ACC 111 GA #1 – C – Cascaño, Colili, Galitan, Moloboco

Discussion (Page 50)

1. Why Accounting often referred to as the language of business?
Accounting is generally considered as a language of business primarily of the reason
that Accountancy is full of jargon that mostly Accountants or individuals under the said
profession commonly prefer. Accountancy expresses one's financial and economic data
through financial statements as a medium of communication to external parties.

6. What are the types of business? Distinguish them.

There are 4 known types of business that is widely accepted in the business world,
they are: service business, merchandising business, manufacturing business, and hybrid
business.
a. The service type of business is a business that isn't physically sold; it is a service that
offers personal expertise, such professional examples are engineers, lawyers,
chauffeurs, etc.
b. Merchandising type of business is a business with the sole purpose of buying and
selling products or goods entailing inconsistent price—typically higher—to
customers. Merchandising business includes: grocery stores, convenience stores,
distributors, and other resellers.
c. Manufacturing type of business is a business with originally intended products, these
products come with brands like the prestige Apple, and the reputable Microsoft.
d. Hybrid businesses are companies that may be classified in more than one type of
business. A restaurant, for example, combines ingredients in making a fine meal
(manufacturing), sells a cold bottle of wine (merchandising), and fills customer
orders (service).

7. Give the three definitions of Accounting.

Accounting could be defined by different ideas and words but with the same
concept: to identify and assess one's financial position. Great thinkers and accountants
explained Accountancy based on their perspective and understanding:
a. According to the American Accounting Association, “Accounting refers to the
process of identifying, measuring and communicating economic information to
permit informed judgments and decisions by users of the information."
 b. According to A. W. Johnson, “Accounting may be defined as the collection,
compilation and systematic recording of business transactions in terms of money,
the preparation of financial reports, the analysis and interpretation of these reports
and the use of these reports for the information and guidance of management."
c. According to the American Institute of Certified Public Accountants, “Accounting is
the art of recording, classifying and summarizing in a significant manner and terms
of money, transactions and events, which are, in part at least, of a financial
character and interpreting the result thereof."

8. Enumerate and distinguish the four phases of Accounting.

Recording, classifying, summarizing and interpreting financial data are the four
phases of accounting. Recording (bookkeeping) is the process of accounting that records all
financial transactions in a chronological or a systematical arrangement. Recording includes
accounts of assets, liabilities, ledgers, journals, etc. Classifying is the identification of
accounts; sorting and grouping account to its category or name as designated. This eases the
systematic analysis of data. Summarizing is the process of summarizing the data after each
accounting period to the point where each information is easily comprehended and
understood. This phase usually includes visual support such as graphs. Interpreting is the
most crucial process, it’s an important management tool as it identifies trends and unusual
unexpected anomalies.

10. Discuss the criteria for general acceptance of an accounting principle.

Accepted Accounting Principles also known as GAAP is a very critical addition to
accounting. GAAP is the regulation of accounting. It has many purposes and guidelines that
ensure accuracy. These 10 general concepts can help you remember the main mission of
GAAP:
a. Principle of Regularity: accountant adheres to GAAP regulations and rules as
standard, on a regular basis.
b. Principle of Consistency: apply the same standards throughout the financial
reporting process to prevent errors and discrepancies.
c. Principle of Sincerity: accountant aims to provide an accurate and impartial
depiction of the company’s financial state.
d. Principle of Permanence of Methods: the procedures used in financial reporting
must be consistent.
 e. Principle of Non-Compensation: both positives and negatives must be reported with
full transparency.
f. Principle of Prudence: the focus should be on fact-based financial data that isn’t
clouded by speculation.
g. Principle of Continuity: when valuing assets, the accountant should assume that the
business will continue to operate.
h. Principle of Periodicity: all financial entries should be placed in the relevant time
period.
i. Principle of Materiality/Good Faith: accounts must aim for full disclosure in their
financial reports.
j. Principle of Utmost Good Faith: assumes that all businesses are being honest in
their financial reporting.
From Win Ballada’s “Basic Financial, Accounting, and Reporting,” GAAP is expressed
differently as follows:
a. Objectivity Principle: records and statements are based on most reliable data
available.
b. Historical Cost: acquired assets should be recorded at their actual or historical cost.
c. Revenue Recognition Principle: revenue is to be recognized in the accounting period
when goods are delivered or services are performed.
d. Matching Principle: expenses should be recognized in the accounting periods in
which goods and services are used to produce revenue and not when the entity pays
for those goods.
e. Adequate Disclosure: all relevant information that would affect the user’s
understanding be disclosed in the financial statements.
f. Consistency Principle: firms should use the same accounting method from period to
period to achieve comparability over time within a single enterprise.
g. Materiality: financial reporting is only concerned with information that is significant
enough to affect evaluations and decisions.
h. Timeliness: Accounting informatio0n is communicated early enough to be used for
the economic decisions that it might influence.

11. What does the term generally accepted accounting principles mean?
There are general rules and concepts that preside over the field of accounting. These
general rules, known as Generally Accepted Accounting Principles, shape the groundwork on
 which more thorough, complex, and legalistic accounting rules are based. GAAP is
exceptionally useful because it attempts to regulate and normalize accounting definitions,
assumptions, and methods.

12. What is meant by the concept of stable monetary unit? Is this assumption realistic? Why is
it used in Accounting?
The monetary unit principle is also known as the monetary unit concept and the
monetary unit assumption. This concept essentially allows accountants to disregard the
effect of inflation. Over time, most country's money value follows inconsistency; every
money changes its value. With this assumption concept, past financial statements are
usually not updated despite if the value of money substantially changes. This assumption
seems fair but, in some instances, the accounting record may not accurately represent a
business' financial performance.

13. What is the periodicity concept? Why is it important for business entities to provide
periodic information?
The time period concept or what we usually prefer to call it as the "periodicity
concept." It divides the life of the business into regular intervals—usually one year—at the
end of which financial statements are prepared. This means that the economic activities
undertaken during the life of an accounting entity are assumed to be divisible into various
artificial time periods for financial reporting purposes. The "periodicity concept" states that
it is necessary to divide the business activities into time period in order for the position and
profitability of the business to be analyzed. It is crucial to follow this concept so that the
business performance can be analyzed by the concerned stakeholders.

14. What is materiality?

Materiality is the impact of misstatement information in the financial statement to
the users. In other words, all important financial information that would sway the opinion of
a financial statement user should be included in the financial statements. Information is
material if its misstatement or omission might influence the judgment of anyone who relies
on the data provided in financial statements; if the consequence didn't influence anyone,
then it's considered immaterial.
Fill in the Blanks (Page 51)
1. Accounting is a process of recording, classifying, analyzing, summarizing, and reporting of
financial information to the stakeholders of the business.
2. An activity carried out by a business to provide goods and services in exchange for money is
known as a business transaction.
3. Only business activities that can be measured in dollars and cents are recorded. This is in
accordance with the monetary concept.
4. Personal financial activities of the owner of a business are not recorded in the books of the
business. This complies with the accounting entity concept.
5. Transactions are recorded based on reliable and verifiable information. This is in accordance
with the objectivity concept.
6. Transactions should be recorded in the accounts at their original cost shown in the source
documents. This practice complies with the historical cost concept.

True or False (Page 52)

1. True
2. True
3. True
4. False
5. True
6. True
7. False
8. True
9. True
10. True
11. True
12. True
13. True
14. False
15. True
16. False
17. True
18. True
19. True
 20. True
21. True
22. True
23. False
24. True

Multiple Choice (Pages 53-54)

1. The _______ concept assumes that the business has an indefinite economic life.
➢ c. going concern
2. Which form of business organization is characterized by limited liability?
➢ b. Partnership
3. Which of the following processes best defines accounting?
➢ d. Both a and b
4. To which area of accounting are generally accepted accounting principles primarily
relevant?
➢ b. Financial accounting
5. Which of the following is not one of the three types of business activities?
➢ c. Marketing
6. Which of the following processes is considered bookkeeping?
➢ c. Recording
7. Krishna started a speech therapy center. He also sells professional books on speech
development. What is the nature of his business? Support your answer with reason.
➢ b. service — Just like hospitals, therapy centers are classified as a “service business.”
According to business experts and entrepreneurs, there are at least three types of
business: (1) service business, (2) merchandising/trading business, and (3)
manufacturing business; (4) hybrid business nascent if a business is a combination of
any of the three.
8. Which of the following is a trading business?
➢ c. a pharmacy
9. Which of the following statements is false?
➢ a. A sole proprietorship has limited risk with respect to the amount of resources he
invests in his business.
10. A business which prepares financial statements every year is following the _______ concept.
➢ b. periodicity
Multiple Choice (Pages 55-56)
1. Assets are usually valued under which basis?
➢ b. Historical cost
2. Which of the following best explain the feature of consistency presentation?
➢ a. When preparing the accounts of a firm, one should normally account for similar
items in the same way from one accounting period to the next.
3. Which of the following statements about accounting concepts and the characteristics of
financial reporting information is not correct?
➢ a. (i) and (ii)
4. Which type of business organization is owned by its stolen stockholders?
➢ a. Corporation
5. Which of the following are true of partnerships?
➢ a. 1 and 2 only
6. Which accounting concepts should be considered if the owner of a business takes goods
from inventory for his personal use?
➢ d. The business entity concept
7. Which accounting concept states that omitting or misstating this information could influence
users of financial statements?
➢ c. The materiality concept
8. Which of the following accounting concepts means that similar items should receive a
similar accounting treatment?
➢ d. Consistency

Multiple Choice (Pages 57-62)

1. Proponents of historical costs maintain that in comparison with all other valuation
alternatives for general purpose financial reporting, statements prepared using historical
costs are more
➢ d. conservative.
2. The records of properties acquired and services availed of by a business are maintained in
accordance with the
➢ b. cost principle.
3. This principle requires relevant information to form part of financial statements for decision-
making purposes.
 ➢ c. adequate disclosure
4. The principle of objectivity includes the concept of
➢ b. verifiability.
5. The concept of matching is best demonstrated by
➢ b. recognizing prepaid rent received as revenue.
6. Accounting changes are often made and the monetary impact is reflected in the financial
statements of an entity even though, in theory, this may be a violation of the accounting
concept of
➢ d. consistency.
7. The periodicity concept
➢ d. involves dividing the life of a business entity into accounting periods of equal
length thus enabling the financial users to periodically evaluate the results of
business operations.
8. They encompass the conventions, rules, and procedures necessary to define what is
accepted accounting practice.
➢ d. Generally accepted accounting principles
9. The Filipino accountants should possess knowledge to enable them to compete
internationally, they are:
➢ d. All of the above
10. Which of the following best describes the attributes of a partnership?
➢ d. Ability to raise large amounts of capital; limited personal liability of owners.
11. The concept of the accounting entity is applicable
➢ c. only to business organizations.
12. The measurement phase of accounting is accomplished by
➢ c. recording data.
13. A person applying for examination shall establish the following requisites to the satisfaction
of the board that he:
➢ g. All of the above.
14. The main function is to establish and improve accounting standards that will be generally
accepted in the Philippines.
➢ a. Financial Reporting Standards Council
15. Which area of public accounting means the examination of financial statements by CPA for
the purpose of expressing an opinion as to the fairness of the statements?
➢ d. External auditing
16. Accountants do not recognize that the value of the peso changes over time. This concept is
called the
➢ a. stable monetary unit concept.
17. The following documents shall be submitted in support of the requirements in the previous
question except the
➢ d. School Identification Card.
18. The basic purpose of accounting is
➢ d. To provide quantitative information about a business enterprise that is useful in
making rational economic decision.
19. During the lifetime of an entity, accountants produce financial statements at arbitrary points
in time in accordance with which basic accounting concept?
➢ b. periodicity
20. The skills needed to be developed by Filipino accountants includes the following
➢ e. “a,” “b” and “c.”
21. Which of the following accounting concepts states that an accounting transaction should be
supported by sufficient evidence to allow to or more qualified individuals to arrive at
essentially similar conclusion?
➢ b. objectivity
22. The financial statements should be stated in terms of a common financial denominator.
➢ d. Stable monetary unit
23. Stating assets and liabilities and changes in them in terms of a common financial
denominator is a prerequisite in measuring financial position and periodic net income.
➢ a. unit of measure
24. Carrying out professional responsibilities diligently and in accordance with applicable
technical and professional standards is descriptive of the principle of
➢ a. professional competence and due care.
25. A professional accountant should be straightforward and honest in all professional and
business relationships. This is consonance with the fundamental principle of
➢ a. integrity.
26. Which of the following is an appropriate definition of accounting?
➢ a. The measurement, processing, and communication of financial information about
an identifiable economic entity
27. Accountants employed by a particular business firm or not-for-profit organization, perhaps
as chief accountant, controller, or financial vice president, are said to be engaged in
 ➢ c. practice in commerce and industry.
28. The entity concept means that
➢ c. The financial affairs of a firm and its owner are always kept separate for the
purpose of preparing accounts.
29. The financial accounting process provides information about economic activities of an
enterprise for a specified accounting period that is shorter than the life of the enterprise.
➢ a. time period
30. The consistency concept means that
➢ a. When preparing the accounts of a firm, one should normally account for similar
items in the same way from one accounting period to the next.
31. The consistency standard of reporting requires that
➢ b. the effect of changes in accounting upon income be properly disclosed.
32. Which accounting process is the recognition or non-recognition of business activities as
accountable events?
➢ a. Identifying