Basic Accounting Model Units 1-7
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Questions and Answers

What is the term used to describe the allocation of the cost of an intangible asset over its useful life?

  • Depreciation
  • Accrual
  • Amortization (correct)
  • Provision

    • What is the difference between the acquisition cost of a fixed asset and its estimated residual value?

  • Depreciable Value (correct)
  • Accumulated Depreciation
  • Net Book Value
  • Useful Life

    • What is the formula for calculating annual amortization expense?

  • (Acquisition cost + Residual value) / Useful life
  • (Acquisition cost - Residual value) * Useful life
  • (Acquisition cost + Residual value) * Useful life
  • (Acquisition cost - Residual value) / Useful life (correct)

    • What is the term used to describe the total amount of depreciation that has been recorded on a fixed asset?

    <p>Accumulated Depreciation (B)</p> Signup and view all the answers

    What is the difference between the acquisition cost of a fixed asset and its accumulated depreciation?

    <p>Net Book Value (B)</p> Signup and view all the answers

    When a company sells a fixed asset, what determines whether there is a gain or loss on the sale?

    <p>The difference between the selling price and the net book value (D)</p> Signup and view all the answers

    What is the purpose of closing entries in accounting?

    <p>To prepare the accounts for the next accounting period (B)</p> Signup and view all the answers

    Which of the following is NOT a factor that influences the amount of annual amortization?

    <p>Market value (D)</p> Signup and view all the answers

    What is the initial step in the accounting method?

    <p>Identifying and analyzing economic events (C)</p> Signup and view all the answers

    What principle guides accountants in analyzing economic events?

    <p>Dual Aspect Convention (D)</p> Signup and view all the answers

    How is the Dual Aspect Convention applied in accounting?

    <p>By using the double-entry system (D)</p> Signup and view all the answers

    What tools do accountants use for quantifying and measuring economic events?

    <p>General Accepted Accounting Principles (D)</p> Signup and view all the answers

    What is the purpose of accounting records?

    <p>To record economic transactions (D)</p> Signup and view all the answers

    What do financial statements present?

    <p>The company's financial position for a specific period (B)</p> Signup and view all the answers

    What is the primary aim of the accounting method?

    <p>To provide stakeholders with financial information (A)</p> Signup and view all the answers

    In which stage of the accounting method are the financial statements prepared?

    <p>Summarizing economic events (B)</p> Signup and view all the answers

    Which of the following is not a component of the General Accounting Plan, as outlined in the text?

    <p>Accounting Formal Aspects (D)</p> Signup and view all the answers

    What is the primary objective of accounting legislation, according to the text?

    <p>To ensure the accuracy and transparency of financial reporting. (C)</p> Signup and view all the answers

    Which of these is a major source of public accounting legislation in Spain?

    <p>The Spanish General Accounting Plan 2007 (B)</p> Signup and view all the answers

    What are the three major aspects of accounting legislation in Spain?

    <p>Formal aspects, content aspects, and valuation aspects. (C)</p> Signup and view all the answers

    In the context of accounting, what does the acronym ICAC stand for?

    <p>Instituto de Contabilidad y Auditoría de Cuentas (D)</p> Signup and view all the answers

    What does the term "RLD on Capital Companies" refer to in the text?

    <p>A regulation regarding the operations of capital companies. (D)</p> Signup and view all the answers

    What is the international standard for financial reporting called?

    <p>International Financial Reporting Standards (IFRS) (C)</p> Signup and view all the answers

    Which of these is not a source of private standards in Spain, according to the text?

    <p>The Instituto de Contabilidad y Auditoría de Cuentas (ICAC) (D)</p> Signup and view all the answers

    Flashcards

    Closing Assets Accounts

    The process of crediting the balances of asset accounts at the end of an accounting period.

    Opening Balances

    Initial amounts recorded on January 1st for different accounts after closing the previous period.

    Profit and Loss Account

    An account summarizing income and expenditures over a period, showing the net profit or loss.

    Capital Account

    An account that represents the owner’s equity in a business after accounting for profits and losses.

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    Short-term Creditors

    Entities or persons to whom debts are owed and are expected to be paid within a year.

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    Spanish General Accounting Plan 2007

    Legislation that standardizes accounting practices in Spain, including books and financial statements.

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    International Financial Reporting Standards (IFRS)

    Global accounting standards for financial reporting established by the IASB.

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    Consolidated Annual Accounts

    Financial statements that combine the assets and liabilities of a parent company and its subsidiaries.

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    Amortisation

    The allocation of an asset's cost over time as an expense.

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    Acquisition Cost

    The total cost to acquire a fixed asset, including purchase price and additional expenses.

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    Useful Life

    The estimated time a fixed asset can be used effectively.

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    Residual Value

    The estimated value of an asset at the end of its useful life.

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    Depreciable Value

    The cost of an asset allocated for depreciation, calculated as acquisition cost minus residual value.

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    Annual Amortisation Calculation

    Formula to calculate annual amortisation: (Acquisition Cost - Residual Value) / Useful Life.

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    Net Book Value

    The value of an asset after accounting for accumulated amortisation.

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    Gains or Losses on Sale

    The difference between the proceeds from selling an asset and its net book value.

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    Accounting Method

    A systematic series of steps used in accounting to analyze, measure, record, and summarize financial events.

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    Dual Aspect Convention

    An accounting principle stating that every transaction impacts two accounts, resulting in a debit and a credit.

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    Double-Entry System

    An accounting system where every transaction is recorded in at least two accounts, ensuring that the accounting equation stays balanced.

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    General Accepted Accounting Principles (GAAP)

    A framework of accounting standards, principles, and procedures used to compile financial statements.

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    Financial Statements

    Reports that summarize the financial position and performance of a company over a specific period.

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    Economic Events

    Transactions or occurrences that impact the financial position of a business.

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    Quantification and Measurement

    The process of assigning numerical value to economic events to assess their impact on financial statements.

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    Accounting Records

    Documents and logs used to record the economic transactions of a company.

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    Study Notes

    Basic Accounting Model - Units 1-7

    • An enterprise is a business firm, organized for profit, exchanging goods and services for money.
    • Productive resources (land, plant, equipment, raw materials, labor, capital, and management) are needed for business operations.
    • Businesses can be classified by the type of good/service offered (service, merchandise, manufacturing).
    • Business structures include sole proprietorships, partnerships, and corporations.
    • Corporations have limited liability, protecting personal assets from business debts.
    • Other business types include non-profit organizations, foundations, and associations.
    • Enterprises can also be categorized by size (large, small/medium, micro).
    • Micro, small, and medium enterprises (MSMEs) are defined by staff and/or turnover/balance sheets.

    Economic and Accounting Information

    • Financial reporting provides information needed for evaluation of a company
    • Financial statements are prepared for external users and companies around the world
    • External users of accounting information include investors, lenders, suppliers, clients, debtors, employees, and regulators.
    • Internal users of accounting information include managers making decisions.
    • Key aspects of accounting information are relevance (materiality and completeness), objectivity (freedom from error/bias), verifiability, timeliness, and understandability.
    • Information must be useful when making business decisions.

    Accounting History

    • Accounting emerged as a way to record economic transactions. (Earliest forms and development from ancient times to present)
    • Early methods emphasized recording quantities of goods.
    • The need for more sophisticated methods arose with the development of economic and monetary systems.
    • The double-entry bookkeeping system was a significant innovation.
    • Accounting today is considered a science.

    Accounting: Concepts, Classification, and Method

    • Accounting involves identifying, analyzing, measuring, recording, summarizing, and reporting economic data.
    • Accounting information helps internal and external decision-makers.
    • Financial accounting focuses on external stakeholders.
    • Cost and management accounting help managers with internal business decisions.
    • Auditing involves reviewing financial statements and provides credibility.
    • Financial statement analysis (or accounting analysis) is the evaluation of financial information. It can identify strengths and weaknesses based on balance sheet and income statement relationships.
    • Consolidation is the preparation of financial statements for a group of companies.

    Wealth

    • Wealth is the difference between assets and liabilities at a given time.
    • Important concepts are assets (property, rights, and economic resources), liabilities (obligations and economic pressures from resources), and equity (ownership claim).

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    Description

    Test your understanding of the Basic Accounting Model covering essential topics such as enterprise definitions, business structures, and types of productive resources. This quiz also touches on financial reporting and the categorization of businesses by size and type. Perfect for those studying foundational accounting principles.

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