ACCOUNTING 2

_______ is the process of identifying, recording, and communicating economic information useful for making economic decisions

accounting

__________Accountants analyze business transactions to determine whether they are "accountable events"

Identifying

Only ________ events are recorded.

accountable events

_____________Accountants record the identified accountable events. This process is called journalizing

Recording

Recording: Accountants record the identified accountable events. This process is called __________

journalizing.

After journalizing, the accountant classifies the effects of the event on accounts; this is called _______

posting

An _______ is the basic storage of information (e.g., cash, land, sales).

account

________At the end of each accounting period, the accountant summarizes the processed information to produce meaningful reports

communicating

Accounting information is communicated to interested users through accounting reports, the most common form of which is the _______

financial statements.

What is Accounting?

Accounting is a process with the basic purpose of providing information about economic activities that is intended to be useful in making economic decisions.

3 Types of information provided by accounting

Quantitative information, Qualitative information, Financial information

_________ information expressed in numbers, quantities, or units.

Qantitative information

__________ information expressed in words or descriptive form.

Qualitative information

_________ information expressed in money. Financial information is also quantitative information because monetary amounts are normally expressed in numbers.

Financial information

As a social ________, accounting is a body of knowledge which has been systematically gathered, classified and organized.

science

As a practical __, accounting requires the use of creative skills and judgment.

art

A system is one that consists of an _____,______,________

input, a process, and an output.

in an accounting system, the _____ are the identified accountable events;

inputs

the_______ are recording

processes

and the _________ is the accounting report that is communicated to the users.

output

Bookkeeping and Accounting Although bookkeeping function is part of accounting, bookkeeping and accounting are not the same

TRUE OR FALSE

TRUE

_______ refers to the process of recording the accounts or transactions of an entity.

Bookkeeping

Bookkeeping normally ends with the preparation of the ________

trial balance

________, on the other hand, covers the whole process of identifying, recording, and communicating information to interested users.

Accounting

Accounting is often referred to as the ___________ because it is fundamental to the communication of financial information.

“language of business”

Accounting has the following two broad functions in a business:

1. To provide ______ users with information that is useful in making, among others, investment and credit decisions;

external

2. To provide_______ users with information that is useful in managing the business.

internal

______ those who are directly involved in managing the business.

Internal users

________ those who are not directly involved in managing the business.

External users

________ accounting information - is information designed to meet the common needs of most statement users. It is provided by financial accounting and is prepared primarily for external users.

General purpose

General purpose accounting information - is information designed to meet the common needs of most statement users. It is provided by financial accounting and is prepared primarily for ________

external users.

__________ accounting information - is information designed to meet the specific needs of particular statement users. It is provided by management accounting or other branches of accounting and is prepared primarily for internal users.

Special purpose

Special purpose accounting information - is information designed to meet the specific needs of particular statement users. It is provided by management accounting or other branches of accounting and is prepared primarily for _________.

internal users

__________, a Franciscan monk and mathematician, formulated the double-entry recording system and also being considered the father of modern accounting.

Fra Luca Pacioli

______ - is the branch of accounting that focuses on general purpose financial statements

Financial accounting

______________ are those statements that cater to the common needs of external users

General purpose financial statements

Financial accounting is governed by the __________________

Philippine Financial Reporting Standards (PFRSs)

__________ are the structured representation of an entity’s financial position and results of its operations. They are the end product of the accounting process and the means by which information gathered and processed are periodically communicated to users.

Financial statements

A _________ includes the financial statements plus other information provided outside the financial statements that assists in the interpretation of a complete set of financial statements or improves users’ ability to make efficient economic decisions.

financial report

Financial reporting is the provision of financial information about an entity that is useful to ________, primarily the investors, lenders, and other creditors, in making investment and credit decisions.

external users

_______ involves the accumulation and communication of information for use by internal users.

Management accounting

_______– refers to the accounting for the government and its instrumentalities, focusing attention on the custody of public funds, the purpose or purposes to which those funds are committed, and the responsibility and accountability of the individuals entrusted with those funds.

Government accounting

_________ – involves the inspection of an entity’s financial statements or business processes to ascertain their correspondence with an established criteria.

Auditing

____________ – is the preparation of tax returns and rendering of tax advice, such as the determination of tax consequences of certain proposed business endeavors.

Tax accounting

_________ is the systematic recording and analysis of the costs of materials, labor, and overhead incident to the production of goods or rendering of services.

Cost accounting

_________ – refers to teaching accounting and accounting-related subjects in an organized learning environment. It is a process of facilitating the acquisition of knowledge and skills in accounting.

Accounting education

______________ pertains to the careful analysis of economic events and other variables to understand their impact on decisions.

Accounting research

A _________is an activity where goods or services are exchanged for money.

business

A person who is engaged in business is called an_____ __ ____

entrepreneur or businessman.

________– is a business that is owned by only one individual. It is the most common and simplest form of a business organization.

Sole or single proprietorship

Sole or single proprietorship – is a business that is owned by only one individual. It is the most common and simplest form of a business organization. The business owner is called a ________

sole proprietor

A sole proprietorship is registered with the _____________

Department of Trade and Industry (DTI).

_________– is a business that is owned by two or more individuals who entered into a contract to carry on the business and divide among themselves the earnings therefrom.

Partnership

The business owners are called _________

partners

A partnership is registered with the __________

Securities and Exchange Commission (SEC).

__________ is also owned by more than one individual and is created by operation of law rather than a contract.

Corporation

Ownership in a corporation is represented by shares of ______

stocks

A corporation is registered with the

Securities and Exchange Commission (SEC).

The incorporators of a corporation shall not be less _________

than 5 but not more than 15 individuals

__________ is also owned by more than one individual. However, a cooperative is formed in accordance with the provisions of The Philippine Cooperative Code of 2008.

Cooperative

The owners of a cooperative are called _______

Members

The founding members of a cooperative shall not be less _____________.However, a cooperative can have as many members as its by-laws permit.

than 15 individuals.

A cooperative is registered with the ______________

Cooperative Development Authority (CDA).

3 Types of Business According to Activities

1. Service business

2. Merchandising (Trading)

3. Manufacturing

A _____ _____ is one that offers services as its main product rather than physical goods.

service business

A __________ (or trading business) is one that buys and sells goods without changing their physical form.

merchandising business

A ____________ is one that buys raw materials and processes them into final products.

manufacturing business

Some businesses, called ___________, engage in more than one type of activity.

hybrid businesses

12 Basic accountinng concepts

1. Separate entity concept

2. Historical cost concept

3. Going concern assumption

4. Matching

5. Accrual Basis

6. Prudence (or Conservatism)

7. Time Period

8. Stable monetary unit

9. Materiality concept

10. Cost-benefit

11. Full disclosure principle

12. Consistency concept

_______________ – Under this concept, the business is viewed as a separate person, distinct from its owner(s). Only the transactions of the business are recorded in the books of accounts. The personal transactions of the business owner(s) are not recorded.

Separate entity concept

__________(Cost principle) – Under this concept, assets are initially recorded at their acquisition cost.

Historical cost concept

________________– Under this concept, the business is assumed to continue to exist for an indefinite period of time. This is necessary for accounting measurements to be meaningful.

Going concern assumption

The opposite of going concern is_____________. This is the case if the business intends to end its operations or if it has no other choice but to do so, (e.g., the business is bankrupt).

liquidating concern

__________ (or Association of cause and effect) – Under this concept, some costs are initially recognized as assets and charged as expenses only when the related revenue is recognized. Some expenses are associated directly with specific revenue.

Matching

Under the ____________ of accounting, economic events are recorded in the period in which they occur rather than at the point in time when they affect cash. Thus, income is recognized in the period when it is earned rather than when it is collected, while expense is recognized in the period when it is incurred rather than when it is paid.

___________ (or Conservatism) – Under this concept, the accountant observes some degree of caution when exercising judgments needed in making accounting estimates under conditions of uncertainty.

Prudence

____________ – Under this concept, the life of the business is divided into series of reporting periods.

Time Period

nstead of waiting until the life of the business ends before profit is determined, the life of the business is divided into series of equal short periods called _______

reporting periods

A ______________ starts on January 1 and ends on December 31 of the same year.

calendar year

A ___________ also covers 12 months but starts on a date other than January 1, e.g., July 1, 2019 to June 30, 2020.

fiscal year period

________________– Under this concept, assets, liabilities, equity, income and expenses are stated in terms of a common unit of measure, which is the peso in the Philippines.

Stable monetary unit

______________ – This concept guides the accountant when applying accounting principles. This is because accounting principles are applicable only to material items.

Materiality concept

____________ – Under this concept, the costs of processing and communicating information should not exceed the benefits to be derived from the information’s use.

Cost-benefit

____________ – This concept is related to both the concepts of materiality and cost-benefit.

a. Sufficient detail to disclose matters that make a difference to users, yet
b. Sufficient condensation to make the information understandable, keeping in mind the costs of preparing and using it.

Full disclosure principle

___________ – This concept requires a business to apply accounting policies consistently, and present information consistently, from one period to another.

Consistency concept

________________ is tasked with regulating corporations, including partnerships. The SEC requires corporations and partnerships to file audited financial statements.

Securities and Exchange Commission (SEC)

____________________ is tasked with collecting national taxes and administering the provisions of the Tax Code.

2. Bureau of Internal Revenue (BIR) – The BIR

__________________ is tasked in regulating banks and other entities performing banking functions. The BSP influences the selection and application of accounting policies by these businesses.

Bangko Sentral ng Pilipinas (BSP)

____________ is tasked in regulating cooperatives. The CDA influences the selection and application of accounting policies by cooperatives.

Cooperative Development Authority (CDA)

the Conceptual Framework is not a standard.

TRUE OR FALSE

TRUE

______________ are the traits that determine whether an item of information is useful to users. Without these characteristics, information may be deemed useless.

Qualitative characteristics

_________________ – these are the characteristics that make information useful to users.

Fundamental qualitative characteristics

_______________ – these characteristics support the fundamental characteristics. They enhance the usefulness of information. As such, they must be maximized.

Enhancing qualitative characteristics

Information is _____________ if it can affect the decisions of users. Without this trait, information is deemed irrelevant.

Relevance

Information has a_______ _____ if it can help users to make predictions about future outcomes.

predictive value

This concept is related to the predictive value. Information has a ___________ if it can help users confirm their past predictions.

confirmatory value

___________ – is an ‘entity-specific’ aspect of relevance, meaning it depends on the facts and circumstances surrounding a specific entity.

Materiality

Information is ____________ if it is factual, meaning it represents the actual effects of events that have taken place. F

faithfully represented

____________ All information necessary for users to have a complete understanding of the financial statements is provided.

Completeness

_________ Information is selected or presented without bias. Information is not manipulated to increase its favorability or decrease its unfavorability.

Neutrality