Accounting 101 – Fundamentals of Accounting (Lecture Review)

These flashcards cover key definitions, business forms, accounting phases, concepts, principles, and branches discussed in the Accounting 101 lecture, providing a concise review for exam preparation.

What is the Accounting Standards Council’s definition of accounting?

A service activity that provides quantitative, primarily financial, information about economic entities intended to aid economic decision-making.

According to the AICPA, how is accounting defined?

The art of recording, classifying, and summarizing, in a significant manner and in monetary terms, transactions and events of a financial character and interpreting the results thereof.

What are the three general types of business?

Servicing, Merchandising, and Manufacturing.

List the seven broad categories of products or services that businesses may offer.

Service, Trader, Manufacture, Raw Material, Infrastructure, Financial, Insurance.

In a sole proprietorship, who owns the business and bears all profits, losses, and debts?

A single owner called the proprietor.

Give two advantages of a sole proprietorship.

Ease of entry and exit; full ownership and control (also: tax savings, few government regulations).

Give two disadvantages of a sole proprietorship.

Unlimited liability; limitations in raising capital (also: lack of continuity).

How does the Philippine Civil Code (Art. 1767) define a partnership?

An agreement where two or more persons contribute money, property, or industry to a common fund with the intention of dividing profits and, in some cases, exercising a profession together.

State two advantages of a partnership.

Additional sources of capital; broader management base (also: ease of formation, tax implementation).

State two disadvantages of a partnership.

Unlimited liability; difficulty transferring ownership (also: lack of continuity, capital-raising limits).

How does the Philippine Corporation Code (Sec. 2) define a corporation?

An artificial being created by operation of law, having the right of succession and possessing powers, attributes, and properties authorized by law or incident to its existence.

List two advantages of a corporation.

Limited liability; unlimited life (also: ease of transferring ownership, better ability to raise capital).

List two disadvantages of a corporation.

Time and cost of formation; heavier regulation (also: higher taxation).

What are financing activities within a business organization?

Activities concerned with obtaining and managing financial resources.

What are investing activities within a business organization?

Activities involving the purchase and disposal of long-term assets.

What are operating activities within a business organization?

Day-to-day activities performed to provide goods and render services to clients.

Which accounting phase is the routine process of writing down transactions and events?

Recording.

Which accounting phase involves sorting or grouping similar transactions?

Classifying.

Which accounting phase is achieved through preparing financial statements?

Summarizing.

Which accounting phase requires analytical and interpretative skills to explain results?

Interpreting.

What does the Entity Concept state?

A business entity is separate and distinct from its owners or other entities.

What does the Periodicity Concept require?

The life of an entity is divided into equal time periods for reporting purposes.

Under the Stable Monetary Unit Concept, what measurement unit is used in Philippine financial statements?

The Philippine peso.

Which assumption states that an entity will continue operating into the foreseeable future?

Going Concern assumption.

What is the Objectivity Principle?

The requirement that accounting information be based on the most reliable and verifiable data available.

What does the Historical Cost Principle dictate?

Assets should be recorded at their original (acquisition) cost.

According to the Revenue Recognition Principle, when is revenue recognized?

When goods or services are earned within the accounting period.

According to the Expense Recognition (Matching) Principle, when are expenses recognized?

In the accounting period in which they are incurred.

What does the Adequate Disclosure principle require?

All relevant information affecting users’ understanding and assessment must be presented in the financial statements.

What is the focus of the Materiality principle?

Information significant enough to influence users’ evaluations and decisions should be reported.

What does the Consistency Principle require?

The same accounting methods should be used from period to period to ensure comparability.

Name at least four branches of accounting.

Auditing, Cost Accounting, Financial Accounting, Financial Management (other branches: Management Accounting, Taxation, Government Accounting, Bookkeeping).

What is bookkeeping?

A mechanical task involving the collection, recording, classification, and summarization of basic financial data for preparation of financial statements such as the income statement, balance sheet, and cash-flow statement.