BASIC ACCOUNTING

ENVIRONMENT

LEARNING OBJECTIVES

DEFINE ACCOUNTING & EXPLAIN ITS FUNCTIONS AND ROLES IN BUSINESS

IDENTIFY THE USERS OF ACCOUNTING & EXPLAIN WHY THEY DEPEND ON ACCOUNTING INFORMATION

EXPLAIN THE THEORETICAL FRAMEWORK OF ACCOUNTING

ENUMERATE & EXPLAIN THE BASIC CONCEPTS & PRINCIPLES USED IN THE ACCOUNTING PROCESS

WHAT IS ACCOUNTING?

ACCOUNTING IS A SERVICE ACTIVITY WHICH FUNCTION IS TO PROVIDE QUANTITATIVE INFORMATION, PRIMARILY FINANCIAL IN NATURE, ABOUT ECONOMIC ENTITIES, THAT IS INTENDED TO BE USEFUL IN MAKING ECONOMIC DECISIONS.

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ACCOUNTING IS A

LANGUAGE THAT

COMMUNICATES VITAL

INFORMATION TO USERS

FOR DECISION MAKING

PURPOSES

COMPANY ACCUMULATES ACCOUNTING INFORMATION THROUGH ITS

VARIOUS TRANSACTIONS

ACCOUNTING INFORMATION SYSTEM

PROCESSES THE FINANCIAL INFORMATION & PREPARES

THE REPORTS

STAKEHOLDERS OR USERS

REVIEW THE REPORTS & MAKE DECISIONS

ACCOUNTING AREASBASIC ACCOUNTING OR BOOKKEEPING

FINANCIAL ACCOUNTING

Cost ACCOUNTING

MANAGERIAL ACCOUNTING

AUDITING

FUND ACCOUNTING [GOVERNMENT/NON-PROFIT]

TAX ACCOUNTING

ACCOUNTING AREASBASIC ACCOUNTING OR BOOKKEEPING

FINANCIAL ACCOUNTING

Cost ACCOUNTING

MANAGERIAL ACCOUNTING

AUDITING

FUND ACCOUNTING [GOVERNMENT/NON-PROFIT]

TAX ACCOUNTING

BOOKKEEPING IS THE ROUTINE ACTIVITY OF RECORDING,

CLASSIFYING & SUMMARIZING

BUSINESS TRANSACTIONS IN A

SYSTEMATIC MANNER

FINANCIAL ACCOUNTING INVOLVES THE

PREPARATION & INTERPRETATION OF

FINANCIAL STATEMENTS

PRIMARILY INTENDED FOR

EXTERNAL USERS

COST ACCOUNTING DEALS WITH RECORDING, CLASSIFYING,

SUMMARIZING THE DETAILS

MATERIALS, LABOR & OVERHEAD

NECESSARY TO PRODUCE/SELL A

PRODUCT

MANAGERIAL ACCOUNTING

IS THE PRESENTATION OF FINANCIAL & NON-

FINANCIAL INFORMATION PRIMARILY FOR

MANAGEMENT TO ASSIST IN THEIR

VARIOUS FUNCTIONS

AUDITING DEALS WITH

INDEPENDENT VERIFICATION AND EXAMINATION OF THE ACCOUNTING RECORDS FOR THE

PURPOSE OF GIVING AN OPINION ON THE FAIRNESS OF THE FINANCIAL

STATEMENTS

FUND ACCOUNTING

DEALS WITH THE ADMINISTRATION

OR USE OF PUBLIC/COMMUNITY

FUNDS TO BRING ABOUT SERVICE TO

PEOPLE

TAX ACCOUNTING DEALS WITH TAX

MATTERS AFFECTING FIRMS (PARTNERSHIP & CORPORATION), INDIVIDUALS, TRUSTS AND

ESTATES

STAKEHOLDERS AS USERS & DECISION MAKERS

STAKEHOLDER IS A PERSON OR ENTITY WHO HAS A “STAKE” OR INTEREST IN THE ECONOMIC PERFORMANCE OF A BUSINESS

OWNER OR INVESTOR IS ONE WHO PUTS CAPITAL (SUCH AS MONEY OR PROPERTY) IN A BUSINESS VENTURE WITH THE OBJECTIVE OF RECEIVING A RETURN ON CAPITAL OR INVESTMENT

STAKEHOLDERS AS USERS & DECISION MAKERS

MANAGER IS RESPONSIBLE FOR ORGANIZING, PLANNING, DIRECTING AND CONTROLLING THE OPERATION OF THE BUSINESS

LENDER ASSESSES THE ABILITY OF THE BUSINESS TO PAY THE PRINCIPAL DEBT AND THE ADDITIONAL CHARGE CALLED INTEREST

SUPPLIER OFFERS GOODS OR MERCHANDISE ON THE PAYING ABILITY OF THE BUSINESS

STAKEHOLDERS AS USERS & DECISION MAKERS

GOVERNMENT USES THE ACCOUNTING REPORTS IN SEVERAL WAYS: AS A TAX COLLECTOR, REGULATORY BODY, AS A CUSTOMER

EMPLOYEE WANTS HIGHER WAGES, BENEFITS, GOOD WORKING CONDITIONS AND A REVIEW OF FINANCIAL REPORTS WILL ENABLE ONE TO ASSESS THE ABILITY OF THE COMPANY TO GRANT THESE DEMANDS

CUSTOMER ASSESSES THE COMPANY’S ABILITY TO CONTINUOUSLY SUPPLY THE GOODS THEY NEED AT THE RIGHT PRICE & QUANTITY

FRAMEWORK OF ACCOUNTINGTH

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OBJECTIVE OF FINANCIAL STATEMENTS

QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS

DEFINITION, MEASUREMENT & RECOGNITION OF THE ELEMENTS OF

THE FINANCIAL STATEMENTSCONCEPTS OF CAPITAL AND CAPITAL

MAINTENANCE

QUALITATIVE CHARACTERISTICS

THE FRAMEWORK FOR THE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS DESCRIBES, AMONG OTHERS, THE ATTRIBUTES OR CHARACTERISTICS THAT FINANCIAL INFORMATION MUST POSSESS TO MAKE THEM TRUSTWORTHY AND USEFUL IN MAKING INFORMED JUDGMENT AND DECISION. THE FRAMEWORK IDENTIFIES FOUR PRINCIPLE ATTRIBUTES: UNDERSTANDABILITY, RELEVANCE, RELIABILITY & COMPARABILITY

UNDERSTANDABILITY

• TERMINOLOGIES MUST BE CLEAR

• FORM AND PRESENTATION MUST BE ORDERLY

RELEVANCE

• QUALITY OF INFORMATION WILL MAKE A DIFFERENCE TO A STATEMENT USER

• MUST HAVE FEEDBACK VALUE AND PREDICTIVE VALUE

RELIABILITY

• FAITHFUL REPRESENTATION & SUBSTANCE OVER FORM

• NEUTRALITY• PRUDENCE

COMPARABILITY

• HELPS ONE IDENTIFY CHANGES TAKING PLACE IN THE ENTITY

• CONSISTENCY

• UNIFORMITY

ACCOUNTING CONCEPTS & PRINCIPLES PRINCIPLES ARE BROAD LAWS OR RULES ADOPTED AS GUIDES TO THE CONDUCT & PRACTICES OF THE PROFESSION

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) ARE WIDELY ACCEPTED SET OF RULES, CONVENTIONS, STANDARDS, AND PROCEDURES USED IN IDENTIFYING, MEASURING & REPORTING FINANCIAL INFORMATION

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

BUSINESS ENTITY CONCEPT• ASSUMES THAT

A BUSINESS ENTERPRISE IS SEPARATE & DISTINCT FROM THE OWNER OR INVESTOR

EXCHANGE PRICE OR COST CONCEPT• ASSETS,

LIABILITIES, REVENUES & EXPENSES SHOULD BE RECORDED BASED ON COST

GOING CONCERN CONCEPT• BASED ON THIS

PREMISE, IT IS EXPECTED THAT THE BUSINESS WILL CONTINUE TO EXIST INDEFINITELY

ACCRUAL CONCEPT• REQUIRES THAT

FINANCIAL STATEMENTS BE PREPARED UNDER THE ACCRUAL BASIS

OBJECTIVITY CONCEPT• REQUIRED THAT

ASSETS ACQUIRED MUST BE VERIFIABLE AND SUBSTANTIATED BY DOCUMENTS SUCH AS INVOICES, VOUCHERS, OFFICIAL RECEIPTS

DISCLOSURE CONCEPT• ADEQUATE

DISCLOSURES MAY BE PRESENTED IN THE FINANCIAL STATEMENT OR ITS ACCOMPANYING NOTES

ZENAIDA VERA CRUZ MANUEL