accounting
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BASIC ACCOUNTING
ENVIRONMENT
LEARNING OBJECTIVES
DEFINE ACCOUNTING & EXPLAIN ITS FUNCTIONS AND ROLES IN BUSINESS
IDENTIFY THE USERS OF ACCOUNTING & EXPLAIN WHY THEY DEPEND ON ACCOUNTING INFORMATION
EXPLAIN THE THEORETICAL FRAMEWORK OF ACCOUNTING
ENUMERATE & EXPLAIN THE BASIC CONCEPTS & PRINCIPLES USED IN THE ACCOUNTING PROCESS
WHAT IS ACCOUNTING?
ACCOUNTING IS A SERVICE ACTIVITY WHICH FUNCTION IS TO PROVIDE QUANTITATIVE INFORMATION, PRIMARILY FINANCIAL IN NATURE, ABOUT ECONOMIC ENTITIES, THAT IS INTENDED TO BE USEFUL IN MAKING ECONOMIC DECISIONS.
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ACCOUNTING IS A
LANGUAGE THAT
COMMUNICATES VITAL
INFORMATION TO USERS
FOR DECISION MAKING
PURPOSES
COMPANY ACCUMULATES ACCOUNTING INFORMATION THROUGH ITS
VARIOUS TRANSACTIONS
ACCOUNTING INFORMATION SYSTEM
PROCESSES THE FINANCIAL INFORMATION & PREPARES
THE REPORTS
STAKEHOLDERS OR USERS
REVIEW THE REPORTS & MAKE DECISIONS
ACCOUNTING AREASBASIC ACCOUNTING OR BOOKKEEPING
FINANCIAL ACCOUNTING
Cost ACCOUNTING
MANAGERIAL ACCOUNTING
AUDITING
FUND ACCOUNTING [GOVERNMENT/NON-PROFIT]
TAX ACCOUNTING
ACCOUNTING AREASBASIC ACCOUNTING OR BOOKKEEPING
FINANCIAL ACCOUNTING
Cost ACCOUNTING
MANAGERIAL ACCOUNTING
AUDITING
FUND ACCOUNTING [GOVERNMENT/NON-PROFIT]
TAX ACCOUNTING
BOOKKEEPING IS THE ROUTINE ACTIVITY OF RECORDING,
CLASSIFYING & SUMMARIZING
BUSINESS TRANSACTIONS IN A
SYSTEMATIC MANNER
FINANCIAL ACCOUNTING INVOLVES THE
PREPARATION & INTERPRETATION OF
FINANCIAL STATEMENTS
PRIMARILY INTENDED FOR
EXTERNAL USERS
COST ACCOUNTING DEALS WITH RECORDING, CLASSIFYING,
SUMMARIZING THE DETAILS
MATERIALS, LABOR & OVERHEAD
NECESSARY TO PRODUCE/SELL A
PRODUCT
MANAGERIAL ACCOUNTING
IS THE PRESENTATION OF FINANCIAL & NON-
FINANCIAL INFORMATION PRIMARILY FOR
MANAGEMENT TO ASSIST IN THEIR
VARIOUS FUNCTIONS
AUDITING DEALS WITH
INDEPENDENT VERIFICATION AND EXAMINATION OF THE ACCOUNTING RECORDS FOR THE
PURPOSE OF GIVING AN OPINION ON THE FAIRNESS OF THE FINANCIAL
STATEMENTS
FUND ACCOUNTING
DEALS WITH THE ADMINISTRATION
OR USE OF PUBLIC/COMMUNITY
FUNDS TO BRING ABOUT SERVICE TO
PEOPLE
TAX ACCOUNTING DEALS WITH TAX
MATTERS AFFECTING FIRMS (PARTNERSHIP & CORPORATION), INDIVIDUALS, TRUSTS AND
ESTATES
STAKEHOLDERS AS USERS & DECISION MAKERS
STAKEHOLDER IS A PERSON OR ENTITY WHO HAS A “STAKE” OR INTEREST IN THE ECONOMIC PERFORMANCE OF A BUSINESS
OWNER OR INVESTOR IS ONE WHO PUTS CAPITAL (SUCH AS MONEY OR PROPERTY) IN A BUSINESS VENTURE WITH THE OBJECTIVE OF RECEIVING A RETURN ON CAPITAL OR INVESTMENT
STAKEHOLDERS AS USERS & DECISION MAKERS
MANAGER IS RESPONSIBLE FOR ORGANIZING, PLANNING, DIRECTING AND CONTROLLING THE OPERATION OF THE BUSINESS
LENDER ASSESSES THE ABILITY OF THE BUSINESS TO PAY THE PRINCIPAL DEBT AND THE ADDITIONAL CHARGE CALLED INTEREST
SUPPLIER OFFERS GOODS OR MERCHANDISE ON THE PAYING ABILITY OF THE BUSINESS
STAKEHOLDERS AS USERS & DECISION MAKERS
GOVERNMENT USES THE ACCOUNTING REPORTS IN SEVERAL WAYS: AS A TAX COLLECTOR, REGULATORY BODY, AS A CUSTOMER
EMPLOYEE WANTS HIGHER WAGES, BENEFITS, GOOD WORKING CONDITIONS AND A REVIEW OF FINANCIAL REPORTS WILL ENABLE ONE TO ASSESS THE ABILITY OF THE COMPANY TO GRANT THESE DEMANDS
CUSTOMER ASSESSES THE COMPANY’S ABILITY TO CONTINUOUSLY SUPPLY THE GOODS THEY NEED AT THE RIGHT PRICE & QUANTITY
FRAMEWORK OF ACCOUNTINGTH
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OBJECTIVE OF FINANCIAL STATEMENTS
QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS
DEFINITION, MEASUREMENT & RECOGNITION OF THE ELEMENTS OF
THE FINANCIAL STATEMENTSCONCEPTS OF CAPITAL AND CAPITAL
MAINTENANCE
QUALITATIVE CHARACTERISTICS
THE FRAMEWORK FOR THE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS DESCRIBES, AMONG OTHERS, THE ATTRIBUTES OR CHARACTERISTICS THAT FINANCIAL INFORMATION MUST POSSESS TO MAKE THEM TRUSTWORTHY AND USEFUL IN MAKING INFORMED JUDGMENT AND DECISION. THE FRAMEWORK IDENTIFIES FOUR PRINCIPLE ATTRIBUTES: UNDERSTANDABILITY, RELEVANCE, RELIABILITY & COMPARABILITY
UNDERSTANDABILITY
• TERMINOLOGIES MUST BE CLEAR
• FORM AND PRESENTATION MUST BE ORDERLY
RELEVANCE
• QUALITY OF INFORMATION WILL MAKE A DIFFERENCE TO A STATEMENT USER
• MUST HAVE FEEDBACK VALUE AND PREDICTIVE VALUE
RELIABILITY
• FAITHFUL REPRESENTATION & SUBSTANCE OVER FORM
• NEUTRALITY• PRUDENCE
COMPARABILITY
• HELPS ONE IDENTIFY CHANGES TAKING PLACE IN THE ENTITY
• CONSISTENCY
• UNIFORMITY
ACCOUNTING CONCEPTS & PRINCIPLES PRINCIPLES ARE BROAD LAWS OR RULES ADOPTED AS GUIDES TO THE CONDUCT & PRACTICES OF THE PROFESSION
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) ARE WIDELY ACCEPTED SET OF RULES, CONVENTIONS, STANDARDS, AND PROCEDURES USED IN IDENTIFYING, MEASURING & REPORTING FINANCIAL INFORMATION
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
BUSINESS ENTITY CONCEPT• ASSUMES THAT
A BUSINESS ENTERPRISE IS SEPARATE & DISTINCT FROM THE OWNER OR INVESTOR
EXCHANGE PRICE OR COST CONCEPT• ASSETS,
LIABILITIES, REVENUES & EXPENSES SHOULD BE RECORDED BASED ON COST
GOING CONCERN CONCEPT• BASED ON THIS
PREMISE, IT IS EXPECTED THAT THE BUSINESS WILL CONTINUE TO EXIST INDEFINITELY
ACCRUAL CONCEPT• REQUIRES THAT
FINANCIAL STATEMENTS BE PREPARED UNDER THE ACCRUAL BASIS
OBJECTIVITY CONCEPT• REQUIRED THAT
ASSETS ACQUIRED MUST BE VERIFIABLE AND SUBSTANTIATED BY DOCUMENTS SUCH AS INVOICES, VOUCHERS, OFFICIAL RECEIPTS
DISCLOSURE CONCEPT• ADEQUATE
DISCLOSURES MAY BE PRESENTED IN THE FINANCIAL STATEMENT OR ITS ACCOMPANYING NOTES
ZENAIDA VERA CRUZ MANUEL