༉‧₊˚. fabm 1: intro to accounting

accounting

a service activity

accounting

its function is to provide quantitative information primarily financial in nature, about economic entities that is intended to be useful in making economic decisions.

4 nature of accounting

1. art

2. financial

3. process

4. information system

5 functions of accounting

1. maintenance of systematic records

2. financial results of an entity can be communicated

3. meeting legal requirements

4. protecting assets of a business

5. assistance to management

bookkeeping

deals primarily with the systematic method of recording and classifying financial transaction of business.

accounting

• the language of business

• the medium of communication between a business firm and other parties.

accounting’s objective

the use of financial data for interpretation

accounting’s purpose

to provide information about the financial activities of an entity

accounting

a task accomplished by an individual who earns a living by doing the process of classifying and summarizing business transactions and interpreting their effects.

accounting

an information system that classifies financial transactions and communicates economic events of an organization to various stakeholders.

accounting’s primary function

help different stakeholders of the company to make sound decisions about the proper use of the firm’s scarce resources.

bookkeeping

it deals primarily with the step-by-step accomplishments of the accounting cycle.

bookkeeping

concerns with techniques involving the recording of day-to-day transactions.

bookkeeping

a task of an individual who earns hid salary by recording the financial activities of a business

bookkeeping

usually involves only the recording of business transactions

4 definitions of accounting according to Accounting Standard Council:

1. service quality

2. provide qualitative information primarily financial in nature

3. economic entities

4. economic decisions

history of accounting

1. primitive accounting

2. middle age accounting

3. french revolution

4. industrial revolution (1760-1830)

5. modern and developed accounting

primitive accounting

Around 3600 BC, record-keeping was already common from Mesopotamia, China, and India to Central and South America.

primitive accounting evidence

clay tablet of mesopotamia

middle age accounting

The most important event in accounting history is generally considered to be the dissemination of double entry bookkeeping by Luca Pacioli in 14th century.

luca pacioli

father of accounting

double entry bookkeeping

• an accounting method where every financial transaction is recorded in at least two accounts as a debit and an equal credit.

• the sum of all debits must always equal the sum of all credits

• this system provides built-in checks and balances to prevent errors and ensure accurate financial reporting

french revolution

• 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.

industrial revolution (1760-1830)

Mass production and the great importance of fixed assets were given attention during this period.

modern and developed accounting

• In this period, rapid changes in accounting practice and reports were made.

• Accounting standards to be observed by accounting professionals were promulgated.

10 users of accounting

internal users:

1. business owners

2. managers of management

3. employees

external users:

1. potential or existing investors

2. creditors

3. customers

4. suppliers

5. tax authorities

6. government

7. general public

business owners

oversee their business solvency and profitability.

managers or management

They are into planning, organizing, staffing, implementing, and controlling in the organization.

• Decision making

• Subordinates performance

• Budget

• Evaluation of operation

• Efficiency

Employees

They can use accounting information to determine if the business can meet their needs and demand for their compensation, benefits, safety, and security of tenure.

potential or existing investors

asks, “Should I invest in this company or not? ”

creditors

asks, “Can they pay their obligation when they fall due? (+ interest)”

customers

Those dependent with the firm are curious about business continuity

suppliers

asks, “Can they pay for the goods and services I provided? ”

tax authorities

asks, “Are they compliant? Do they pay the right amount of taxes?”

government

asks, “Do they follow rules and regulations”

general public

asks, “What are the new business trends?”

generally accepted accounting principles (gaap)

refer to a common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB).

12 Accounting Concepts and Principle

1. economic entity or accounting entity

2. accrual basis

3. going concern

4. monetary unit

5. time period

6. cost principle

7. full disclosure principle

8. matching principle

9. revenue recognition principle

10. materiality

11. conservatism

12. objectivity

economic entity or accounting entity

The personal transactions of the owner are separate from that of the business he/she owns.

accrual basis

Revenue is recorded when earned, expenses are recorder when it happens.

going concern

The company will continue operating indefinitely until the foreseeable future, and that company closure is not imminent.

monetary unit

Transactions are express in a monetary unit of measure.

time period

Transactions are summarized and reported at a regular time intervals.

2 time period in accounting

1. calendar year

2. fiscal year

calendar year

january 1-december 31

fiscal year

any starting point + 12 months

cost principle

Amount shown in financial reports are historical costs.

full disclosure principle

Sufficient information for informed judgements.

matching principle

Matching revenues with expenses to know the profit of the business.

revenue recognition principle

Recognize revenue when goods are sold or services are rendered, regardless of cash receipt.

materiality

The impact of an omission or misstatement of information in a company’s financial statements on the user of those statements.

conservatism

If there are two acceptable alternatives in a situation, choose the alternative that will result in lesser income or resource.

objectivity

Recording and reporting process should be performed with independence which is free from bias.