Introduction to Accounting

Accounting

The language of business involving recording, classifying, and summarizing economic events through financial statements.

Purpose of Accounting

Providing information for making sound financial decisions.

Bookkeeping

Recording and tracking business transactions for generating financial statements.

Uses of Accounting Information

Includes aiding individuals in investing, applying for loans, and managing personal finances, as well as assisting managers in decision-making.

Generally Accepted Accounting Principles (GAAP)

Standards universally practiced in reporting economic events.

Measurement Principles

Historical Cost Principle records assets at cost, while Fair Value Principle reports assets and liabilities at fair value.

Assumptions

Monetary Unit Assumption records only monetary transactions, and Economic Entity Assumption considers any organization or unit.

Key Principles of GAAP

Regularity, Consistency, Sincerity, Permanence of Methods, Non-Compensation, Prudence, Continuity, Periodicity, Materiality, Utmost Good Faith.

PFRS and PAS

Philippine Financial Reporting Standards and Philippine Accounting Standards.

Financial Statements

Balance Sheet shows Assets and Liabilities, Income Statement displays Revenues minus Expenses, Statement of Cash Flow tracks cash movements, and Statement of Retained Earnings illustrates changes in Retained Earnings.

Principle of Regularity

Adhered to GAAP rules and regulations as a standard.

Principle of Consistency

Accountants commit to applying the same standards throughout the reporting process.

Principle of Sincerity

Provide an accurate and impartial depiction of a company’s financial situation.

Principle of Permanence of Methods

Used in financial reporting should be consistent, allowing a comparison of the company’s financial information.

Principle of Non-Compensation

Both negatives and positives should be reported with full transparency and without the expectation of debt compensation.

Principle of Prudence

Refers to emphasizing fact-based financial data representation that is not clouded by speculation.

Principle of Continuity

It should be assumed the business will continue to operate.

Principle of Periodicity

Entries should be distributed across the appropriate periods.

Principle of Materiality

Must strive to fully disclose all financial data and accounting information in financial reports.

Principle of Utmost Good Faith

Derived from the Latin phrase uberrimae fidel used within the insurance industry. It presupposes that parties remain honest in all transactions.