FRA.LUCA BARTOLOMEO DE PACIOLI

Father of Modern Accounting in Venice 1494

MAIN BRANCH OF ACCOUNTING

Public accounting, private accounting, government accounting

OWNERS

Internal users of financial reports who are interested in determining the return of investment in the business

CREDITORS ARE EXTERNAL USERS

3 ESSENTIAL TRAITS OF ACCOUNTING

About qualitative information, which must be financial in nature, and useful in decision-making

OBJECTIVES OF ACCOUNTING

Ascertain results of the operation during a period, to ascertain financial position

To maintain control over assets

To aid management in planning and performance evaluation

To provide information to government agencies and for legal purposes

FINANCIAL ACCOUNTING

Concerned with the general-purpose financial statements

Reports regarding the business financial position

Internal

MANAGEMENT ACCOUNTING

Preparing financial and accounting information according to management’s established language and manner of reporting for the planning, assessing and motivating functions

External

GOVERNMENT ACCOUNTING

Focuses on the proper custody of government funds and their purposes

Used in accounting for the national govt and its political instrumentalities- municipalities, cities, barangay, etc.

AUDITING

Review of a firm’s accounting systems and financial statements

To confirm if everything follows the GAAP and prescribed standards

TAX ACCOUNTING

All undertakings concerning tax computation, filing tax returns, and planning for future tax obligations

COST ACCOUNTING

Costs incurred by a firm in accomplishing its objective are collected, recorded, and classified

ACCOUNTING EDUCATION

Inclined to the preparation for a professional career in accountancy

ACCOUNTING RESEARCH

Responsible for the development and discovery of accounting concepts and practices

TAX AVOIDANCE

Lawful attempt in reducing tax payments

TAX EVASION

An illegal, non-declaration of sources of income on which tax is due

REASONS FOR UNIFORM ACCOUNTING STANDARDS

Fair presentation of financial statements

Need for reliable information can be satisfied only if there are generally

There would be no basis for comparing the earnings and financial positions of different firms

Records and reports of a particular entity could not be compared for different periods unless accounting principles are applied constantly

WHAT IS THE ENTITY THAT REGULATES THESE STANDARDS?

The IASB (International Accounting Standards Board)

WHAT ARE THE ACCOUNTING STANDARDS SET KNOWN AS?

The GAAP (Generally Accepted Accounting Principles) and are the guidelines laid out by the AISB.

WHAT ARE THE ACCOUNTING FIRMS IN THE PH?

Financial Reporting Standards Council (FRSC)

Philippine Financial Reporting Standards (PFRS)

Philippine Accounting Standards (PRS)

FRSC

The governing body that aims to establish and improve accounting standards that will  be generally accepted in the PH

WHAT ARE PFRS and PRS

The new set of general rules based off the international set of rules

FROM WHAT IS FRSC BASED OFF?

The IASB

FROM WHAT IS IAS BASED OFF?

The PRS

FROM WHAT IS THE IFRS BASED OFF?

The PFRS

DOUBLE ENTRY

The basic accounting theory is based on..

STEPS OF ACCOUNTING PROCESS

Analyzing

Recording

Classifying

Summarizing

Reporting

Interpreting

ALL RED CARS SOUND REALLY INTERESTING

The memory device for remembering the six steps

ACCOUNTING

Gathering financial information about a business and reporting this information to users

ANALYZING

Looking at events and how they affect the business

RECORDING

Entering financial information about events into the accounting system

CLASSIFYING

Sorting and grouping similar items

SUMMARIZING

Aggregation of many similar events to provide info that is simplified

REPORTING

Telling the results

INTERPRETING

Deciding the meaning and importance of the various reports

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Rules the Securities and Exchange Commission

SERVICE BUSINESS

Business that provides services

MERCHANIDISING BUSINESS

A business that buys a product from another business to sell to customers

MANUFACTURING BUSINESS

A business that makes a products to sell

ACCOUNTING CLERK

Business with large quantities of accounting tasks to perform daily

BOOKEEPERS

Generally supervise the work of accounting clerks. Handles tax requirements

PARA-ACCOUNTANTS

Provide many accounting, auditing, or tax services under the direct supervision of an accountant. 1-2 years degrees

ACCOUNTANTS

Designs the accounting info system and focus on analyzing and interpreting info.

CERTIFIED PUBLIC ACCOUNTANT

Public accountant who achieve professional recognition

FORENSIC ACCOUNTING

Include fraud detection, fraud prevention, litigation support, business valuations. Eg. Insurance companies, banks, law enforcement agencies, and other organizations.

ACCOUNTING INFORMATION SYSTEMS

Accountants in this area design and implement manual and computerized accounting systems.

BUDGETING

Accountants help managers develop a financial plan

CERTIFIED FRAUD EXAMINER

Forensic accountant who passed the exam

CERTIFIED INTERNAL AUDITOR

Internal auditor who has achieved professional recognition

CERTIFIED MANAGEMENT ACCOUNTANT

An accountant who has passed an exam offered by the institute of management accountants

CONTROLLER

The accountant who oversees the entire accounting process and is the principal accounting officer of a company

MANAGEMENT ADVISORY SERVICES

Providing advice to businesses on a wide variety of managerial issues

ASSETS AND EXPENSES

The group of accountants which you debit when increased are

LIABILITIES AND CAPITAL

The group of accountants which you credit when increased are

ACCOUNT

A separate record used to summarize changes in each asset, liability, and owner’s equity of a business

ACCOUNT TITLE

Provides description of a particular type of asset, liability, owner’s equity, revenue, expense

ACCOUNTING EQUATION

Assets = Liabilities + O. E.

ACCOUNTING PERIOD CONCEPT

The concept that income determination can be made on a periodic basis

ACCOUNTS PAYABLE

An unwritten promise to pay a supplier for assets purchases or services received

ACCOUNTS RECEIVABLE

An amount owed to a business by its customers as a result of the sale of goods or services

ASSET

An item that is owned by a business and will provide future benefits

BALANCE SHEET

Reports assets, liabilities, and owner’s equity on a specific date. It confirms that the accounting equation is balance

BUSINESS ENTITY

An individual, association, or organization that engages in economic activities and controls specific economic resources

BUSINESS ENTITY CONCEPT

The concept that nonbusiness assets and liabilities are not included in the business entity’s accounting records

BUSINESS TRANSACTION

An economic event that has a direct impact on the business

CAPITAL

Another term for O.E., the amount by which the business assets exceed the business liabilities

DRAWING

Withdrawals that reduce O.E. as a result of the owner taking cash or other assets out of the business for personal use.

EXPENSES

Decrease in assets, increase in liabilities, as a result of efforts to produce revenue.

FISCAL YEAR

Any accounting period of 12 months duration

INCOME STATEMENT

Reports the profitability of business operations for a specific period of time

INPUT

Business transactions provide the necessary input for the accounting info system

LIABILITY

Something owed to another business entity

LIQUIDITY

A measure of the ease with which an asset will be converted to cash

NET INCOME

The excess of total revenues over total revenues for the period

NET LOSS

The excess of total expenses over total revenues for a period

NET WORTH

Another term for O.E., the amount by which the  business assets exceed the business liabilities

NOTES PAYABLE

Formal written promise to pay a supplier or lender a specified sum of money at a definite future time

OPERATING STATEMENT

Another name for income statement,  which reports the profitability of business operations for a specified period of time

OUTPUT

The financial statement are the output of the accounting info system.

OWNER’S EQUITY

The amount by which the business assets exceed the business liabilities.

PROCESSING

Recognizing the effect of transactions on the assets, liabilities, oe, revenue and expenses of a business

PROFIT AND LOSS STATEMENT

Another name for the income statement, which reports the profitability of business operations for a specific period of time

REVENUES

The amount of business charges customers for products sold or services performed

STATEMENT OF FINANCIAL CONDITION

Another name for balance sheet.

STATEMENT OF FINANCIAL POSITION

Another name for balance sheet

STATEMENT OF O.E.

Report beginning capital plus net income less withdrawals to compute ending capital

WITHDRAWALS

Reduce O.E. as a result of the owner taking assets for personal use

BALANCE

The difference between the footings of an account’

CREDIT

To enter an amount on the right side of an account

CREDIT BALANCE

The normal balance of liability, O.E., and revenue accounts

DEBIT

To enter an amount on the left side of an account

DEBIT BALANCE

The normal balance of asset, expense, and drawing accounts

DOUBLE-ENTRY ACCOUNTING

A system in which transaction has a dual effect on the accounting elements

FOOTINGS

The total dollar amounts on the debit and credit sides of an account

NORMAL BALANCE

The side of an account that is increased

TRIAL BALANCE

List of all accounts, showing the title and balance of each account, used to provide that the sum of the debits and credits equals the sum of the credits

BOOK OF ORIGINAL ENTRY

The journal or the first formal accounting record of a transaction

CHART OF ACCOUNTS

A list of all accounts used by a business

COMPOUND ENTRY

A general journal entry that affects more than two accounts

CORRECTING ENTRY

An entry to correct an incorrect entry that has been journalized and posted the wrong account

CROSS REFERENCE

The info in the posting reference columns of the journal and ledger that provides a link between the journal and ledger

GENERAL LEDGER

A complete set of all the accounts used by a business.

Accumulates a complete record of the debits and credits made to each account

GENERAL LEDGER ACCOUNT

An account with columns for the debit and credit transaction and columns for the debit or credit running balance

JOURNAL

A day by day listing of the transactions of a business

JOURNALIZING

Entering the transactions in a journal

POSTING

Copying the debits and credits from the journal to the ledger accounts

RULING METHOD

A method of correcting an entry in which a line is drawn through the error and the correct info is placed above it.

SLIDE ERROR

An error that occurs when debit or credit amounts slide a digit or two to the left or right

SOURCE DOCUMENT

Any document that provides info about a business transaction

TRANSPOSITION ERROR

An error that occurs when 2 digits are reversed

TWO COLUMN GENERAL JOURNAL

A journal with only 2 amount columns, debit & credit

CREDITOR

A person to whom a debit is owed

ACCRUAL BASIS OF ACCOUNTING

A method of accounting under which revenues are recorded when earned and expenses are recorded when incurred

ADJUSTED TRIAL BALANCE COLUMNS

The third pair of amount columns on the worksheet. Prove the equality of the debits and credits in the general ledger after making all end of period adjustments

ADJUSTING ENTRIES

Journal entries made at the end of an accounting period to reflect changes in account balances that are not the direct result of an exchange with an outside party

BOOK VALUE

The difference between the asset account and its related accumulated depreciation account. The value reflected by the accounting records

CASH BASIS OF ACCOUNTING

Method of accounting which revenues are recorded when cash is received and expenses are recorded when cash is paid

CONTRA-ASSET

An account with a credit balance that is deducted from the related asset account on the balance sheet

DEPRECIABLE COST

The cost of an asset that is subject to depreciation

DEPRECIATION

A method of matching an asset’s original cost against the revenues produced over its useful life

HISTORICAL COST PRINCIPLE

A principle that requires assets to be recorded at their actual cost

MARKET VALUE

The amount an item can be sold for under normal economic conditions

MATCHING PRINCIPLE

A principle that requires the matching of revenues earned during an accounting period with the expenses incurred to produce the revenues

MODIFIED CASH BASIS

A method of accounting that combines aspects of cash and accrual methods. Uses the cash basis for recording revenues and most expenses

PLANT ASSETS

Assets of a durable nature that will be used for operations over several years. Ex. Buildings and equipment

SALVAGE VALUE

The expect market value of an asset at the end of its useful life

STRAIGHT-LINE DEPRECIATION

A depreciation method in which the depreciable cost is divided by the estimated useful life.

UNDEPRECIATED COST

a.k.a book value. The difference between the asset account and its related accumulated depreciation account.

USEFUL LIFE

The period of time that an asset is expected to help produce revenues

WORK SHEET

 A form used to pull together all of the information needed to enter adjusting entries and prepare the financial statements.

FICA

Refers to Social Security

GROSS PROFIT

The difference between costs of  goods sold and their selling price

WORKING CAPITAL

The excess of current assets over current liabilities is called

NOTE RECEIVABLE

A written promise of a customer to pay the business at a future date

LAND DOES NOT QUALIFY AS CURRENT ASSET

ACCOUNTING CYCLE

The steps involved in accounting for all the business activities during an accounting period

CLOSING PROCESS

The process of giving zero balances to the temporary accounts so that they can accumulate info for the next accounting period

CURRENT ASSETS

Cash and assets that will be converted into cash or consumed within either one year or the normal operating cycle of business

CURRENT LIABILITIES

Liabilities that are due within 1 year or the normal operating cycle of a business.

INCOME SUMMARY

A temporary account used in the closing process to summarize the effects of all revenue and expense accounts.

OPERATING CYCLE

The period of time required to purchase supplies and services and convert them back to cash

PERMANENT ACCOUNTS

Accounts that accumulate info across accounting period; all accounts reported on the balance sheet

POST-CLOSING TRIAL BALANCE

Prepared after posting the closing entries to prove the equality of the debit and credit balances in the general ledger accounts

CORPORATION

Artificial being created by operation of law separate and distinct from its owner

AICPA

American Institute of Certified Public Accountants

AAA

American Accounting Association

STABLE MONETARY UNIT

The financial statements should be stated in terms of a common financial denominator

HISTORICAL COST

Assets are usually valued on the basis of..

RIGHT OF SUCCESSION

The right of the corporation to continue as a juridical entity for the period stated in the Articles of Incorporation despite the death of any shareholder

COMMISSION ON AUDIT

Promulgates the rules and regulations of government accounting

MONEY-MEASURING UNIT

“Money is the best measuring unit of a firm’s assets, liabilities, and equity, as well as changes therein; its instability is immaterial”

REVENUE RECOGNITION

The point of sale when goods are delivered or services are rendered, is the time at which revenue is to be recognized

PREDICTIVE VALUE AND CONFIRMATORY VALUE

An ingredient of relevance

CONFIRMATORY VALUE

Means that the information provides feedback on previous evaluations

FAITHFUL REPRESENTATION

The quality of information that is reasonably free of error and bias

GENERAL PARTNER

A partner that has unlimited liability

DEPARTMENT OF BUDGET AND MANAGEMENT

Responsible for the formulation and implementation of the national budget