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Questions and Answers
Quantitative information is expressed by words or descriptive form.
Quantitative information is expressed by words or descriptive form.
False
The process of communicating in accounting transforms data into useful financial statements.
The process of communicating in accounting transforms data into useful financial statements.
True
Financial management does not have to follow generally accepted accounting principles (GAAP).
Financial management does not have to follow generally accepted accounting principles (GAAP).
True
Measuring in accounting involves estimating values for items without a factual basis.
Measuring in accounting involves estimating values for items without a factual basis.
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General purpose accounting information is designed for specific needs of individual users.
General purpose accounting information is designed for specific needs of individual users.
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Accounting theories consist of a logical reasoning framework of narrow principles.
Accounting theories consist of a logical reasoning framework of narrow principles.
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The double-entry system in accounting records each event in a single part.
The double-entry system in accounting records each event in a single part.
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Internal decision makers of financial information include external parties like suppliers and customers.
Internal decision makers of financial information include external parties like suppliers and customers.
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The going concern assumption implies that an entity will operate indefinitely.
The going concern assumption implies that an entity will operate indefinitely.
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The proprietary theory focuses mainly on the income determination of an entity.
The proprietary theory focuses mainly on the income determination of an entity.
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The matching principle dictates that costs are recognized as expenses at the time cash is received.
The matching principle dictates that costs are recognized as expenses at the time cash is received.
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The historical cost concept values assets based on their market value at the time of reporting.
The historical cost concept values assets based on their market value at the time of reporting.
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Accrual basis of accounting recognizes the effects of transactions only when cash changes hands.
Accrual basis of accounting recognizes the effects of transactions only when cash changes hands.
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The concept of materiality states that all information must be included in financial statements, regardless of importance.
The concept of materiality states that all information must be included in financial statements, regardless of importance.
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Conservatism in accounting suggests that assets and income should be overstated in uncertain conditions.
Conservatism in accounting suggests that assets and income should be overstated in uncertain conditions.
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Study Notes
Accounting
- Process of identifying, measuring, and communicating economic information
- Called the "Language of the Business"
- Aims to provide information for sound economic decisions
Important Activities in Accounting
- Identifying: Analyzing events and transactions to determine recognition
- Measuring: Assigning numbers (monetary values) to recognized items—estimates or facts
- Communicating: Transforming data into useful accounting information (reports) for use by others
Types of Information Provided by Accounting
- Quantitative: Expressed in numbers, units, or quantities
- Qualitative: Expressed in words or descriptions
- Financial: Expressed in monetary terms
Types of Accounting Information for Users
- General Purpose: Designed for common user needs
- Special Purpose: Designed to meet specific user needs
Distinction Between Accounting and Financial Management
- Accounting: Statutory requirement, follows GAAP, focuses on historical transactions, records transactions systematically, comes before financial management.
- Financial Management: Management decisions, future planning, deals with financial resources, comes after accounting (order matters)
Accounting Concepts
- Double-Entry System: Each transaction recorded with an equal debit and credit
- Going Concern: Assumes the business will operate indefinitely.
- Separate Entity: Business and owners are separate
- Monetary Unit: Uses a common unit of measure (e.g., Philippine Peso)
- Time Period: Dividing the life of the business into reporting periods
- Materiality: Information is significant if its omission or misstatement could influence decisions
- Cost-Benefit: The benefit of providing information should exceed the cost
- Accrual Basis: Recognizing transactions when they occur, not when cash changes hands
- Historical Cost: Assets valued at original acquisition cost
- Articulation: Financial statements are interconnected (a "complete set")
- Full Disclosure: Relevant information must be disclosed
- Consistency: Financial statements prepared using consistent methods
Additional Concepts
- Matching: Costs are matched with related revenues
- Entity Theory: Accounting aims for accurate income determination
- Proprietary Theory: Focuses on asset valuations
- Residual Equity Theory: Applicable if there are multiple classes of shares
- Fund Theory: Focuses on fund custody and administration
- Realization: Conversion of non-cash items to cash (or cash claims)
- Conservatism: Caution in estimating assets, income, liabilities, and expenses.
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Description
This quiz covers the fundamental concepts of accounting, including the processes of identifying, measuring, and communicating economic information. Learn about the different types of accounting information and the distinction between accounting and financial management.
