Accounting as an IS - Branches of Accounting

Accounting as an Information System

• Accounting is defined as an information system.

• It measures, processes, and communicates financial information.

• The purpose is to facilitate economic decision-making for identifiable entities.

Luca Pacioli: The Father of Accounting

• Luca Pacioli was an Italian mathematician and scholar.

• Published "Summa de Arithmetica, Geometrica, Proportioni et Proporionalita" in 1494.

• His work included descriptions of contemporary accounting practices.

Accounting Process

1. Analyzing

   • Review financial transactions and economic events.

   • Determine their effects on the business.

2. Recording

   • Document the effects of analyzed transactions.

   • May be done manually or via computerized processes.

   • Special Journals include:

     • Cash Receipts Book

     • Cash Disbursement Book

     • Sales Book

     • Purchases Book

3. Classifying

   • Sort similar transactions into specific account titles.

   • Like organizing into information boxes.

4. Summarizing

   • Group classified accounts into categories: assets, liabilities, owner's equity, revenue, costs, and expenses.

5. Reporting

   • Prepare financial statements summarizing operations:

     • Income Statement

     • Balance Sheet

     • Cash Flow Statement

6. Interpreting

   • Analyze the significance of financial reports.

   • Calculates relationships between figures from reports.

Business Entity Concept

• A business is treated as separate from its owners.

• Only business transactions are recorded, excluding personal transactions.

• Types of business entities:

  • Sole Proprietorship

  • Partnership

  • Corporation

Double Entry System

• Represents value received and value parted with.

• Every transaction has at least two effects.

• Example:

  • Assets increase, Cash decreases

  • Assets decrease, Revenue increase

Purpose of Financial Statements

1. Balance Sheet

   • Shows company assets, liabilities, and owner's equity.

2. Income Statement

   • Details revenues, expenses, and profits/losses.

3. Cash Flow Statement

   • Reflects cash movement in and out of the business.

Benefits of Financial Statements

• Aid in decision-making for investors and managers.

• Track company performance regarding revenue and expenses.

• Understand cash flow status to prevent operational issues.

• Provide transparency for management’s resource handling.

Financial Statements Illustrated**

• Balance Sheet Example: MVP Service Enterprise, December 31, 20X1:

  • Assets: (\text{Total Assets: P } 895,000)

  • Liabilities: (\text{Total Liabilities: P } 387,000)

  • Owner's Equity: (\text{Manuel Vera Perez Capital: P } 508,000)

• Income Statement Example: MVP Service Enterprise, For the Year Ended December 31, 20X1:

  • Service Income: P 1,550,000

  • Total Operating Expenses: P 1,142,000

  • Net Income: P 408,000

Users of Financial Statements

1. Investors: Assess investment suitability and return potential.

2. Employees: Evaluate company stability and salary security.

3. Lenders: Determine borrowing capability.

4. Suppliers: Analyze customer payment capabilities.

5. Customers: Check supply reliability.

6. Government Agencies: Ensure tax compliance and oversight.

7. Public: Understand company impacts on local economy.

8. Management: Aid in planning and decision-making.

Branches of Accounting

• Accounting has grown into a professional practice with standards.

• Scope includes:

  1. Public Accounting

  2. Commerce and Industry

  3. Education or Academe

  4. Government

Certification of Accountants

• Various certifications add value to professionals:

  1. CPA (Certified Public Accountant): Exam conducted by a regulatory body.

  2. CMA (Certified Management Accountant): Exam by the Institute of Management Accountants.

  3. CIA (Certified Internal Auditor): Uniform exam by the Institute of Internal Auditors.

Responsibilities in Public Accounting**

• Tasks include:

  • Auditing financial records for accuracy.

  • Preparing reports for legal and credit purposes.

  • Tax services and representation.

  • Designing accounting systems for businesses.

Conclusion

• Understanding accounting is vital for effective decision-making in businesses.