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Questions and Answers
The Monetary Convention states that values should be expressed in non-monetary terms.
False
Conservatism in accounting refers to making adequate provisions for expected losses.
True
The Rule of Law ensures that all accounting laws must be strictly followed by the enterprise.
True
Materiality dictates that insignificant information should be thoroughly documented in accounting records.
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The Consistency doctrine requires that an adopted accounting system can be changed whenever necessary.
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In farming, the majority of investments are typically in variable items.
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Farmers have no control over their production costs.
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The accounting entity convention dictates that the owner and the business are regarded as separate.
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Depreciation is recorded to indicate that the asset will not be useful in future operations.
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Most farmers recognize that accounting can help evaluate production methods effectively.
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The life of a business is divided into arbitrary time periods for the purpose of accounting.
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Farmers are usually pressured to set up careful accounting because they are answerable to investors.
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The continuity convention assumes that a business will exist indefinitely.
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Most farmers in the Philippines find keeping records to be a worthwhile practice due to their large enterprises.
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The primary purpose of keeping records in farming is to provide financial and physical information that aids in decision-making.
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Farm accounting applies the same accounting techniques used in other business ventures without any modifications.
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Selling outputs in agriculture is primarily based on programmed activities and not influenced by the family's personal financial needs.
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Climatic variations and pests significantly impact the physical resources used in agricultural production.
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Farmers do not need to keep records for planning and budgeting purposes as their operations are straightforward.
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Farm accounting involves farm bookkeeping, cost studies, and analysis of economic transactions.
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Once agricultural production processes begin, they can be easily altered to meet market demand.
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Study Notes
Accounting Conventions
- Values are expressed in monetary terms to make money a common denominator.
- All laws affecting the enterprise must be followed.
- Accounting Equation: Assets = Liabilities + Equity.
Accounting Doctrines
- Each accounting convention should be consistently observed in all accounting periods.
- A complete statement of relevant information should be provided with honesty and objectivity in reporting accounts, ensuring disclosure of all vital information.
- Adequate provisions and reserves should be made against potential losses to adhere to the principle of Conservatism.
- All significant information should be quantified and included in the accounts, highlighting the importance of Materiality.
Operations Involved in Accounting
- Transactions are recorded chronologically.
- Transactions are classified and sorted in a systematic manner.
Farm Accounting and the Nature of Agriculture
- A substantial portion of the investment in farming is allocated to fixed assets.
- Adjusting production levels after committing resources is difficult.
- Capital resources are often provided by the farm operator, leading to less emphasis on detailed accounting.
- Farmers lack control over the physical and economic environments, especially in less developed countries.
- Control can only be exercised over production costs and resource allocation.
- Farmers may not recognize the value of accounting to evaluate production methods and identify profitable alternatives.
The Phases of Accounting
- The first phase involves valuing properties and setting up a record system.
- The second phase summarizes, analyzes, and communicates the results of record-keeping to stakeholders.
Keeping Records in Philippine Farms
- Maintaining records is uncommon among Filipino farmers.
- Farmers often see record-keeping as unnecessary due to the size of their operations.
- As farms expand and become more market-oriented, record-keeping becomes necessary to track costs, resource use, and for planning and budgeting purposes.
- The primary purpose of records is to provide financial and physical information for effective decision-making.
- Records of past performance can help answer questions about profitable crops, which crops to expand, and which crops to discontinue.
Farm Accounting and its Importance
- Accounting serves as a tool to communicate the results of economic transactions.
- Farm accounting encompasses farm bookkeeping, cost studies, and farm cost accounting, utilizing analytical techniques of accounting.
- While farm management requires accurate accounting information similar to other businesses, specific needs and limitations make traditional practices inapplicable to farming.
Challenges in Farm Accounting
- Most farms are small enterprises with limited economic transactions.
- Production decisions are influenced by the needs of the family unit.
- Crops and livestock are sold only when the family requires money to meet obligations.
- Compared to commercial ventures, output selling is a programmed activity in farming.
- Physical resources used for agricultural production are subject to climatic variations, pests, and diseases.
- Agricultural production processes, once initiated, cannot be easily changed to meet fluctuating market demands.
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Description
Test your knowledge of essential accounting conventions, doctrines, and operations involved in the field of accounting. This quiz covers important principles such as consistency, conservatism, and materiality, specifically with a focus on farm accounting. Challenge yourself and see how well you understand the foundational concepts that guide accounting practices.
