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What is the definition of accounting?
What is the definition of accounting?
Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgment and decisions by users of information.
What are the three important activities in accounting?
What are the three important activities in accounting?
Only accountable events are recognized in accounting.
Only accountable events are recognized in accounting.
True
Measuring in accounting involves assigning numbers, always in monetary terms, to economic transactions and events.
Measuring in accounting involves assigning numbers, always in monetary terms, to economic transactions and events.
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What does communicating involve in accounting?
What does communicating involve in accounting?
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What are the three components of the basic accounting equation?
What are the three components of the basic accounting equation?
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Which of the following is NOT an example of an external event in accounting?
Which of the following is NOT an example of an external event in accounting?
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An unanticipated loss from natural disasters is considered an internal event in accounting.
An unanticipated loss from natural disasters is considered an internal event in accounting.
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Which of the following is NOT a measurement basis used in accounting?
Which of the following is NOT a measurement basis used in accounting?
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The most commonly used measurement basis in accounting is historical cost.
The most commonly used measurement basis in accounting is historical cost.
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Who are considered external users of accounting information?
Who are considered external users of accounting information?
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General purpose accounting information is designed to meet the common needs of most statement users.
General purpose accounting information is designed to meet the common needs of most statement users.
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Which of the following is NOT a common type of special purpose accounting information?
Which of the following is NOT a common type of special purpose accounting information?
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Going concern assumption means that the entity is expected to operate for an indefinite period of time.
Going concern assumption means that the entity is expected to operate for an indefinite period of time.
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The separate entity assumption states that the entity is treated separately from its owners.
The separate entity assumption states that the entity is treated separately from its owners.
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Changes in purchasing power are recognized in accounting under the stable monetary unit concept.
Changes in purchasing power are recognized in accounting under the stable monetary unit concept.
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The time period concept divides the business life into a series of reporting periods.
The time period concept divides the business life into a series of reporting periods.
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Information is considered material if its omission or misstatement could influence economic decisions.
Information is considered material if its omission or misstatement could influence economic decisions.
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The cost-benefit concept states that the costs of communicating information should outweigh its benefits.
The cost-benefit concept states that the costs of communicating information should outweigh its benefits.
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The accrual basis of accounting recognizes transactions when cash is received or paid.
The accrual basis of accounting recognizes transactions when cash is received or paid.
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The historical cost concept values assets based on their estimated market value.
The historical cost concept values assets based on their estimated market value.
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The concept of articulation states that all components of financial statements are interconnected.
The concept of articulation states that all components of financial statements are interconnected.
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The full disclosure principle requires companies to provide sufficient detail to users, while avoiding unnecessary complexity.
The full disclosure principle requires companies to provide sufficient detail to users, while avoiding unnecessary complexity.
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The consistency concept requires accounting policies to be applied consistently from one period to the next.
The consistency concept requires accounting policies to be applied consistently from one period to the next.
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The matching concept recognizes expenses when the related revenue is recognized.
The matching concept recognizes expenses when the related revenue is recognized.
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The residual equity theory is applicable only when there is one class of shares issued.
The residual equity theory is applicable only when there is one class of shares issued.
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The fund theory of accounting focuses on the custody and administration of funds.
The fund theory of accounting focuses on the custody and administration of funds.
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Realization in accounting focuses on the process of converting non-cash assets into cash or claims for cash.
Realization in accounting focuses on the process of converting non-cash assets into cash or claims for cash.
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The prudence (conservatism) concept encourages companies to overstate assets and income.
The prudence (conservatism) concept encourages companies to overstate assets and income.
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Which of the following branches of accounting focuses on special purpose financial reports for use by an entity's management?
Which of the following branches of accounting focuses on special purpose financial reports for use by an entity's management?
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Which of the following branches of accounting deals with the systematic recording and analysis of costs associated with production?
Which of the following branches of accounting deals with the systematic recording and analysis of costs associated with production?
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Which of the following branches of accounting focuses on evaluating the accuracy and reliability of financial records?
Which of the following branches of accounting focuses on evaluating the accuracy and reliability of financial records?
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Which of the following branches of accounting involves the preparation of tax returns and rendering of tax advice?
Which of the following branches of accounting involves the preparation of tax returns and rendering of tax advice?
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Which of the following branches of accounting focuses on the financial management of government entities and public funds?
Which of the following branches of accounting focuses on the financial management of government entities and public funds?
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The practice of public accountancy typically involves providing accounting services to one specific client on a fee basis.
The practice of public accountancy typically involves providing accounting services to one specific client on a fee basis.
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The practice of accounting in commerce and industry usually requires the accountant to be a certified public accountant (CPA).
The practice of accounting in commerce and industry usually requires the accountant to be a certified public accountant (CPA).
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The practice of accounting in education typically involves teaching subjects like accounting, finance, and business law.
The practice of accounting in education typically involves teaching subjects like accounting, finance, and business law.
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The practice of accounting in the government typically requires a civil service eligibility as a CPA.
The practice of accounting in the government typically requires a civil service eligibility as a CPA.
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The conceptual framework for financial reporting provides guidance on how to prepare and present financial statements for external users.
The conceptual framework for financial reporting provides guidance on how to prepare and present financial statements for external users.
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A secondary objective of general-purpose financial reporting is to show the results of the stewardship of the management.
A secondary objective of general-purpose financial reporting is to show the results of the stewardship of the management.
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Who are considered primary users of general-purpose financial reports?
Who are considered primary users of general-purpose financial reports?
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The common needs of all primary users are met by the financial statements.
The common needs of all primary users are met by the financial statements.
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Which of the following is NOT a qualitative characteristic of financial statements?
Which of the following is NOT a qualitative characteristic of financial statements?
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Materiality is an entity-specific aspect of relevance.
Materiality is an entity-specific aspect of relevance.
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The faithful representation characteristic requires accounting information to be free from error.
The faithful representation characteristic requires accounting information to be free from error.
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Verifiability ensures that financial statements can be independently checked and confirmed.
Verifiability ensures that financial statements can be independently checked and confirmed.
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Timeliness refers to providing information in a timely manner, aiding users in making informed decisions.
Timeliness refers to providing information in a timely manner, aiding users in making informed decisions.
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Study Notes
Chapter 1: Overview of Accounting
- Accounting is the process of identifying, measuring, and communicating economic information to support informed decisions by users.
- Three key activities in accounting are:
- Identifying: Determining events and transactions that are relevant and need to be recognized. Only accountable events are considered.
- Measuring: Assigning numerical values, usually monetary, to economic events and transactions.
- Communicating: Transforming economic data into useful accounting information like financial statements for users.
The Basic Accounting Equation
- Assets = Liabilities + Stockholders' Equity
- Assets: Economic resources owned by a business.
- Liabilities: Financial obligations or debts of the business.
- Stockholders' Equity: Owners' claims on the assets of the business.
Types of Events
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External Events: Involve an external party.
- Exchange Events: Reciprocal giving and receiving.
- Non-reciprocal Transfer: One-way transaction.
- Other External Events: Changes in resources or obligations caused by an external party, without resource transfer.
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Internal Events: Do not involve an external party.
- Production: Transforming resources into finished goods.
- Casualty: Unanticipated loss from disasters or similar events.
Measurement
- Several ways to measure, including but not limited to:
- Historical cost
- Fair value
- Present value
- Current cost
- Inflation-adjusted costs
- Historical cost is the most common method.
Users of Accounting Information
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External Users:
- Lenders
- Investors
- Consumer Groups
- External Auditors
- Governments
- Customers
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Internal Users:
- Managers
- Officers
- Sales Staff
- Employees
- Internal Auditors
- Owners
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General Purpose Accounting Information: Meets the common needs of various users, governed by Philippine Financial Reporting Standards (PFRSs).
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Special Purpose Accounting Information: Meant to meet the needs of specific users. Examples include managerial, tax-basis, and others.
Concepts in Accounting
- Double-Entry System: Each accountable event is recorded in two parts (debit and credit).
- Going Concern: Businesses are assumed to operate indefinitely.
- Separate Entity: The business is treated independently from its owners.
- Stable Monetary Unit: Financial statements use a common unit of measure (e.g., peso), ignoring changes in purchasing power.
- Time Period: Business life is divided into reporting periods.
- Materiality: An event is material if its omission or misstatement could influence economic decisions.
- Cost-Benefit: The cost of processing and communicating information should not exceed its benefits.
- Accrual Basis: Accounting recognizes the effect of transactions when they occur, rather than when cash is exchanged.
- Historical Cost: The value of an asset is determined by its acquisition cost.
- Articulation: Components of financial statements are interrelated.
- Full Disclosure: Financial statements provide sufficient detail for users while remaining understandable.
- Consistency: Accounting policies and methods are applied consistently.
- Matching: Costs are recognized as expenses when the related revenue is recognized..
- Residual Equity Theory: Used when there are multiple stock classes (ordinary and preferred).
- Fund Theory: Focuses on the custody and administration of funds.
- Realization: The process of converting non-cash assets to cash.
- Prudence/Conservatism: Includes a degree of caution when making estimates in uncertain situations.
- Common Branches of Accounting:
- Cost accounting
- Financial accounting
- Management accounting
- Auditing
- Tax accounting
- Government accounting
- Social accounting
- Inflation accounting
Other Accounting Concepts
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Four sectors/practices in accountancy: public accountancy, commerce/industry, academe, and government.
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Conceptual Framework for Financial Reporting: Provides the underlying concepts for financial statement preparation. The objective is to provide information useful to investors, lenders and creditors in making decisions regarding resources provided to the entity. A secondary objective is to show results of the stewardship of management.
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Qualitative Characteristics: Relevance (predictive value and feedback value, especially materiality), and faithful representation (completeness, neutrality, free from error). Other enhancing characteristics: comparability, verifiability, timeliness, and understandability.
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Elements of Financial Statements:
- Financial Position:
- Assets: Economic resources with future benefits.
- Liabilities: Obligations to transfer resources.
- Equity: Assets minus Liabilities
- Performance:
- Income: Revenues generated and gains realized.
- Expenses: Costs and losses incurred
- Financial Position:
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PAS 1: Presentation of Financial Statements Sets the basis for presenting a general-purpose financial statement, with a goal to improve comparability between and within entities.
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Complete Set of Financial Statements: Includes statement of profit or loss and comprehensive income, statements of changes in equity, statement of cash flows, notes, and disclosures.
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General Features: including Fair Presentation and Compliance with PFRS, Going Concern, Accrual Basis of Accounting, Materiality, and Aggregation.
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Various accounting methods like the nature of expense method, and presentation of deferred tax.
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PAS 2 Inventories: Inventories are measured at the lower of cost and net realizable value. Cost formulas include specific identification, FIFO, and weighted average. Inventories are presented as a line item on the statement of financial position.
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Classification of Assets and Liabilities: Current assets are expected to be realized or used up in one operating cycle, while non-current assets are not. The same is true for liabilities.
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Description
This quiz covers the foundational concepts of accounting as outlined in Chapter 1. Learn about the processes of identifying, measuring, and communicating economic information, as well as the basic accounting equation. Understand the different types of economic events and their roles in accounting.