CFAS

• What is the definition of accounting according to AAA?

  Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.
• What are the important activities in accounting?

  1. Identifying

  2. Measuring

  3. Communicating
• What does the identifying activity in accounting involve?

  It involves analyzing events and transactions to determine whether or not they will be recognized.

  
• What is recognition in accounting?

  Recognition includes the effects of an accountable event through journal entry.
• What are accountable events in accounting?

  Accountable events are those that affect economic activities.
• What are non-accountable events?

  Non-accountable events are not recognized as accounting events, but if they have accounting relevance, they are recorded in a memorandum entry.

  
• What are the types of events or transactions in accounting?

  1. External Events

  • Exchange (reciprocal transfer)
  • Non-reciprocal transfer
  • External event other than transfer

  2. Internal Events

  • Production
  • Casualty
• What are external events in accounting?


  External events involve an external party.
• What is an example of a non-reciprocal transfer?

  An example of a non-reciprocal transfer is a donation or tax.
• What are internal events in accounting?

  Internal events do not involve an external party.
• What is production in the context of internal events?

  Production is when resources are transformed into finished goods.
• What does measuring in accounting involve?

  Measuring involves assigning numbers in monetary terms.
• How are financial statements prepared?

  Financial statements are prepared using a mixture of costs and values.

  
• What is the difference between valued by opinion and valued by fact?

  Valued by opinion is measurement affected by estimates, while valued by fact is measurement not affected by estimates.
• What does communicating in accounting involve?

  Communicating involves transferring economic data into useful accounting information for dissemination and interpretation.
• What are the three aspects of the communicating process in accounting?

  1. Recording – writing the accountable events through journal entry

  2. Classifying – grouping of similar items into their respective classes through posting

  3. Summarizing – expressing in condensed form which includes preparations of accounting reports

  
• What is the basic purpose of accounting?

  The basic purpose of accounting is to provide information useful in making economic decisions.
• What is an economic entity?

  An economic entity is a combination of people and property that uses economic resources to achieve certain goals.
• What are the types of economic entities?

  1. Not-for-profit entity

  2. Business entity
• What are economic activities?

  Economic activities are activities that affect the economic resources, obligations, and the equity of an economic entity.
• What are the types of economic activities?

  1. Production

  2. Exchange

  3. Consumption

  4. Income Distribution

  5. Savings

  6. Investments
• What are the types of information provided by accounting?

  1. Quantitative Information – numbers, quantities or units

  2. Qualitative Information – words or description form; usually found in notes

  3. Financial Information – money

  
• How is accounting information classified based on user needs?

  1. General Purpose Accounting Information – common need of most statement users

  2. Special Purpose Accounting Information – specific needs of particular users
• What is required in the practice of accounting?

  The practice of accounting requires the exercise of creative thinking and critical thinking.
• What is the double-entry system in accounting?

  • A system that uses both debit and credit entries
• What is the going concern assumption?

  The going concern assumption assumes continual operation and does not expect to end.
• What does the separate entity concept entail?

  The separate entity concept entails that owners' personal transactions are separated from the business.
• What is the stable monetary unit concept?

  The stable monetary unit concept states that accountable events are expressed in terms of a common unit, with purchasing power considered stable regardless of instability.
• What is the time period concept in accounting?

  The time period concept refers to the life of the reporting period of an entity, usually 12 months.
• What is a calendar year in accounting?

  A calendar year starts on January 1.
• What is a fiscal year in accounting?

  A fiscal year starts on a date other than January 1.
• What is the materiality concept?

  The materiality concept is a judgment that is based on its size and nature.
• What is the cost-benefit principle in accounting?

  The cost-benefit principle states that the cost must equal the benefit.
• What is the accrual basis in accounting?

  The accrual basis means that the effects of transactions are recognized when they occur and not as cash is received or paid.

  
• What is the historical cost concept?

  The historical cost concept states that the asset value is based on the acquisition cost.
• What is the concept of articulation in accounting?

  The concept of articulation states that all the components of a complete set of financial statements are interrelated.

  
• What is the full disclosure principle?

  The full disclosure principle involves including enough details to make information understandable.
• What is the consistency concept in accounting?


  The consistency concept involves using the same accounting principle in different periods.
• What is the matching principle in accounting?

  The matching principle states that costs are recognized as expenses when the related revenue is recognized.
• What is the entity theory in accounting?

  The entity theory is related to proper income determination, represented by the equation \( A = L + C \).