entities and across different reporting periods.

Verifiability

An enhancing qualitative characteristic that assures users information is faithfully represented because different knowledgeable, independent observers can reach consensus.

Timeliness

An enhancing qualitative characteristic meaning information is made available to decision-makers in time to influence their economic choices.

Understandability

An enhancing qualitative characteristic achieved when information is classified, characterized, and presented clearly and concisely for users with reasonable business and economic knowledge.

Financial Accounting

The branch of accounting governed by standardized frameworks (such as IFRS or TFRS) focused on reporting historical financial position and performance to external users.

Management Accounting

The flexible branch of accounting that generates detailed, forward-looking financial and non-financial information to help internal managers plan, control operations, and make strategic decisions.

Cost Accounting

The specialized branch that analyzes direct costs (materials, labor) and indirect costs (overhead) of producing goods or services to assist managers with cost control and pricing.

Tax Accounting

The branch of accounting centered on determining taxable income, deductions, allowances, and credits to prepare tax returns and ensure compliance with tax laws.

Auditing

The systematic examination of financial statements, records, and internal controls to provide assurance on compliance, reliability, and accuracy (performed externally or internally).

Forensic Accounting

The specialized branch that investigates financial records to detect fraud, embezzlement, or commercial disputes, often producing evidence for legal proceedings.

Public Sector Accounting

The accounting and financial reporting discipline tailored for government and municipal bodies, focusing on the transparent administration and stewardship of public funds.

Internal Users

Individuals inside an organization, such as managers, supervisors, and employees, who use detailed financial information to make operational decisions and assess job security.

External Users

Parties outside the organization—including investors, lenders, creditors, regulators, suppliers, customers, and the general public—who rely on published financial statements for resource allocation.

Integrity

An IESBA fundamental ethical principle requiring accountants to be straightforward and honest in all professional and business dealings.

Objectivity

An IESBA fundamental ethical principle requiring professionals to make judgments free from bias, conflicts of interest, or undue influence from others.

Confidentiality

An IESBA fundamental ethical principle requiring accountants to refrain from disclosing or using proprietary client or employer data obtained through professional relationships without proper authority.

Professional Competence and Due Care

An IESBA fundamental ethical principle requiring accountants to maintain relevant professional knowledge and act diligently in accordance with technical and professional standards.

Professional Behaviour

An IESBA fundamental ethical principle obliging accountants to comply with relevant laws and regulations and avoid any conduct that discredits the profession.

Self-Interest Threat

An ethical threat where a financial or personal stake (such as a contingent fee, shareholding, or discounted property offer) compromises an accountant's judgment.

Self-Review Threat

An ethical threat where an accountant or audit firm is required to evaluate the results of a previous judgment made or service provided by themselves.

Advocacy Threat

An ethical threat where an accountant promotes a client's position or opinion to the point that their own objectivity is compromised.

Familiarity Threat

An ethical threat occurring when a close or long-standing relationship with a client makes the accountant overly sympathetic or accepting of their figures without verification.

Intimidation Threat

An ethical threat where an accountant is deterred from acting objectively due to actual or perceived pressures, such as threats of dismissal or non-renewal of contracts.

TFAC

Thailand Federation of Accounting Professions; the regulatory authority in Thailand that sets professional ethics, accounting, and auditing standards.

Accounting Professions Act B.E. 2547 (2004)

The Thai statute providing the legal foundation for the accounting profession, defining the governing powers and regulatory scope of TFAC.

Sole Trader

An unincorporated business owned and operated by a single person who has complete operational control and unlimited personal liability for business obligations.

Partnership

A business structure owned by two or more individuals or entities who agree to co-manage operations and share profits and losses under agreed contractual terms.

Corporation

A distinct legal entity separate from its owners (shareholders), characterized by limited shareholder liability and a separation between ownership and day-to-day management.

Not-for-Profit Organization

A mission-driven organization dedicated to social, educational, or charitable objectives that reinvests all operating surplus back into its mission rather than distributing dividends.

Separate Entity Assumption

The foundational convention dictating that a business's financial transactions must be recorded and accounted for completely separate from the personal transactions of its owners.

Drawings

Cash or other business assets extracted by an owner for personal use; recorded as a reduction of owner's equity rather than as a business expense.

Owner's Capital

The financial resources or assets directly invested into a business by the owner; increases owner's equity directly without passing through revenue.

General-Purpose Financial Reporting

The preparation and presentation of financial statements directed to external capital providers (investors, lenders, creditors) to inform their resource-allocation decisions.

Stewardship

The accountability of management regarding how efficiently, safely, and effectively it has administered and utilized the economic resources entrusted to it.

Accounting Standards

Authoritative principles, standards, and technical rules that dictate how transactions must be recognized, measured, presented, and disclosed in financial statements.

IFRS Accounting Standards

International Financial Reporting Standards; a global, principles-based financial reporting framework issued by the International Accounting Standards Board (IASB).

US GAAP

Generally Accepted Accounting Principles; the primary financial reporting framework used in the United States, developed and issued by the Financial Accounting Standards Board (FASB).

TFRS

Thai Financial Reporting Standards; the national accounting framework in Thailand aligned with IFRS and generally effective within one year of new IFRS releases.

IFRS Conceptual Framework

A foundational document establishing the underlying concepts, objectives, qualitative characteristics, elements, and recognition criteria that guide the creation of IFRS standards.

Going Concern Assumption

The premise that the reporting entity will remain in business and continue normal operations for the foreseeable future, justifying non-liquidation valuations.

Monetary Unit Assumption

The convention that financial activities are quantified, recognized, and expressed in common, stable currency units.

Time Period Assumption

The convention that the artificial division of a business's continuous operational lifespan into discrete intervals (months, quarters, years) enables periodic reporting.

Accrual Basis of Accounting

The reporting system where revenues and expenses are recorded in the periods in which events occur or services/goods transfer, regardless of cash movement.

Revenue Recognition Principle

The standard requiring revenue to be recognized when control of the promised goods or services is transferred to a customer, independently of cash receipt.

Matching Principle

The accounting concept that expenses incurred to generate specific revenues must be recognized in the identical reporting period alongside those revenues.

Historical Cost Principle

The valuation benchmark that records and reports an asset or transaction at the original cash or cash-equivalent price paid at the acquisition date.

Full Disclosure Principle

The requirement that all material financial and non-financial information capable of altering a user's judgment be fully detailed in the statements or accompanying notes.

Accounting Equation

The mathematical foundation of double-entry accounting stating that $\text{Assets} = \text{Liabilities} + \text{Equity}$, demonstrating how all resources are financed.

Asset

A present economic resource controlled by the entity as a result of past events, representing an existing right capable of producing future economic benefits.

Current Assets

Assets expected to be realized, sold, or consumed within the operating cycle or within $12\,\text{months}$, including cash, accounts receivable, inventory, and prepayments.

Non-Current Assets

Long-term resources acquired for sustained operational utility rather than resale within a single year, such as property, plant, equipment, and intangible assets.

Liability

A present obligation of the entity arising from past events that requires an unavoidable transfer of economic resources (such as cash, goods, or services).

Current Liabilities

Obligations reasonably expected to be settled within $12\,\text{months}$ or the normal operating cycle, including accounts payable, short-term debt, and accrued expenses.

Non-Current Liabilities

Debts and long-term financial obligations that do not fall due within $12\,\text{months}$, including long-term bonds payable, mortgage notes, and pension commitments.

Equity

The residual interest in the assets of an enterprise after deducting all of its liabilities; also referred to as net assets.

Income

Increases in assets or decreases in liabilities during a period that lead to increases in equity, other than contributions directly made by equity holders.

Expenses

Decreases in assets or increases in liabilities during a period that cause reductions in equity, other than distributions made directly to equity holders.

Expanded Accounting Equation

The comprehensive formula expressing equity movements: $\text{Assets} = \text{Liabilities} + \text{Owner's Capital} - \text{Owner's Drawings} + \text{Revenues} - \text{Expenses}$.

Dual Aspect Concept

The fundamental tenet of double-entry accounting requiring that every economic transaction affects at least two accounts, thereby preserving equation equilibrium.

Statement of Financial Position

A core financial statement (also called the Balance Sheet) presenting an entity's assets, liabilities, and equity at a single specific date.

Statement of Profit or Loss

A financial report (also called the Income Statement) detailing revenues earned and expenses incurred over an accounting interval to measure net profit or loss.

Statement of Cash Flows

A financial statement classifying cash inflows and outflows over a period into operating, investing, and financing activities to demonstrate liquidity changes.

Statement of Changes in Equity

A statement detailing the reconciliation between the beginning and ending equity balances over a period, incorporating profits/losses, share issuances, and distributions.

Notes to the Financial Statements

Integral narrative and tabular disclosures accompanying core financial statements that disclose accounting policies, commitments, and granular account breakdowns.