THE ACCOUNTING PRINCIPLES: Basic Concepts and Procedures

Practice flashcards covering key concepts from the Basic Concepts and Procedures module of Accounting Principles. Each card poses a question (term) and provides a concise answer (definition).

What is accounting often called?

The language of business; it safeguards the interests of the business, its owners, creditors, government, financial institutions, and other stakeholders by providing relevant financial information.

What are the four financial statements widely used in accounting?

Income Statement, Statement of Owner's Equity, Statement of Cash Flows, and Balance Sheet.

What are the three forms of business organization?

Sole Proprietorship, Partnership, and Corporation.

What are the three general lines of operation for a business?

Service, Merchandising, and Manufacturing.

What are the three types of business activities?

Financing activities, Investing activities, and Operating activities.

How is bookkeeping defined?

The art of recording the business transactions in the books of accounts; a bookkeeper is typically a clerical worker responsible for recording transactions.

How is accounting defined according to the American Accounting Association?

The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of the information.

What are the five steps of the accounting process?

Recording (Journal), Classifying (Ledger), Summarizing (Trial Balance, Profit and Loss, Balance Sheet), Interpreting, and Communicating.

What is net worth?

Assets minus Liabilities; the wealth or equity you own.

What does the term net income represent in the example given?

The excess of total revenues over expenses (profit from business activities).

Who are the stakeholders in accounting information?

Owners/investors, managers, lenders, suppliers, employees, government, customers, and other parties with an interest in the business.

What are the two main components of an Accounting Information System (AIS)?

Measurement/processing phase and the communication/reporting phase.

What are the four types of accounting reports mentioned?

Management Accounting (internal reports), Financial Accounting (general-purpose financial statements), Tax Accounting (tax returns), Special Reporting (regulatory reports).

What are the four financial statements and what does each show?

Income Statement (revenues vs. expenses), Statement of Owner's Equity (changes in net worth), Statement of Cash Flows (cash inflows/outflows), Balance Sheet (assets, liabilities, net worth).

What is the role of Financial Accounting?

Main source of information for stakeholders through general-purpose financial statements, which are audited by a Certified Public Accountant.

What is Tax Accounting?

Specializes in determining taxes and preparing tax returns such as Income Tax, VAT, and Percentage Tax for taxpayers.

What is Special Reporting in accounting?

Reports required by regulatory bodies (e.g., banks to Bangko Sentral ng Pilipinas; merger plans to the SEC).

What are the two components of an AIS processing and what do they entail?

Processing phase: analyzing, measuring, recording, classifying, and summarizing. Reporting phase: presenting formal reports to decision makers.

What are the four financial statements used to summarize financial position and performance?

Income Statement, Statement of Owner's Equity, Statement of Cash Flows, Balance Sheet.

What is the difference between Journal and Ledger in the steps of accounting?

Journal is the book of original entry (recording). Ledger is where classified amounts are posted (main book).

What are the main advantages and disadvantages of Sole Proprietorship?

Advantages: low capital, easy to form, owner keeps profits; Disadvantages: limited growth, no indefinite life, unlimited liability.

What is the modern origin of double-entry bookkeeping?

Attributed to Luca Pacioli in 1494 (Summa de Aritmetica); early forms traced to Cotrugli and the Spaniards introducing bookkeeping in the Philippines.

What is the difference between Revenue and Expenses in the everyday example given?

Revenue is money earned (e.g., fares, canteen sales); Expenses are costs incurred (e.g., fuel, salaries, utilities); Net income is revenues minus expenses.