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INTRO TO FINANCIAL
ACCOUNTING
Janice Rhea P. Cabacungan
1st Lecture
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Objectives:
1. Define Accountancy
2. Identify the principles of accountancy
3. Define Accounting 4. Identify accounting process
5. Accounting Language of Business
6. Accounting Eyes of the Business
7. Users of Accounting Information
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Accountancy
is the process of communicating financial
information about a business entity to users such as
shareholders and managers. The communication is
generally in the form of financial statements thatshow in money terms the economic resources under
the control of management; the art lies in selecting
the information that is relevant to the user and is
reliable.
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Accountancy
is a branch of mathematical science that is useful in
discovering the causes of success and failure in
business
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The principles of accountancy
are applied to business entities in three divisions of
practical art, named accounting, bookkeeping, and
auditing
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Accounting
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.
Accounting Standard Council (ASC)
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Accounting
"the art of recording, classifying, and summarizing
in a significant manner and in terms of money,
transactions and events which are, in part at least,
of financial character, and interpreting the resultsthereof.
American Institute of Certified Public Accountants(AICPA)
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Accounting
The process of identifying, measuring and
communicating economic information to permit
informed judgments and decisions by users of the
information.
American Accounting Association (AAA)
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AccountingProcess
Financial Information
Assets= Liabilities +Owners Equity
Profit /Loss = Revenue-
Expenses
Communicated
to
DECISION
MAKERS
Internal
Management
External:Investors
Creditors
Customers
Government
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Accounting Process
A. Recording
B. Classifying
C. Summarizing D. Interpreting
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A. Recording
This function deals with the writing on the books or
records of the business transactions or events. This is
technically referred as BOOKKEEPING.
Bookkeeping is the systematic and chronological
recording of business transactions or events.
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Classifying
In the recording and summarizing functions, similar
items are grouped or sorted .
Example: A store dealing in the buying and selling
of coats, shirts, shoes and slippers in various sizes,
colors and etc may have group as sales-coats,
sales-shirts, sales-shoes and sales- slippers.
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Summarizing
The accountant groups summarizes the details ofthe data in accounting records preparatory to thesubmission of reports to the management, this is
normally periodically.
yearly
monthly
quarterly
semestrally
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Interpreting
Due to technical and specialized nature of
accounting, reports and statements submitted by the
accountant require further interpretation for the
guidance of management. In this function, theaccountant usually prepares additional explanatory
reports such as Analysis of Working Capital Report,
Accounting Statement Analysis Report, Statement of
Affairs and the like.
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The Language of the Business
Common Business Questions?
A. How much is the increase in capital as a result ofbusiness operation ?
(Profitability) B. Are there available funds to finance the business
operation?
(Liquidity)
C. Can the business pay its long term obligations toothers?
(Solvency)
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D. Can the business sustain its long term profitabilityand cash flow?
(Stability)
E. How much borrowed capital and owners capitalare invested in the business?
(Capital Structure)
F. Is there excess cash available for investmentopportunities and other uncertainties?
(Financial Flexibility)
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The eyes of the business
Bookkeeping records the initial part of accounting
activities, enable the owner of a business to check
on his financial progress
Adequate accounting records assist the owner to
prepare plans for the future.
Auditing, an advanced part of accounting activity,
verifies the truthfulness of the financial reportsconcerning the business results of operation and
financial conditioning.
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USERS OF ACCOUNTING INFORMATION
INTERNALUSERS
Management
GroupSole Proprietors
BOR
Officers Managers
Supervisors
ExternalUsers
FINANCING GROUPInvestors
Potential InvestorsBank and other financing
institutions
PUBLIC GROUP
Government
Regulatory AgenciesTaxing Authorities
Labor Unions
Employees
Retirees
Economic Planners
Customers
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