Toa Reviewer
I. Accounting Defined
ASC (Accounting Standards Council)
Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision.
Three important activities in the accounting process:
A. Identifying – the recognition or non-recognition of “accountable” events. - an event is accountable or quantifiable when it has an effect on assets, liabilities, and equity. - ONLY economic activities are emphasized and recognized in financial accounting.
* 2 classifications of economic transactions:
External transactions or exchange transactions are those economic events involving one entity and another entity.
E.g. Purchase of merchandise from a supplier, borrowing money from a bank, sale of merchandise to customer and payment of salaries to employees.
Internal transactions are economic events involving the entity only.
E.g. Production – process by which resources are transformed into products. Casualty – any sudden and unanticipated loss from fire, flood, earthquake and other event ordinarily termed as an act of God or act of nature.
B. Measuring/ Measurement – process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the balance sheet and income statement.
The measurement bases are:
Historical cost - measure of value used in accounting in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company.
Current cost - values assets at their current replacement cost rather than at the price originally paid for them, the approach taken by historical cost accounting. Current cost accounts are drawn up by adjusting the historical cost for inflation and the usual adjustments such those as for depreciation. (Book Value)
Realizable value - the net value of an asset if it were to be sold, taking
ASC (Accounting Standards Council)
Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision.
Three important activities in the accounting process:
A. Identifying – the recognition or non-recognition of “accountable” events. - an event is accountable or quantifiable when it has an effect on assets, liabilities, and equity. - ONLY economic activities are emphasized and recognized in financial accounting.
* 2 classifications of economic transactions:
External transactions or exchange transactions are those economic events involving one entity and another entity.
E.g. Purchase of merchandise from a supplier, borrowing money from a bank, sale of merchandise to customer and payment of salaries to employees.
Internal transactions are economic events involving the entity only.
E.g. Production – process by which resources are transformed into products. Casualty – any sudden and unanticipated loss from fire, flood, earthquake and other event ordinarily termed as an act of God or act of nature.
B. Measuring/ Measurement – process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the balance sheet and income statement.
The measurement bases are:
Historical cost - measure of value used in accounting in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company.
Current cost - values assets at their current replacement cost rather than at the price originally paid for them, the approach taken by historical cost accounting. Current cost accounts are drawn up by adjusting the historical cost for inflation and the usual adjustments such those as for depreciation. (Book Value)
Realizable value - the net value of an asset if it were to be sold, taking