Chapter 1: Basic Accounting Terms and Concepts

Comprehensive vocabulary flashcards covering the history of accounting, definitions of accounting versus bookkeeping, aspects of accounting, users of financial information, business types, and fundamental accounting principles based on the provided Chapter 1 lecture notes.

Luca Pacioli

An $14th$ century Italian friar known as the "father of modern accounting" who wrote the "Summa de Arithmetica, Geometria, Proportioni et Proportionalita."

Benedetto Cotrugli

A $13th$ century Italian merchant credited with the idea of the double-entry system.

American Institute of Certified Public Accountants (AICPA)

The first professional association for accountants in the United States, formed in $1887$, tasked with setting accounting and auditing standards.

Financial Accounting Standards Board (FASB)

An organization created in $1973$ that paved the way for the generally accepted accounting principles (GAAP).

Generally Accepted Accounting Principles (GAAP)

A set of statements, rules, or procedures serving as guides in the practice of accounting to support easy understanding of financial statements.

Accounting

The systematic process of measuring and reporting relevant financial information about the activities of an economic organization or unit; described by Warren Buffet as the "language of business."

Bookkeeping

An activity that handles the recording and organizing of day-to-day financial transactions, often considered the "entrance level" to the accounting profession.

National Certificate III (NC III) in Bookkeeping

The credential issued by the Technical Education and Skills Development Authority (TESDA) in the Philippines to individuals who pass the bookkeeping assessment.

Certified Public Accountant (CPA)

A title conferred to individuals who complete a CHED-approved Accountancy program and pass the Certified Public Accountants Licensure Examination (CPALE).

Recording

The aspect of accounting involving the chronological writing down of business transactions as they transpire.

Classifying

The aspect of accounting involving the separation of accounts so that accounting rules can be correctly applied.

Summarizing

The aspect of accounting involving the preparation of financial reports designed to meet information needs of users.

Interpreting

The aspect of accounting involving making sense of financial information to make it understandable to its users.

Internal Users

The primary users of financial information (such as Investors, Management, and Employees) who are directly involved in the company's operations and strategic decision-making.

External Users

Secondary users (such as Financial Institutions, Government, Potential Investors, and Customers) who are not directly involved in company operations but are connected to the business.

Sole-Proprietorship

A type of business organization owned and managed by one person with unlimited liability, where the business dies if the owner dies.

Partnership

A business run by two or more individuals called "partners" who share in profits or losses; common in professional services like doctors and lawyers.

Corporation

A company acting as a single entity separate from its owners, known as "shareholders," which continues to operate despite the death or disability of an owner.

Cooperative

An association of persons joined together to achieve a common economic, social, or cultural goal, where owners are called "members" who pool funds.

Service Operation

A type of business operation that earns mainly by providing professional or skill-based services to customers.

Merchandising Operation

A type of business operation that earns mainly in the buying and selling of finished goods.

Manufacturing Operation

A type of business operation that earns from the production of finished goods from raw materials and selling them to other businesses.

Entity Concept

An accounting concept stating that the business is separate and distinct from its owner/s and other enterprises.

Periodicity Concept

The concept that financial information is prepared at specific regular intervals, such as a month, quarter, or year, also known as the accounting period.

Calendar Year

A twelve-month accounting period starting on January $1$ and ending on December $31$.

Fiscal Year

A twelve-month accounting period starting on the first day of any month other than January and ending twelve months after the starting period.

Going Concern Concept

The assumption that a business has enough resources to keep its operations going indefinitely or for the foreseeable future.

Objectivity Principle

The principle that all business financial transactions must be supported by verifiable evidence (like receipts and invoices) and remain free from bias.

Monetary Unit Principle

The principle that only transactions expressible in currency terms are recorded, using the legal tender (e.g., Philippine peso) and ignoring inflation effects.

Inflation

The rate of the increases of prices of commodities and services over a given period.

Historical Cost Principle

The principle stating that all properties and services acquired must be recorded at the acquisition cost when they were originally bought.

Accrual Principle

The principle that revenues and expenses are recorded as soon as they are earned or incurred regardless of when cash is actually received or paid.

Revenue

Income earned by a business for providing services or selling products to customers.

Expense

The cost of doing business or the expiration/use of a business's resources in its operations.

Adequate Disclosure Concept

Also called full disclosure, this requires that all facts significantly affecting financial information, such as "Notes to Financial Statements," must be duly recorded.

Materiality Principle

The principle referring to the significance of an amount or transaction to the business, where significant items must be reported while insignificant ones may be expensed immediately.

Consistency Principle

The principle that reporting approaches must be uniformly employed across accounting periods to allow for easy comparisons.