IAAP-1ST

Definition of Accounting

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

Three important activities of accounting

Identifying, Measuring, Communicating.

Identifying in accounting

Analyzing events and transactions to determine whether they will be recognized in financial statements.

Accountable event

An event that affects the assets, liabilities, equity, income, or expenses of an entity.

Non-accountable event

An event that does not affect the financial statements but may be disclosed in notes.

External events

Events that involve an entity and another external party.

Internal events

Events that do not involve an external party.

Measuring in accounting

Assigning numbers in monetary terms to economic transactions and events.

Measurement bases in accounting

Include historical cost, fair value, present value, current cost, etc.

Fact vs. Opinion in valuation

Items valued by fact do not require estimates, while items valued by opinion are affected by estimates.

Communicating in accounting

Transforming economic data into useful accounting information for dissemination.

Recording in accounting

Systematically committing identified accountable events in the journal.

Classifying in accounting

Grouping of similar and interrelated items into their respective classes.

Summarizing in accounting

Expressing recorded and classified transactions in a condensed form.

General purpose accounting information

Designed to meet the common needs of most statement users under financial accounting.

Special purpose accounting information

Designed to meet the specific needs of particular statement users.

Accounting as science

A body of knowledge that has been systematically gathered and organized.

Accounting as art

The use of creative skills and judgment in accounting.

Creative thinking in accounting

Using imagination and insight to solve problems and find new relationships among information.

Critical thinking in accounting

Logical analysis of issues using reasoning to evaluate alternative solutions.

Steps in problem solving

1. Recognizing a problem 2. Identifying alternatives 3. Evaluating alternatives 4. Selecting a solution 5. Implementing the solution.

Accounting concepts

The principles upon which the process of accounting is based.

Accounting theory

A set of broad principles guiding the evaluation of accounting practices.

Economic activities

Activities affecting the economic resources and obligations of an economic entity.

Usable information in accounting

Information that is essential for making informed economic decisions.