Comprehensive Accounting Principles and Taxation Concepts for Students

What is a T Account?

A T Account has its left side called debit and its right side called credit.

What is the normal balance of an account?

The normal balance is the side of the account that is positive or increasing.

What accounts are typically on the debit side of a T Account?

The debit side of a T Account typically includes Assets, Drawings, and Expenses.

What accounts are typically on the credit side of a T Account?

The credit side of a T Account typically includes Liabilities, Capital, and Income.

What is a Chart of Accounts?

A Chart of Accounts is a group of accounts for a business entity.

What is a Journal in accounting?

A Journal is where transactions are initially recorded.

What is Journalizing?

Journalizing is the process of recording a transaction in the journal.

What is Posting in accounting?

Posting is the process of transferring debits and credits from journal entries to the accounts.

What is a Trial Balance?

A Trial Balance proves the equality of debits and credits in the ledger at the end of each accounting period.

What is a Transposition error?

A Transposition error occurs when the order of digits is changed mistakenly.

What is a Slide error?

A Slide error occurs when a number is mistakenly moved one or more spaces to the right or left.

What is a Correcting Journal Entry?

A Correcting Journal Entry is prepared when an error has already been journalized and posted to the ledger.

What is a Posting Error?

A Posting Error does not affect the trial balance.

What is the Accrual Basis of Accounting?

Under the Accrual Basis of Accounting, revenues are reported in the income statement when earned, not necessarily when cash is received.

What is the Revenue Recognition Concept?

The Revenue Recognition Concept states that revenues should be reported regardless of when the cash is received.

What is the Matching Concept?

The Matching Concept requires reporting revenues and related expenses in the same accounting period.

What is the Cash Basis of Accounting?

Under the Cash Basis of Accounting, revenues and expenses are reported in the income statement when cash is received or paid.

What is the Adjusting Process in accounting?

The Adjusting Process involves analyzing and updating accounts at the end of a period before preparing financial statements.

What are Prepaid Expenses?

Prepaid expenses are advance payments for future expenses, recorded as assets when cash is paid.

What is Unearned Revenue?

Unearned revenue is the advance receipt of future revenue, recorded as a liability when cash is received.

What is Accrued Revenue?

Accrued revenue represents unrecorded revenue that has been earned but for which cash has not yet been received.

What is Accrued Expense?

Accrued expense represents unrecorded expenses that have been incurred but for which cash has not yet been paid.

What are Fixed Assets?

Fixed Assets, also known as Property, Plant, and Equipment, are physical resources owned and used by a business permanently or for a long life.

What is Depreciation?

Depreciation is the decrease in usefulness of a fixed asset over time as it loses its ability to provide useful services.

What is an Adjusted Trial Balance?

An Adjusted Trial Balance verifies the equality of total debit and credit balances after adjustments, before preparing financial statements.

What is the Flow of Accounting Information?

The Flow of Accounting Information culminates in the Trial Balance.

How are accounts listed in the trial balance?

Accounts are listed in the trial balance using their ending balance found in the general ledger.

What are Adjustments in accounting?

Adjustments include Deferrals (existing balances changed) and Accruals (new information entered).

What is an Income Statement in accounting?

The Income Statement reports revenue and expense balances from the adjusted trial balance, extended to the Income Statement column.

What is a Balance Sheet in accounting?

The Balance Sheet extends asset, liability, owner's equity, and drawing balances from the adjusted trial balance to the balance sheet column.

What is a Classified Balance Sheet?

A Classified Balance Sheet is expanded by adding subsections for current assets, property, plant, and equipment, and current liabilities.

What are Current Assets?

Current Assets are cash and other assets expected to be converted into cash within a year or less.

What are Current Liabilities?

Current Liabilities are obligations that will be due within one year or less.

What are Long-term Liabilities?

Long-term Liabilities are obligations not due for a long time.

What are Notes Receivable?

Notes Receivable are written promises from customers to pay a specific amount and possibly interest at an agreed rate.

What are Permanent Accounts?

Permanent Accounts are accounts that are permanent from year to year.

What are Temporary Accounts?

Temporary Accounts, also called Nominal Accounts, report amounts for only one period and should have zero balances at the beginning of the period.

What is the Income Summary?

The Income Summary is where revenue and expense account balances are transferred to, and its balance is then transferred to the owner's capital account.

What are Closing Entries?

Closing Entries are the entries that transfer revenue and expense balances to the Income Summary, and then net income/loss and drawings to owner's capital.

What is the Closing Process?

The Closing Process involves transferring revenues to Income Summary, expenses to Income Summary, net income/loss to owner's capital, and drawings to owner's capital.

What is a Post-closing Trial Balance?

A Post-closing Trial Balance is prepared after closing entries are posted to verify the ledger is in balance at the beginning of the next period.

What is the Accounting Cycle?

The Accounting Cycle is the process from analyzing and journalizing transactions to preparing accounting records for the next period.

What are the ten steps of the Accounting Cycle?

The ten steps are: analyze/record transactions, post to ledger, unadjusted trial balance, assemble adjustment data, optional spreadsheet, journalize/post adjusting entries, adjusted trial balance, prepare financial statements, journalize/post closing entries, post-closing trial balance.

What is a Fiscal Year?

A Fiscal Year is an annual accounting period adopted by a business.

What is a Natural Year?

A Natural Year is a fiscal year that ends when business activities have reached their lowest point.

What is a business?

A business is an integrated set of activities capable of being conducted and managed, providing goods or services to customers and generating income.

What are the types of businesses?

Types of businesses include Service Business, Merchandising Business, and Manufacturing Business.

What are the roles of ethics in accounting?

Ethics are moral principles guiding conduct; unethical behavior leads to lower moral standing and can cause insomnia.

What is the role of accounting in business?

Accounting is an information system that provides reports to users about a business's economic activities and condition.

Who are internal users of accounting information?

Internal users include Managers and Employees.

Who are external users of accounting information?

External users include Customers, Creditors, Investors, and Government.

What is managerial accounting?

Managerial accounting provides internal users with relevant and timely information for decision-making needs.

What is financial accounting?

Financial accounting provides external users with relevant and timely information for decision-making needs.

Who is Luca Pacioli?

Luca Pacioli is known as the Father of Accounting.

What are Generally Accepted Accounting Principles (GAAP)?

GAAP are principles that financial accountants follow in preparing reports.

What is the International Accounting Standards Board (IASB)?

The IASB is a private-sector body that develops and issues International Financial Reporting Standards (IFRS).

What is the Financial and Sustainability Reporting Standards Council (FSRSC)?

The FSRSC is tasked with promulgating generally accepted accounting principles in the Philippines.

What is the Business Entity Concept?

The Business Entity Concept states that business activities are recorded separately from the activities of its owners, creditors, or other businesses.

What are the types of business organization?

Types of business organization include Sole Proprietorship, Partnership, and Corporation.

What is a sole proprietorship?

A Sole Proprietorship is owned by one individual, is easy and cheap to organize, and its resources are limited to the owner's.

What is a partnership?

A Partnership is owned by two or more individuals, combining skills and resources.

What is a corporation?

A Corporation is organized under statutes as a separate legal taxable entity, with ownership divided into stocks.

What is the Going Concern Concept?

The Going Concern Concept assumes a company has the resources to continue operating for the foreseeable future.

What is the Cost Concept?

The Cost Concept states that amounts are initially recorded in accounting records at their cost or purchase price.

What is the Unit of Measure Concept?

The Unit of Measure Concept requires that economic data be recorded in Philippine Peso.

What is the Accounting Equation?

The Accounting Equation is Asset = Liabilities + Owner's Equity.

What is the Expanded Accounting Equation?

The Expanded Accounting Equation is Asset = Liabilities + Owner's Capital - Owner's Drawing + Income - Expense.

What are assets?

Assets are resources controlled by the enterprise, resulting from past events, with future economic benefits expected to flow to the enterprise.

What are liabilities?

Liabilities are present obligations from past events, with settlement expected to result in an outflow of resources.

What is owner's equity?

Owner's Equity represents the rights of the owners in the business.

What is owner's capital?

Owner's Capital is the contribution of the owner to the business.

What is owner's drawing?

Owner's Drawing represents withdrawals of the owner from the business.

What is income in accounting?

Income represents increases in economic benefits during an accounting period, through inflows or enhancements of assets or decreases in liabilities.

What are expenses in accounting?

Expenses represent decreases in economic benefits during an accounting period, through outflows or depletions of assets or incurrences of liabilities.

What is revenue in accounting?

Revenue is money earned.

What is a business transaction?

A Business Transaction is an economic event or condition that directly changes an entity's financial condition or its result of operation.

How do transactions affect owner's equity?

Owner's Equity increases with owner investment and net income; it decreases with owner withdrawals and net loss.

What are financial statements?

Financial Statements are accounting reports providing information.

What does the Income Statement report?

The Income Statement reports revenues and expenses for a period, based on the matching concept.

What is net income / net profit?

Net Income or Net Profit is the excess of revenue over expenses, carried to the statement of owner's equity.

What is net loss?

Net Loss occurs when expenses exceed revenue.

What does the Statement of Owner's Equity report?

The Statement of Owner's Equity reports changes in owner's equity for a period.

What does the Balance Sheet report?

The Balance Sheet lists assets, liabilities, and owner's equity as of a specific date.

What is the Account Form of Balance Sheet?

The Account Form of Balance Sheet lists all assets to the left and liabilities with owner's equity to the right.

What is taxation as a state power?

Taxation is an inherent power of the state to enforce a proportional contribution from its subjects for public purpose.

What is the legislative process of taxation?

Taxation is a process of levying taxes by the legislature to enforce proportional contribution from subjects for public purpose.

What is the mode of cost distribution in taxation?

Taxation is a mode by which the state allocates its costs or burden to subjects benefited by its spending.

What is the primary purpose of taxation?

The primary purpose of taxation is to generate funds for the state to finance the needs of its citizens.

What are the secondary purposes of taxation?

Secondary purposes include compensatory (reduce inequality, maintain employment, control inflation) and sumptuary/relatory (implement police power for general welfare).

What is the Necessity Theory of Taxation?

The Necessity Theory states that government existence necessitates means to pay expenses, giving the state the right to compel contributions.

What is the Lifeblood Theory of Taxation?

The Lifeblood Theory posits that taxes are essential for government agencies to operate.

What is the basis of taxation?

The basis of taxation is the mutuality of support between the people and the government, where the government provides benefits and people provide funds.

What is the scope of the taxation power?

The scope is Comprehensive, Plenary and Supreme, and Unlimited.

What are the basic principles of a sound tax system?

The basic principles are fiscal adequacy, equality or theoretical justice, and administrative feasibility.

What does fiscal adequacy mean?

Fiscal adequacy means the source of revenue should be sufficient to meet public expenditure demands.

What is equality or theoretical justice in taxation?

Equality or theoretical justice means the tax burden is proportionate to the taxpayer's ability to pay.

What is administrative feasibility?

Administrative feasibility means tax laws should be capable of convenient, just, and effective administration.

What are the inherent limitations of taxation power?

Inherent limitations include territoriality, international comity, public purpose, and non-delegation of taxing power.

What does territoriality of taxation mean?

Territoriality means tax can only be imposed within the territory of the state where public services are provided.

What is international comity?

International comity refers to mutual courtesy between states, recognizing their equal sovereignty.