CHAPTER 1 - OVERVIEW OF ACCOUNTING (CFAS)questions with complete solutions 2022

CHAPTER 1 - OVERVIEW OF ACCOUNTING (CFAS)questions with complete solutions 2022Accounting The process of identifying, measuring, and communication economic information to permit informed judgment and decisions by users of the information Three Important Activities Identifying, Measuring and Communicating Identifying The process of analyzing events and transactions to determine whether or not they will be recognized Recognition Refers to the process including the effects of an accountable event in the statement of financial position or the statement of comprehensive income through a journal entry Accountable event An event that affects the assets, liabilities, equity, income or expenses of an entity Economic Activity The subject matter of accounting; also know as an accountable event Memorandum Entry An entry that records a non-accountable event that has an accounting relevance External Events Events that involve an entity and another external party Exchange (reciprocal transfer) An event wherein there is a reciprocal giving and receiving of economic resources or discharging of economic obligations between an entity and an external party Non-reciprocal transfer A "one way" transaction in that the party giving something does not receive anything in return while the party receiving does not give anything in exchange External event other than transfer An event that involves changes in the economic resources or obligations of an entity caused by an external party or external sources but does not involve transfers of resources or obligations Internal Events Events that do not involve an external party Production The process by which resources are transformed into finished products, production of farm products, and the like Casualty An unanticipated loss from disasters or other similar events Measuring This process involves assigning numbers, normally in monetary terms, to the economic transactions and events Commonly used measurement basis Historical Cost Basis Costs use these measurement bases Historical cost and current cost Valued by Opinion Measurement is affected by estimates - Estimates of uncollectible amounts of receivables - Depreciation and amortization expenses - Estimated Liabilities (i.e., provisions) - Retained Earnings - Cost of goods sold (?) Valued by opinion - Ordinary share capital valued at par value - Land stated at acquisition cost - Cash measured at face amount Valued by fact Communicating The process of transforming economic data into useful accounting, such as financial statements and other accounting reports, for dissemination to users. Also involves interpreting the significance of the processed information Recording Refers to the process of systematically committing into writing the identified and measured accountable events in the journal through journal entries Classifying Involves the grouping of similar and interrelated items into their respective classes through postings in the ledger Summarizing Putting together or expressing in condensed form the recorded and classified transactions and events. This includes the preparation of financial statements and other accounting reports Economic Entity A separately identifiable combination of persons and property that uses or controls economic resources to achieve certain goals or objectives Not-for-profit An entity that carries out some socially desirable needs of the community or its members and whose activities are not directed towards making profit Business entity An entity that operates primarily for profit Economic Activities Activities that affect the economic resources (assets) and obligations (liabilities), and consequently, the equity of an economic entity Production The process of converting economic resources into outputs of goods and services that are intended to have greater utility than the required inputs Exchange The process of trading resources or oblig