FABM 1: Introduction to Accounting

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Questions and Answers

What is the primary characteristic of a transaction to be considered accountable?

It should affect only revenue accounts.

It can only involve cash transactions.

It must be in a sum certain in money. (correct)

It must involve multiple currencies.

Which of the following is NOT a requirement for an event to be classified as an accountable event?

It affects at least one accounting element.

It must be recorded in the journal chronologically. (correct)

It has a two-fold effect on accounting.

It creates a financial obligation.

What does the process of measuring in accounting primarily involve?

Assessing the ethical implications of transactions.

Determining the monetary amounts for recording. (correct)

Identification of unauthorized transactions.

Calculating the financial ratios of a company.

What is the name of the book where business transactions are first recorded?

The Journal Signup and view all the answers

According to the Monetary Unit Principle, how should monetary amounts be expressed for accounting purposes?

In terms of the local currency only. Signup and view all the answers

What is the primary purpose of accounting?

To provide financial information useful for decision makers. Signup and view all the answers

How does accounting classify itself as an 'art'?

It involves creativity and skill in handling financial processes. Signup and view all the answers

Which statement best describes the nature of accounting?

It requires a series of structured steps to maintain the integrity of financial information. Signup and view all the answers

Which organization provides the most comprehensive definition of accounting?

American Institute of Certified Public Accountants (AICPA) Signup and view all the answers

What does the accounting process generally involve?

Identifying, measuring, and communicating economic information. Signup and view all the answers

In terms of accounting, what does the term 'service activity' imply?

It signifies the importance of accounting in decision-making. Signup and view all the answers

What are the key components of the accounting cycle?

Recording transactions, making adjustments, and closing accounts. Signup and view all the answers

Which of the following is NOT a branch of accounting?

Behavioral Accounting Signup and view all the answers

What is the purpose of the 'Posting to the Ledger' process?

To classify and record similar transactions. Signup and view all the answers

Which of the following is included in the preparation of an Income Statement?

Net income or Net loss. Signup and view all the answers

What distinguishes an Unadjusted Trial Balance from a Worksheet?

It shows the balances before any adjustments. Signup and view all the answers

What does the 'Cash Ledger' specifically record?

Only cash-based transactions. Signup and view all the answers

What is included in the category of 'Expenses' as mentioned in the content?

Decreases in capital not related to owner withdrawals. Signup and view all the answers

Which financial statement reflects corrections and adjustments made before final preparation?

Worksheet. Signup and view all the answers

Which is TRUE about 'Income' as defined in the content?

It results from any increase other than owner's contributions. Signup and view all the answers

What is the primary function of a trial balance in accounting?

To ensure that debits equal credits. Signup and view all the answers

Study Notes

Course Information

Course Title: Fundamentals of Accountancy, Business and Management 1 (FABM 1)
Authors: Ariston G. Jayme Jr., Josephine S. Galanza, John Paul M. Lagao, Kenny Jones A. Amlos, Joan A. Mala
Institution: University of the Cordillera Integrated School

Introduction to Accounting

Definition (AICPA): Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character and interpreting the results thereof.
Definition (ASC): Accounting is a service activity; its function is to provide quantitative information, primarily financial in nature, that is intended to be useful in making economic decisions.
Definition (AAA): Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgment and decision by users of financial information.
Accounting Cycle: A series of steps involving identifying, measuring, recording, classifying, summarizing and communicating financial transactions.
Accountable Event: An event or transaction that must be recorded in monetary terms, has at least a twofold effect on the accounts, and affects one or more accounting elements.
Identifying: Assessing whether a transaction constitutes a business transaction or accountable event.
Measuring: Determining the monetary amount of transactions to be recorded in the accounts.

Accounting Cycle and Functions

Identifying: Determining whether a transaction/event is considered a business transaction/accountable event, in monetary terms, and has a twofold effect on the accounting. This includes assessing if a transaction affects assets, liabilities, or equity.
Measuring: Determining the monetary amounts at which transactions are recorded in the accounts.
Recording (Journalizing): A chronological record of transactions entered in the journal, the book of original entry.
Classifying: Grouping similar transactions into specific accounts.
Posting: Transferring recorded transactions from the journal to the ledger accounts.
Summarizing: Preparing the trial balance and the worksheet for financial statement preparation.
Communicating (Reporting): Preparing financial statements for stakeholders. These include the Income Statement, Statement of Comprehensive Income, Statement of Changes in Owner's Equity, Balance Sheet, and Statement of Cash Flows, as well as the Notes to Financial Statements.

Branches of Accounting

Financial Accounting: Processes historical data, focuses on external users (investors, creditors, government), produces financial statements (balance sheet, income statement), and abides by generally accepted accounting principles (GAAP).
Managerial Accounting: Emphasizes internal users (managers, employees), provides timely and relevant information for decision-making (financial analysis, budgeting, and forecasting).
Cost Accounting: Records, presents, and analyzes manufacturing costs for internal decision making (setting selling prices, assessing profitability). Often considered a subset of managerial accounting.
Government Accounting: Records, analyzes, and communicates financial information for governments.
Auditing: External auditors examine financial statements for accuracy, compliance with GAAP and internal controls. Internal auditors ensure operational efficiency and compliance with policies within a company.
Tax Accounting: Plans and prepares tax returns, providing advice minimizing tax.
Accounting Education: Creates accounting curriculum and teaches students.
Accounting Research: Develops knowledge in the accounting field.
Fund Accounting: Records, classifies, and controls funds specifically designated for a project/purpose.
Forensic Accounting: Focuses on financial evidence in legal proceedings, investigating financial crimes, and resolving disputes.

Users of Financial Information

External Users: Individuals or organizations outside the company who want financial information about that specific company.
Internal Users: Individuals or organizations inside the company that plan, organize, and manage the business.

Forms of Business Organizations

Sole Proprietorship: A business owned by one person, who has unlimited liability, and the business ends when the owner dies. Advantages include ease of formation, flexibility, and ease of dissolution.
Partnership: Owned and operated by two or more persons (partners) who contribute resources to the business. Partners share profits and also liabilities within the agreement. Advantages include ease of formation, and ability to raise more capital.
Corporation: A separate legal entity from its owners (shareholders). Shareholders have limited liability, and the business continues even if an owner leaves.

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Description

This quiz covers the fundamentals of accounting definitions and the accounting cycle. It assesses your understanding of key concepts essential for effective financial decision-making. Prepare to delve into the basics and enhance your knowledge in accountancy.