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Questions and Answers
What is accounting?
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?
Which of the following are important activities in accounting?
- Identifying
- Measuring
- Communicating
- All of the above (correct)
What type of events are external events?
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:
Match the types of events with their definitions:
Which measurement basis is most commonly used in accounting?
Which measurement basis is most commonly used in accounting?
Valuation by opinion occurs when measurement is unaffected by estimates.
Valuation by opinion occurs when measurement is unaffected by estimates.
What is the basic purpose of accounting?
What is the basic purpose of accounting?
What are the types of accounting information classified by users' needs?
What are the types of accounting information classified by users' needs?
Who developed the double-entry system?
Who developed the double-entry system?
Going concern assumes that the entity will operate indefinitely.
Going concern assumes that the entity will operate indefinitely.
What is the separate entity concept in accounting?
What is the separate entity concept in accounting?
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.
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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.
