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ANCIENT MESOPOTAMIA

Dated back 7000 years ago, written in clay tablets where the scripts are written in pictographic form

Temples

used as financial institutions instead of banks, that acted as a distribution system that dealt with rations, livestocks, gifts, land, and income from investment.

ROMAN EMPIRE

Enforcement of taxation and law which mandated families to possess a daybook that keeps a record of the expenses of a family to allow the government to record their accounts and assets for taxation

Adversaria

daybook that keeps a record of the expenses of a family

Julius Caesar

(roman general and statesman) - had complete control over finances and treasury of the state.

Renaissance

Age of Discovery

Greek docks

- kept records documenting the various trading expeditions

- Merchants kept servants to tally and keep track of their assets (property) and liabilities (debts)

single-entry bookkeeping

information organized in a single column with the symbols in the amount column indicating where goods were paid, owed or sold. (Renaissance)

Summa De Arithmetica

published in 1494 made the double-entry bookkeeping widespread.

Luca Pacioli

- The Father of Accounting

- first person to publish detailed material on the double-entry system of accounting. It detailed the use of double entries, trial balances, and balance sheets.

Modern Day

- record of money or products that transact in their business accounts have been used by accounting ledgers.

Accounting

art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events

- language of business

Bookkeeping

- Accurate recording of financial transactions

- Recording only

American Institute of Certified Public Accountants

AICPA

Generally Accepted Accounting Principles (GAAP)

Rules that accountants follow to record business transactions

Monetary/Money measurement/Monetary unit

assumes that only transactions that can be expressed in monetary terms are recorded.

Public Accounting

Providing accounting services for other company

Auditing

review of financial statements to assess their fairness and adherence to accounting principles

Tax Accounting

- involves tax compliance and tax planning.

Tax Compliance

preparation and audit of tax returns

Tax Planning

giving advice to clients on how to structure their financial affairs to reduce tax liability.

Management advisory services

helping clients to improve their information system and business performance.

Managerial/ Private Accounting

Working for a single business in a specific industry.

Government Accounting

preparing financial reports for the national government, its various departments, and local government units

1. Public Accounting

2. Managerial/Private Accounting

3. Government Accounting

Areas of Accounting

Financial Accounting

provides general-purpose financial reports to various external users.

External audit

provided by external auditors, an independent third party that reviews a company's financial statements to assess their fairness and adherence to accounting principles

Internal audit

provided by internal auditors that evaluate the company's policies and procedures to identify and weakness, mismanagement, waste, or fraud.

Cost Accounting

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

Managerial Accounting

provides internal financial reports, mainly the managers, for decision-making

Government Accounting

prepares financial reports for the government and its agencies

Tax Accounting

Prepares tax returns and ensures tax compliance

Accounting Education

Academe and research

Accounting Information System

system that a business uses to collect, store, manage, process, retrieve, and report its financial data that are used by various internal users

Forensic Accounting

focuses on legal affairs such as inquiry into fraud, legal cases, disputes and claims resolution

1. Primary Users

2. Other Users

Users of accounting information

1. Investors

2. Lenders and other creditors

3. Service Providers and Other creditors

Primary Users

Investors

(Individuals, Businesses, Banks, Insurance companies)

Existing investors

monitor business performance to check return on their investments

Potential investors

monitor business performance to assess risk and reward of future investments

Lenders

ensure that the business is capable of repaying a loan and determine the terms of the loan

Suppliers / Creditors

assess the ability of the business to pay its bills for extending credit and setting credit terms and credit limit

1. Internal Users

2. External Users

Other Users

Owner/s

Managers

Employees

Internal Users

Owner/s

monitor business performance to check return on their investment

Managers

evaluate the results of the company's operations to plan and make decisions for the future

Employees

ensure that the business can pay salaries and other benefits

Tax Authorities

Regulatory agencies

Customers

Employee unions

Trade associations

Financial Intermediaries

External users

Tax authorities

collect taxes (E.g., employee tax, sales tax, property tax, business tax, etc.)

Regulatory agencies

oversee the financial information provided by public companies (E.g., The Securities and Exchange Commission (SEC) enforces security laws and protects against infractions like insider trading, accounting fraud, and companies which provide misleading information about their financial condition)

Customers

check to see if they can rely on continued service or supply of goods

Employee unions

negotiate salary increases, benefits, and profit-sharing

Trade associations

provide summary reports to assess the business and the industry

Financial analysts

provide summary reports to assess the business and the industry for investment purposes

Stock Brokers

assess returns of current and future stock investments

Mutual Find Companies

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

Credit-rating agencies

provide summary reports to assess the credit-worthiness of public companies

1. Service

2. Merchandising/Trading

3. Manufacturing

Forms of Business Organization (as to activity)

Service

Provides service

Merchandising/Trading

buy and sell

Manufacturing

converts raw materials to finished goods

1. Sole Proprietorship

2. Partnership

3. Corporation

Forms of Business Organization (as to ownership)

Sole Proprietorship

- Owned by an individual trading alone under his/her name.

- Ends when the owner passes away/ unable to carry on business operations/decides to close the business.

- Responsibility for debts - owner is solely liable for debts

Partnership

- Owned by two or more individuals called partner, and enter into a contract called the partnership agreement, to conduct business (or practice a profession)

- Ends by the termination of the definite term/ express will of any partner/ insolvency/decree of court

Corporation

- Separate legal entity that has a legal right to own property and conduct business in its own name.

- Perpetual existence

- Responsibility for debts - stockholders; liability is limited to their investment

Legal Entity

- business can sue and be sued in itself

- Can carry out transactions in the business name

- Business needs to pay company tax (corporate tax)

Regulated Professions

- Because of the separate legal entity, some businesses can only be registered as partnership

- Practicing the license or professions

Stockholders

- owners of corporation (ownership is divided into shares)

Private Corporation

family owned corporation

Entity / Business entity / Economic entity / Separate entity

- assumes that a business unit is separate and distinct from its owner/s

- requires that business's accounting records should always be kept separate from the owner's personal accounting records

International Financial Reporting Standards (IRFS)

Companies follow when they prepare and publish their financial statements, providing a standardized way of describing financial performance

Generally Accepted Accounting Principles

Common set of rules, procedures, practices and standards followed

Fundamental Qualitative Characteristics

qualities that makes accounting information useful

Relevance

capable of making a difference in business decisions

Predictive value

used as input to predict future outcomes (assumption)

Conformity value

counterpart of predictive value, provides feedback about previous evaluations/ conform to the predictive value.

Relevance

Faithful Representation

Fundamental Qualitative Characteristics

Predictive Value

Conformity Value

Relevance

Materiality

if omitting, misstating, or obscuring an information could reasonably be expected to influence decisions that the primary users of general-purpose financial reports make on the basis of those reports

Faithful representation

faithfully represent what it purports to present or substance of the phenomenon

Completeness

Neutrality

Free From Error

Faithful Representation

Completeness

provide all the information

Neutrality

you should not favor one party over another. lo of financial information

Free From Error

no errors or omissions are used to produce the reported information.

You can estimate numbers, but should be stated as estimation including the description of the estimation process.

Enhancing Qualitative Characteristics

enhance the fundamental qualities

Comparable

Verifiable

Timely

Understandable

Enhancing Qualitative Characteristics

Comparable

- It has to be consistent and uniform

- Within two different entities

- As a long term asset is used, related expense should be recorded (same method to compare value)

- Can be changed by stating the change

Uniformity

Different companies within the same industry should adopt the same accounting methods and treatments for similar transactions

Verifiable

There should be invoice

Timely

- Information should be timely, older information can be used as a guide/reference

- Information needs to be readily available.

Understandable

- Accounting information are used not only by accountants

- It should be understandable by the general public

Underlying assumptions

Assumptions made to avoid misunderstanding

Entity

Going Concern or Continuity

Monetary

Time Period or Periodicity

Accrual

Underlying assumptions

Entity

separate from the owner, you will not manipulate data to benefit from your entity

Going Concern or Continuity

- it will go indefinitely except for bankruptcy and in liquidation

- always considers the owners, employees, and suppliers

Monetary

- Only transactions with the monetary value should be recorded

- Assumes that the peso is used to record transactions

- The moment you do the transaction is recorded

Time Period or Periodicity

assumes that the indefinite life of a business entity is subdivided into short periods of equal length within which financial statements are prepared to provide users of financial statements with timely information

Calendar Year

January to December

Fiscal Year

Any date to 12 months after

Accrual

- Revenue should be recognized when earned, regardless of when cash is received.

- Expenses should be recognized when incurred, regardless of when cash is paid.