Basic Accounting - theories & meanings Flashcards
a legally-recognized organizational entity existing within an economically free country designed to sell goods and/or provide
services to consumers
Business
Aims to earn income or profit through the provision of goods
and/or services to consumers
Profit-oriented enterprise
Aims to achieve socio-civic or charitable aims
Non-profit-oriented enterprise
Forms of Business Enterprises (according to nature of operations)
- Service business or service concern-
- Merchandising business or trading concern
- Manufacturing business or manufacturing concern-
Simplest form of business and provides services to clients or customers in exchange for fees, rent, interest, or royalties
Service business or service concern-
Purchase goods from suppliers and, without altering the state of the goods bought, sell the same at a higher price than cost
Merchandising business or trading concern
Involves the most complex activities and actually
produces the goods that it sells to customers
Manufacturing business or manufacturing concern
LEGAL FORMS of Business/ Business Ownership
Sole Proprietorship
Partnership
Corporation
Cooperatives
Defined by International Cooperative Alliance’s Statement on
Cooperative Identity as “autonomous associations of persons united voluntarily to meet their common economic, social,
and cultural needs and aspirations through jointly owned and democratically controlled enterprises”
Cooperatives
Most complex form of Business Organizations
Corporation
Person who invests in a corporation
Shareholder
Evidence of the number of shares purchased Governed by the Corporation Code of the Philippines Management of operations of the corporation is centralized in the corporation’s board of directors
Certificate of stock
An association of two or more persons who bind themselves to
contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves.
- Partnerships are governed by the Civil Code of the Philippines
Partnership
Most basic legal form of business and has only one owner
Sole Proprietorship
Decisions which affect the resources it controls and the obligations of the business to other enterprises
Economic decisions
A summary of all the transactions of the business over a period of time. Most important financial information comes from accounting
Financial information
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 a financial character, and
interpreting the results thereof (Institute of Certified Public Accountants)
accounting
Is 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 decisions (Accounting Standards Council)
accounting
Service function to management. It basically processes raw data and converts them to meaningful information that will be useful for decision-making
accounting
Is the process of identifying, measuring and communicating economic information to permit informed judgement and decision by users of the information (American Accounting Association)
accounting
to supply
financial information to users of the information
to help them make informed judgements and
better decisions
Basic purpose of Accounting
procedural or mechanical aspect
of accounting and involves set-up, update and
maintenance of accounting records. It can be
done by properly trained non-accountants
bookkeeping
interpretation of information
recorded under bookkeeping. Practice of
accountancy can be done only by certified public
accountants
accounting
Republic Act of Accountancy
Republic Act No. 9298, the Philippine Accountancy Act of 2004
creates Professional Regulatory
Board of Accountancy which enforces the
provisions of the Philippine Accountancy Act. It is
also granted the right to issue, suspend, revoke
or reinstate CPA certificates for the practice of the
profession
Article II
Candidates who fail _________ examinations
shall be disqualified from taking another exam
unless they submit evidence to the satisfaction of
the Board that they enrolled an completed at
least 24 units of subject given in the licensure
examination
2 complete examinations
Sectors of Accounting practice
Public Practice
Commerce or Industry
Education
Government
This sector includes
individual practitioners, small accounting
firms, medium sized and multinational accounting firms that render independent professional accounting services to the
public. CPAs charge professional fees for
these services. Examples are the Auditing, Tax services and Management and consulting services
Public Practice
most common service provided by CPAs and involves independent examination of financial statements for the purpose of expressing an opinion on the fairness of these statements
Auditing
includes the preparation
of tax returns for various clients,
provision advice on tax matters and
representation of clients in tax cases
tax services
involves providing advisory/consulting services on matters of accounting, finance, business policies, organization procedures, budgeting, product costing and the conduct of operations
management and consulting services
Accountants are employed in various positions such as: vice-president for finance, chief accountant, cost accountant, internal auditor or budget officer. The highest accounting officer of a business organization is known as the controller. Accountants in commerce and industry assist management in planning and controlling a company’s operations
Commerce and Industry
This area employs accountants as
professors, reviewers or researchers. They
take steps to clarify and address emerging
accounting issues encountered by
accountants in other sectors. They share
results of discussion and research with
colleagues in other sectors. Educators also
prepare aspiring CPAs for the Licensure
Examinations
Education
Accountants may be hired as staff, auditor, budget officer or consultant in government units like the Commission on Audit, Bureau of Internal Revenue, Department of Finance, Department of Budget and Management, and the Securities and Exchange Commission
Government
he wrote a book containing discussions on the double-
entry bookkeeping system entitled Summa de Arithmetica, Geometria, Proportioni et
Proportionalita (Everything about
Arithmetic, Geometry, Proportions and
Proportionality), summary of the existing
mathematical knowledge at the time. Considered as Father of Double-Entry
Bookkeeping
1494, Friar Luca Pacioli
Fields of Accounting
Financial Accounting Management Accounting Cost Accounting Tax Accounting Government Accounting
encompasses the process of analyzing, classifying, summarizing and communicating all transactions involving receipt and disposition of government funds and property and interpreting the results thereof. Focus is the proper custody, disposition and accounting for public funds
Government accounting
has two aims:
compliance with tax laws and minimizing
the company’s tax bill through legal
means
tax accounting
measures a business’
costs to help management in controlling
expenses
cost accounting
concerned with financial reporting for internal users (management) and users have control over the accounting system and can specify precisely the type of reports needed for use in decision-making
management accounting
focuses on
preparation of general-purpose financial
statements with the aim of meeting most
of the needs of the external users
financial accounting
comprises the accounting principles and
processes, standards and underlying assumptions
that are used in preparing financial statements
Generally Accepted Accounting Principles (GAAP)
official accounting standard setting body
in the Philippines. The primary task of FRSC is to
improve and establish accounting standards that
will be generally accepted in the Philippines
Financial Reporting Standards Council (FRSC)
The FRSC issued this and this
constitutes the generally accepted accounting
standards observed in the Philippines
Philippine Financial Reporting Standards
PFRS
PFRS includes
Philippine Accounting Standards
PFRS
Philippine Interpretations developed by
Philippine Interpretations Committee
