Introduction to Accounting 1

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Introduction to Accounting

Accounting

The art of recording, classifying and summarizing in asignificant manner and in terms of money, transaction andevents that are, in part at least, of a financial character, and

interpreting the results thereof . ( American Institute of CertifiedPublic Accountant)

A system that measures business activities, processes giveinformation into reports, and communicates those findings

to decision makers.( Philippine Institute of Certified PublicAccountant)


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Accounting consists of three basic activities it identifies,records and communicates the economic events of anorganization.

Identifies economic events relevant to business

to record those events in order to provide a history offinancial activities

Records recording consist of keeping a systematic chronological diary

of events.


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Communicates communicates the collected information to interested users

by means of accounting reports.

These reports are called FINANCIAL STATEMENTS

The data presented in the financial statements are inaggregate. by presenting the data in the aggregate, the

accounting process simplifies a multitude of transactions andmakes a series of activities understandable and meaningful.


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a vital element in communicating economic events is theaccountants ability to analyze and interpret the reportedinformation.

Often referred to as the Language of business

Means of measuring business activity and processing thisinformation into reports to communicate results to decision

makers


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ACCOUNTING PROCESS

Accounting process includes the BOOKKEEPING function.

Bookkeeping usually involves only the recording of economicevents. It is just one part of accounting process


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Bookkeeping

- deals primarily with the systematic method of

recording and classifying financial transaction of thebusiness.

- It is a procedural element of accounting. Books are

set up and prepared in a manner that ensures anorderly recording and classification of business

transactions.


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INTRODUCTION TO ACCOUNTING

- Bookkeeping process is now basically done through

the use of computers and software designed for

such purpose


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USERS OF ACCOUNTING DATA

Accounting is a language of business because it is themedium of communication between a business firm andvarious parties interested in its financial activities.

(1) Internal Users - those individuals inside a company whoplan, organize and run the business

---Managerial accounting is the branch of accounting whichprovides internal reports to help internal users in decision

making


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a. Ownersthe owners provides the money/capital that

the business needs to begin operation. Through the

the financial reports, the owner can properly

manage, monitor the business, analyzing whether

or not he can expect reasonable return from his

business.

.


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b. Management managers of business use

accounting information to set goals for the

organization, to evaluate the progress made

toward those goals and to make corrective action ifnecessary.


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c. Employees the employees that made up the work force ofthe company will be interested in information about thestability and profitability of the company. Through theFinancial Statement, employees will be able to assess theability of the enterprise to provide remuneration, retirementbenefits and other employee opportunities and benefits.


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(2) External Users are individuals and organization outside acompany who want financial information about thecompany

a. Potential Investors use financial reports in evaluatingwhat income they can reasonably expect from theirinvestment

b. Creditors - potential money lenders, suppliers and othercreditors. Potential lenders or current creditors determinethe borrowers ability to meet scheduled payment.


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c. Customers is interested in information about thecontinuance of an enterprise, especially when they have along-term involvement with, or are dependent on thecompanys offerings either in the form of goods or services.

d. Taxing Authorities local or national government levy taxeson individuals and businesses. The amount of tax isdetermined using the accounting information.


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e. Government regulation agencies Most organizations facegovernment regulation. For example, the Securities andExchange Commission (SEC) requires businesses to disclosecertain financial information to the public. The SEC, like

many government agencies, bases its regulatory activity inpart on the accounting information it receives from firms.


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f. Non-profit organizations non-profit organizations e.g.churches, most hospitals, government agencies, andcolleges, which operates other than to earn a profit useaccounting information in much the same way that profit

oriented businesses do.

g. Other Users Consumer groups and the general public mayalso be interested in the amount of income that the

businesses earned.


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Financial Statements

The principal accounting reports are the


(1) Statement of Financial Positiongives information about the financial condition or position

of the business, i.e. the amount and kind of assets andliabilities, and the status of the owners equity


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(2) Income Statement

gives information about the financial performance

or results of the business during a given period of

time.

(3) Statement of Cash Flows

gives information about financing and investing

activities which is responsible for the changes inthe financial resources of the business i.e. sources

and application of fund during a given period of

time.


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(4) Statement of Changes in Owners Equity

gives information about increases and decreases in theowners equity due to income earned, losses incurred andadditional investment/withdrawal by the owner.


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The Accounting Profession

The success of the accountants in the accounting professiondepends on how well he understands the accountingprocedures and principles, and how clearly and accuratelyhe can communicate financial information to users of thefinancial statements.

CERTIFIED PUBLIC ACCOUNTANT

is a professional accountant who earns his title through acombination of education, qualifying experience and an

acceptance score in the written national examination givenby the Board of Accountancy.


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CAREER OPPORTUNITIES IN ACCOUNTING

(1) Public AccountingIndividuals in public accounting offer expert service to

general public and collect professional fees for their

work.

a. Auditing

CPAs examines financial statement and provides

opinion as to how accurately the financial

statement presents the companys results and

financial position.


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b. Taxation

Tax advise and planning, preparing tax returns and

represent clients before governmental agencies

such as BIR.

c. Management

- Installing basic accounting software or highly

complex

- enterprise resource planning system providing

support services for major marketing process,

merger and acquisition.


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(2) Private Accounting

You may choose to be an employee of a profit

companies, ,and get involved in activities such as

cost accounting, information systems Design and Support,Tax Planning and Preparation.

(3) Government Accounting

You may work for BIR, SEC, DBM, DOF


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REGULATORY BODIES IN ACCOUNTING

(1) Professional Regulation Commission (PRC)

In charge of regulating and licensing the practice ofprofession like accounting, medicine, engineering , nursing

and the like. Included in the functions are the maintenanceand enforcement of professional examination, standardsand ethics.

(2) Board of Accountancy

In charge of regulating the accounting profession by settingup and promulgating a set of professional standards andethics


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(3) Philippine Institute of Certified Public Accountant

The integrated national profession organization of certifiedpublic accountant. It set up and implement rules vital tothe accounting profession

(4) Financial Reporting Standards Council (FRSC)

PICPA established FRSC in order to formalize the accountingstandard-setting function in the Philippines


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FRSC cont..

The councils main function is to established and improveaccounting standards that will be generally accepted in the

Philippines)

The FRSC ( known before as Accounting Standards Council) isthe same body that formulates the Generally Accepted

Accounting Accounting Principles (GAAP) or known as theInternational Financial Reporting Standards (IFRS)


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BASIC PROFESSIONAL VALUES AND ETHICS

Users of accounting information both external and internalrecognize that the usefulness, reliability of accountinginformation is affected by the personal attributes ofcompetence, professional judgment and ethical behavior of

accountants.

In general, the accountant should be able to recognize andunderstand ethical issues to identify and evaluate the

possible consequences of each of the alternatives which willensure relevant, reliable, comparable and consistent financialinformation to serve the best of the users interests as awhole.


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Ethicsis a term that refers to a code or moral system that provides criteria forevaluating right and wrong.

One of the elements that many believe distinguishes a profession from otheroccupations is the acceptance by its members of a responsibility for the interests

of those it serves.

Because of the important role of accounting in society, accountants mustmaintain high ethical standards.

Facing pressures and influence of numerous groups with conflicting interests, theaccountant should always alert about ethical behavior. The Code of Ethicspromulgated by the Board of Accountancy (BOA) provides guidelines forpracticing accountants.


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Integrity. A professional accountant should bestraightforward and honest in performing professionalservices.

Objectivity. A professional accountant should be fair andshould not allow prejudice or bias, conflict of interest orinfluence of others to override objectivity.


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Professional Competence and Due Care. A professionalaccountant should perform professional services with duecare, competence and diligence and has a continuing duty tomaintain professional knowledge and skill at a level required

to ensure that a client or employer receives the advantage ofcompetent professional service based on up to datedevelopments in practice, legislation and techniques.


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Confidentiality.A professional accountant should respectthe confidentiality of information acquired during the courseof performing professional services and should not use ordisclose any such information without proper and specific

authority or unless there is a legal or professional right orduty to disclose.

Professional Behavior. A professional accountant should

act in a manner consistent with the good reputation of theprofession and refrain from any conduct which might bringdiscredit to the profession.


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FORMS OF BUSINESS ORGANIZATION AS TO

OWNERSHIP AND ACTIVITY

(1) PROPRIETORSHIP

A business owned by one person The owner is often the Manager/Operator of the business

Usually only a relatively small amount of money (capital)is necessary to start in business. The owner receives profit, suffer any losses and is

personally liable for its debts.

There is no legal distinction between, but the accountingrecords of the business activities are kept separate fromthe personal records and activities of the owner.


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(2) PARTNERSHIP

A business owned by 2 or more persons associated aspartners

Must have a Partnership agreement ( initial investment,duties of each partner, division of net income, settlementto be made upon the death or withdrawal of a partner).

Often used by retail and service type of business includingprofessional practices.


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(3) CORPORATION

A business organized as a separate legal entity undercorporation law and having ownership divided into

transferrable shares of stocks. Stockholders holder of shares

- enjoying limited liability

- may transfer all or part of their

share to other investors Has unlimited life


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Classification of Business according to

Operation or Activity

(1) Service Concern Businesses engage in the rendering ofservices to others for a fee, like the beauty parlor, law firm,dental clinic and medical clinic.

(2) Merchandising or Trading Concern Businesses that are intothe buying and selling of goods or commodities likegrocery store, drug store and department store.


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Classification of Business according to

Operation or Activity

(3) Manufacturing Concern Businesses that are engaged in theprocessing of products or the conversion of raw materialsinto finished goods that are then sold like the furniturefactory and shoe factory.

Introduction to Accounting 1

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