FDNACCT UNITS 1-3

Ancient Mesopotamia

7000 years ago(5000BC)

Clay Tablets

Crop and herd growth were recorded in and written in pictographic forms

Temples

Financial Institutions during Ancient Mesopotamia; acts as a distributive system for all their assets

Roman Empire

1200 years ago(25BC)

Adversaria

Mandated to all families to keep record of family expenses(Roman Empire) and allows government to keep record of their accounts and assets for taxation

Public Accountants

Runs audits to avoid fraud and reports to their successors and roman senate

Julius Caesar

Roman general and statesman(100

Julius Caesar

Ancient Discovery and Trade

Renaissance

600 years ago(1350)

Greek docks

records the length of journey and voyagers total quantity and worth or cargos transported and delivered

Merchants

kept servants to tally and keep track of assets and liabilities using single entry bookkeeping

Summa De Arithmetica

Double-entry bookkeeping 1494

Luca Pacioli

Father of Accounting and published double-entry bookkeeping 1447-1517

Merchants and Maritime Traders

Uses double entry, trial balance and balance sheets

Ledgers

Used by business owners to record transacted accounts in the early modern day accounting

Accounting Software Programs

What modern accountants use to conveniently organize financial tracking

Double-Entry Bookkeeping

2 ways of every exchange; debit and credit

Accounting

Art of recording, classifying and summarizing money, transactions and event and Language of Business

Nature of Accounting

Art; service engaged in providing financial information to intended users in making economic decisions

Scope of Accounting

Financial Information and Transactions

1. Public Accounting

2. Private Accounting

3. Governmental Accounting

Areas of Accounting

Public Accounting

available for public

Private Accounting

Works for a single business entity

Governmental Accounting

Keeps financial records and preps financial reports including: gov and its departments and units

1. Auditing

2. Tax Accounting

3. Management Advisory Services

Public Accounting

Auditing

Reviews financial statements to assess fairness and adherence to accounting principles

Tax Accounting

Deals with Tax compliance and tax planning

Management Advisory Services

Helps clients improve their information system and business performance

1. financial accounting

2. auditing

3. cost accounting

4. managerial accounting

5. government accounting

6. tax accounting

7. accounting educations

8. accounting information system

9. forensic accounting

Branches of Accounting

Financial accounting

gives general purpose financial reports to various users

External audit and internal audit

2 types of auditing

External audit

independent 3rd party; reviews a company’s financial statements to assess fairness and adherence to accounting principles

Internal audit

evaluates company policies and procedures. Identifies weakness, mismanagement, waste or fraud

Cost Accounting

accounting and classifying costs and expenses to determine the total cost of a product or service

Managerial Accounting

Internal financial reports

Government Accounting

Financial report for government and its agencies

Tax Accounting

Tax returns and tax compliance

Accounting Education

for academe and research

Accounting Information System

system to collect, store, manage, process, retrieve and report financial data used by internal users

Forensic Reporting

Legal affairs; fraud, legal cases, disputes, and claims resolutions

Primary users and other users

Users of accounting information

Investors, lenders and creditors/suppliers

primary users

Existing investors and potential investors

Investors

Existing investors

Checks on roi

Potential investors

assesses risk and reward of future investments

Lenders

ensures business is capable of repaying a loan and determine the terms of a loan

Suppliers/creditors

assesses abilities of business to pay bills for extending credit and setting credit terms and limit

Internal Users and external users

Other users

Managers and employees

Internal users

Managers

evaluates results of company’s operations to plan and make decisions for future

Employees

ensures the business could pay salaries and benefits

1. Regulatory agencies

2. Securities and Exchange Commission

3. customers

4. employee unions

5. trade associations

6. financial intermediaries

external users

Tax authorities

collects tax

Regulatory agencies

oversees financial info provided by public companies

Securities and Exchange Commission

enforces security laws and protects against infractions

Customers

checks if they could rely on continued service or supply of goods

Employee unions

negotiates salary increase, benefits and profit sharing

Trade associations

a non-profit organization of businesses within a specific industry that collaborates to advance common interests, address shared challenges, and advocate for favorable policies and regulations.

1. Financial analysts

2. stock brokers

3. mutual fund companies

4. credit-rating agencies

Financial Intermediaries

Financial analysts

summary reports to assess the business and industry for investment purposes

Stock Brokers

assess returns of current and future investments

Mutual fund companies

monitor business performance to assess risk and reward of current and future investments

Credit rating agencies

summary reports assess the credit worthiness of public companies

1. Sole Proprietorship

2. partnership

3. corporation

Forms of business organizations

Sole proprietorship

trading alone in their name or recognized business

Sole proprietorship

takes all profits and assumes all business losses

Sole proprietorship

unlimited liability where the owner is liable for all debits

Sole proprietorship

ends when the owner passes away, unable to carry on or when the business operation decides to close.

Partnership

Owned by partners entering a partnership agreement

1. Capital invested

2. profit loss or sharing

3. interest on capital

4. interest of drawings

5. salary and bonus for working partners

6. interest to a partner extending a loan to the partnership

7. responsibilities

What Partnership Agreement Covers

Partnership

divides profits amongst themselves

Partnership

responsible individually and jointly for business debts

Partnership

ends by termination of term/undertaking of partnership, express of a a partner acting in good faith, death/insolvency/civil interdiction of partner, decree of court

Corporation

Separate Legal Entity which pays company tax, sues and be sued with rights to own property and conduct business

Corporation

stakeholders are not responsible for business liability but limited to amount of individual investment

Corporation

can continue indefinitely

Corporation

ends when business goes bankrupt or shareholders vote to liquidate its articles of incorporation

Entity

business unit that is separate and distinct from owner

General Accepted Accounting Principles

common rules, procedures, practices and standards for preparation and presentation of financial statement issued by FASB

General Accepted Accounting Principles

rules accountants follow in recording business transactions and preparing financial statements

1. Service

2. merchandising

3. manufacturing

Activity ownership

Public Companies

could share stocks/shares to the 2nd market; financial statement is public

Private companies

shares/stocks are limited at privately shared to the 1st market

Initial Public Offering

1st market(PSE) where stocks are directly sold from seller or company

Fundamental Characteristics

qualities that make accounting useful with decision making; must be relevant and represent what it supports

1. Relevance

2. predictive value

3. confirmatory value

4. materiality

5. faithful representation

6. completeness

7. neutrality

8. free from error

Fundamental Characteristics

Relevance

financial info that is capable of making a difference in decisions made by users

Predictive value

input to processes to predict future outcomes

Conformative value

confirms/changes previous evals

Materiality

omitting, misstating or obscuring info that could influence decisions that primary users of financial reports make

Omitting

leaving out info

Misstating

providing incorrect/inaccurate info

Obscuring

making info unclear or difficult to find

Material

financial information significant enough to influence a user's decisions

Immaterial

insignificant and unlikely to affect financial decisions

1. Comparability

2. consistency

3. uniformity

4. verifiability

5. timeliness

6. understandability

7. underlying assumptions

8. entity, going concern

9. monetary unit

10. time period/periodicity

11. conservatism

12. industry practice

13. objectivity

14. substance

enhancing characteristics

Comparability

identify and understand similarities and differences

Consistency

uses same methods for items from a period within a reported entity or a single period across entities

Uniformity

comparability is not enhanced; groups similar items

Verifiability

reassures users that different knowledgeable and independent observers reach consensus