Lesson 1 and 2 Flashcards
commonly referred to as the “language of business” because
it is practical and universal.
Accounting
this involves selecting economic events that are relevant to a particular
business transaction The economic events of an organization are referred to as transactions.
IDENTIFYING
this involves keeping a chronological diary of events that are measured in
pesos. The diary referred to in the definition are the journals and ledgers which will be discussed
in future chapters.
RECORDING
occurs through the preparation and distribution of financial and other
accounting reports
COMMUNICATING
Accounting provides assistance to decision makers by providing them
financial reports that will guide them in coming up with sound decisions.
Accounting is a service activity.
it performs the specific task of collecting, processing
and communicating financial information. In doing so, it follows some definite steps like the collection, recording,
classification, summarization, finalization, and reporting of financial data.
Accounting is a process
Accounting records financial
transactions and data, classifies these and finalizes their results given for a specified period of time, as needed by their
users. At every stage, from start to finish, accounting deals with financial information and financial information only.
It does not deal with non-monetary or non-financial aspects of such information.
Accounting deals with financial information and transactions
Accounting is recognized and characterized as a storehouse of
information. As a service function, it collects processes and communicates financial information of any entity. This
discipline of knowledge has evolved to meet the need for financial information as required by various interested
groups.
Accounting is an information system
NATURE OF ACCOUNTING:
Accounting is a service activity.
Accounting is a process:
Accounting is both an art and a discipline.
Accounting deals with financial information and transactions:
Accounting is an information system:
FUNCTIONS OF
ACCOUNTING:
Systematic recording of financial transactions through journalizing, posting, and final
statement preparation.
Safeguarding the business’s property from unauthorized and undesirable use.
Creating a system that satisfies legal requirements.
Communicating variety of transactions.
USERS OF ACCOUNTING
INFORMATION:
Internal Users
External Users
People within a business organization who use accounting information.
Internal Users
need accounting information to determine whether they should withdraw or increase their
investments and what their investment is worth.
Owners
need accounting information to study the profitability and financial condition of the
business.
Managers
examine a business’s profitability, stability, and its impact on their salary and job
security.
Employees
internal users:
Owners
Managers
Employees
People outside the business entity (organization) who use the accounting information of the company.
External Users
Accounting information will help investors decide whether to invest in the business.
Investors
Assess the business’s creditworthiness and capability to repay its obligation,
including the related interests on the maturity date.
Creditors/ Lenders
Are interested in an enterprise’s continuance, especially when they have a long-term
involvement with or depend on it.
Customers
Use accounting information to determine whether the debts owed to them will be paid when
due or whether the customer has enough funds or resources to pay for the goods to be delivered or the
services rendered.
Suppliers
ensure that the company’s disclosure of accounting
information follows the rules and regulations set to protect the interest of the stakeholders that rely on such
information.
Government (Government Agencies/Tax Authorities/Auditors)
Use financial information to know the trends and recent developments in the prosperity of the
enterprise and the range of its activities.
Public
External Users:
Investors
Creditors/ Lenders
Customers
Suppliers
Government
Around 3600 B.C., record-keeping was already common from Mesopotamia, China and India
to Central and South America. The oldest evidence of this practice was the “clay tablet” of Mesopotamia which dealt with
commercial transactions at the time such as listing of accounts receivable and accounts payable.
The Cradle of Civilization
The most important event in accounting history is generally considered to
be the dissemination of double entry bookkeeping by Luca Pacioli (‘The Father of Accounting’)
14th Century - Double-Entry Bookkeeping
(‘The Father of Accounting’)
Luca Pacioli
Mass production and the great importance of fixed
assets were given attention during this period
The Industrial Revolution (1760-1830)
The thorough
study of accounting and development of
accounting theory began during this period.
Social upheavals affecting government,
finances, laws, customs and business had
greatly influenced the development of
accounting.
French Revolution
In this period rapid changes in accounting practice and reports were made. Accounting standards to be observed by
accounting professionals were promulgated. Notable practices such as mergers, acquisitions and growth of multinational
corporations were developed. The Beginnings of Modern Accounting in Europe and America The modern, formal accounting profession
emerged in Scotland in 1854 when Queen Victoria granted a Royal Charter to the Institute of Accountants in Glasgow, creating
the profession of the Chartered Accountant (CA).
19th Century
The accounting profession
in the 20th century developed around state requirements for financial statement audits. Beyond the industry’s self-regulation, the
government also sets accounting standards, through laws and agencies such as the Securities and Exchange Commission (SEC).
As economies worldwide continued to globalize, accounting regulatory bodies required accounting practitioners to observe
International Accounting Standards. This is to assure transparency and reliability, and to obtain greater confidence on accounting
information used by global investors. Nowadays, investors seek investment opportunities all over the world. To remain
competitive, businesses everywhere feel the need to operate globally. The trend now for accounting professionals is to observe
one single set of global accounting standards in order to have greater transparency and comparability of financial data across
borders.
The Present - The Development of Modern Accounting Standards and Commerce
BRANCHES OF ACCOUNTING:
Financial accounting
Management (or Managerial) Accounting
Government accounting
Auditing
Tax accounting
Cost Accounting
Accounting Education
Accounting Research
is the broadest branch and is focused on the needs of external users.
primarily concerned with the recognition, measurement and communication of economic activities. This information is communicated in a
complete set of financial statements. It is assumed under this branch that the users have one common information need. Financial
accounting conforms with accounting standards developed by standard-setting bodies.
Financial accounting
emphasizes the preparation and
analysis of accounting information within the organization.
to
provide timely and relevant information for those internal users of accounting information, such as the
managers and employees in their decision-making needs. Oftentimes, these are sensitive information and is
not distributed to those outside the business - for example, prices, plans to open up branches, customer list,
etc.
Management (or Managerial) Accounting
is the process of recording, analyzing, classifying, summarizing,
communicating and interpreting financial information about the government in aggregate and in detail
reflecting transactions and other economic events involving the receipt, spending, transfer, usability and
disposition of assets and liabilities. This branch of accounting deals with how the funds of the government
are recorded and reported. (Introduce the the Bureau of Internal Revenue and its role in the administration
and implementation of our tax laws.)
Government accounting
helps clients follow rules set by tax authorities. It includes tax
planning and preparation of tax returns. It also involves determination of income tax and
other taxes, tax advisory services such as ways to minimize taxes legally, evaluation of
the consequences of tax decisions, and other tax-related matters
Tax accounting
Sometimes considered as a subset of management accounting, _______ refers
to the recording, presentation, and analysis of manufacturing costs.
very useful in
manufacturing businesses since they have the most complicated costing process. Cost accountants also
analyze actual and standard costs to help managers determine future courses of action regarding the
company’s operations.
Cost Accounting
This branch of accounting deals with developing future accountants by
creating relevant accounting curriculum. Accounting professionals can become faculty members of
educational institutions.
Accounting Education
focuses on the search for new knowledge on the effects of economic events on the
process of summarizing, analyzing, verifying, and reporting standardized financial information, and on the
effects of reported information on economic events.
Accounting Research
Ethical issues facing accounting profession:
Pressure from Management
Accountant as Whistleblower
The burden for public companies to succeed a high levels may place undue stress and pressures on accountants
creating balance sheets and financial statements. The ethical issues for these accountants becomes maintaining
true reporting of accounting assets, liabilities and profits without giving in to pressure placed on them by
management or corporate officers.
Pressure from Management
An accountant may face the ethical dilemma of reporting discovered accounting violations to the Financial
Accounting Standards Board.
Accountant as Whistleblower
GAAP means
General Accepted Accounting Principles
the purchaser
Costumer
The user
Consumer
has the highest budget
Marketing Department
Father of management
Henry Fayol
tax collector & first author of first testament.
ST. Matthew
•Profit oriented
•Want Satisfaction about the profit
Business Man
•Creating own business based on their creativity, mind and innovation.
•People oriented
•Satisfy costumers
Entrepreneur
Supplies that come from nature or natural material and source of energy that we use.
Natural Resources
Man made supplies or machines that produce goods and provide services.
Capital resources
Assets that are organized by business personnel in the process of building a business.
Entrepreneur resources
Proper management of all things related to employees.
Human Resources
