CFAS Lecture Vid #1 – Overview of Accounting

Questions and Answers

What is accounting?

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

Which of the following are important activities in accounting?

Identifying

Measuring

Communicating

All of the above (correct)

What type of events are external events?

Involving an external party (correct)

Do not involve an external party

Only involve internal transactions

None of the above

Match the types of events with their definitions:

External events = Events that involve an external party Internal events = Events that do not involve an external party Production = The process by which resources are transformed into finished goods Casualty = An unanticipated loss from disasters or other similar events Signup and view all the answers

Which measurement basis is most commonly used in accounting?

Historical cost Signup and view all the answers

Valuation by opinion occurs when measurement is unaffected by estimates.

False Signup and view all the answers

What is the basic purpose of accounting?

To provide information about economic activities intended to be useful in making economic decisions. Signup and view all the answers

What are the types of accounting information classified by users' needs?

Both A and B Signup and view all the answers

Who developed the double-entry system?

Luca Pacioli Signup and view all the answers

Going concern assumes that the entity will operate indefinitely.

True Signup and view all the answers

What is the separate entity concept in accounting?

The entity is viewed as distinct from its owners or other entities. Signup and view all the answers

Study Notes

Overview of Accounting

Accounting is the systematic process of identifying, measuring, and communicating economic information to aid decision-making by users.
Key activities in accounting include identifying, measuring, and communicating economic data.

Identifying

Identifying Events: Involves analyzing transactions to determine if they are accountable, affecting assets, liabilities, equity, income, or expenses.
Recognition: The inclusion of accountable events in financial statements via journal entries.
Accountable Events: Economic activities that meet recognition criteria; non-accountable events may still require disclosure.
Disclosure: Additional information provided in financial statements to clarify non-accountable events.

Types of Events

External Events: Involve transactions with parties outside the organization.
- Reciprocal Transfer: Two-way exchange, e.g., sales (goods for cash).
- Non-reciprocal Transfer: One-way transactions, e.g., donations, tax payments.
- Non-transfer External Events: Changes in economic resources or obligations from external parties, e.g., fair value changes, obsolescence.
Internal Events: Do not engage external parties.
- Production: Transformation of resources into finished goods.
- Casualty: Anticipated losses due to disasters.

Measuring

Measurement Bases: Various bases utilized include:
- Historical cost: Past transaction price.
- Fair value: Current market value.
- Present value: Time-dependent value recognition.
- Realizable value: Expected selling price.
- Current cost and inflation-adjusted costs.
Most Commonly Used Basis: Historical cost, often combined with other bases for reporting.
Valuation: Based on fact (no estimates) or opinion (involving estimates), reflecting common practices in accounting.

Communicating

Purpose of Accounting: To supply information about economic activities, facilitating informed economic decisions.
Economic Entity: Defined as a separate combination of persons and property managing economic resources towards specific goals.

Types of Accounting Information

General Purpose Information: Aimed at satisfying the needs of most users; governed by Philippine Financial Reporting Standards (PFRSs).
Special Purpose Information: Tailored to meet specific needs, often provided by managerial accounting and tax accounting.

Basic Accounting Concepts

Double-entry System: Each event recorded as debit and credit; originated by Luca Pacioli.
Going Concern: Assumes entity will continue operations indefinitely, as opposed to a liquidating concern.
Separate Entity Concept: Treats the entity as distinct from its owners or other entities for accounting purposes.

Description

This quiz covers the essential concepts of accounting as outlined in the first lecture video. It focuses on the definition of accounting, as well as the key activities involved in the accounting process. Prepare to test your understanding of identifying, measuring, and communicating economic information.