PART 1

• 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 identification process 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 does production refer to in internal events?

  Production refers to resources being transformed into finished goods.
• What does measuring in accounting involve?

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

  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 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 is quantitative information in accounting?

  Quantitative information refers to numbers, quantities, or units.
• What is qualitative information in accounting?

  Qualitative information refers to words or description form, usually found in notes.
• What is financial information in accounting?

  Financial information refers to 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 skills are required in the practice of accounting?

  • Creative Thinking: using imagination and insight to identify alternative solutions
  • Critical Thinking: logical analysis to evaluate alternative solutions
• What is the double-entry system in accounting?

  The double-entry system involves the use of debit and credit.
• What does the Going Concern Assumption imply?

  The Going Concern Assumption assumes continual operation and does not expect to end.
• What is the Separate Entity concept in accounting?

  The Separate Entity concept states that owners' personal transactions are separated from the business.
• What does the Stable Monetary Unit concept state?


  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 in accounting?

  The Materiality Concept is a judgment that is based on its size and nature.
• What does the Cost-benefit principle state?


  The Cost-benefit principle states that the cost must equal the benefit.
• What is the Accrual Basis in accounting?

  The Accrual Basis states that the effects of transactions are recognized when they occur and not as cash is received or paid.
• What is the Historical Cost Concept in accounting?

  The Historical Cost Concept states that the asset value is based on the acquisition cost.

  
• What does the Concept of Articulation refer to?

  The Concept of Articulation refers to all the components of a complete set of financial statements being interrelated.
• What is the Full Disclosure Principle?

  The Full Disclosure Principle states that enough details must be included to make information understandable.
• What is the Consistency Concept in accounting?

  The Consistency Concept states that the same accounting principle should be used in different periods.
• What does the Matching principle state?

  The Matching principle states that costs are recognized as expenses when the related revenue is recognized.