Introduction to Accounting

Accounting The art of recording, classifying and summarizing in a significant manner and in terms of money, transaction and events that are, in part at least, of a financial character, and interpreting the results thereof . ( American Institute of Certified Public Accountant) A system that measures business activities, processes give information into reports, and communicates those findings to decision makers.( Philippine Institute of Certified Public Accountant)

Introduction to Accounting
Accounting consists of three basic activities it identifies, records and communicates the economic events of an organization. Identifies economic events relevant to business to record those events in order to provide a history of financial activities Records recording consist of keeping a systematic chronological diary of events.

Introduction to Accounting

Communicates communicates the collected information to interested users by means of accounting reports. These reports are called FINANCIAL STATEMENTS
The data presented in the financial statements are in aggregate. by presenting the data in the aggregate, the accounting process simplifies a multitude of transactions and makes a series of activities understandable and meaningful.

Introduction to Accounting
a vital element in communicating economic events is the accountants ability to analyze and interpret the reported information. Often referred to as the Language of business Means of measuring business activity and processing this information into reports to communicate results to decision makers

Introduction to Accounting
ACCOUNTING PROCESS Accounting process includes the BOOKKEEPING function. Bookkeeping usually involves only the recording of economic events. It is just one part of accounting process

Introduction to Accounting
Bookkeeping
- deals primarily with the systematic method of recording and classifying financial transaction of the business. - It is a procedural element of accounting. Books are set up and prepared in a manner that ensures an orderly recording and classification of business transactions.

INTRODUCTION TO ACCOUNTING
- Bookkeeping process is now basically done through
the use of computers and software designed for such purpose

USERS OF ACCOUNTING DATA

Accounting is a language of business because it is the medium of communication between a business firm and various parties interested in its financial activities. (1) Internal Users - those individuals inside a company who plan, organize and run the business ---Managerial accounting is the branch of accounting which provides internal reports to help internal users in decision making

USERS OF ACCOUNTING DATA

a. Owners the owners provides the money/capital that the business needs to begin operation. Through the the financial reports, the owner can properly manage, monitor the business, analyzing whether or not he can expect reasonable return from his business. .

USERS OF ACCOUNTING DATA

b. Management managers of business use accounting information to set goals for the organization, to evaluate the progress made toward those goals and to make corrective action if necessary.

USERS OF ACCOUNTING DATA

c. Employees the employees that made up the work force of
the company will be interested in information about the stability and profitability of the company. Through the Financial Statement, employees will be able to assess the ability of the enterprise to provide remuneration, retirement benefits and other employee opportunities and benefits.

USERS OF ACCOUNTING DATA

(2) External Users are individuals and organization outside a company who want financial information about the company a. Potential Investors use financial reports in evaluating what income they can reasonably expect from their investment Creditors - potential money lenders, suppliers and other creditors. Potential lenders or current creditors determine the borrowers ability to meet scheduled payment.

b.

USERS OF ACCOUNTING DATA

c. Customers is interested in information about the continuance of an enterprise, especially when they have a long-term involvement with, or are dependent on the companys offerings either in the form of goods or services.

d. Taxing Authorities local or national government levy taxes on individuals and businesses. The amount of tax is determined using the accounting information.

USERS OF ACCOUNTING DATA

e. Government regulation agencies Most organizations face government regulation. For example, the Securities and Exchange Commission (SEC) requires businesses to disclose certain financial information to the public. The SEC, like many government agencies, bases its regulatory activity in part on the accounting information it receives from firms.

USERS OF ACCOUNTING DATA

f. Non-profit organizations non-profit organizations e.g. churches, most hospitals, government agencies, and colleges, which operates other than to earn a profit use accounting information in much the same way that profit oriented businesses do. Other Users Consumer groups and the general public may also be interested in the amount of income that the businesses earned.

g.

Financial Statements
The principal accounting reports are the Financial Statements (1) Statement of Financial Position gives information about the financial condition or position of the business, i.e. the amount and kind of assets and liabilities, and the status of the owners equity

Financial Statements
(2) Income Statement gives information about the financial performance or results of the business during a given period of time. (3) Statement of Cash Flows gives information about financing and investing activities which is responsible for the changes in the financial resources of the business i.e. sources and application of fund during a given period of time.

Financial Statements
(4) Statement of Changes in Owners Equity gives information about increases and decreases in the owners equity due to income earned, losses incurred and additional investment/withdrawal by the owner.

The Accounting Profession

The success of the accountants in the accounting profession depends on how well he understands the accounting procedures and principles, and how clearly and accurately he can communicate financial information to users of the financial statements.

CERTIFIED PUBLIC ACCOUNTANT is a professional accountant who earns his title through a combination of education, qualifying experience and an acceptance score in the written national examination given by the Board of Accountancy.

CAREER OPPORTUNITIES IN ACCOUNTING (1) Public Accounting

Individuals in public accounting offer expert service to general public and collect professional fees for their work. a. Auditing CPAs examines financial statement and provides opinion as to how accurately the financial statement presents the companys results and financial position.

CAREER OPPORTUNITIES IN ACCOUNTING

b. Taxation Tax advise and planning, preparing tax returns and represent clients before governmental agencies such as BIR.

c. Management - Installing basic accounting software or highly complex - enterprise resource planning system providing support services for major marketing process, merger and acquisition.

CAREER OPPORTUNITIES IN ACCOUNTING

(2) Private Accounting You may choose to be an employee of a profit companies, ,and get involved in activities such as cost accounting, information systems Design and Support, Tax Planning and Preparation. (3) Government Accounting You may work for BIR, SEC, DBM, DOF

REGULATORY BODIES IN ACCOUNTING

(1) Professional Regulation Commission (PRC) In charge of regulating and licensing the practice of profession like accounting, medicine, engineering , nursing and the like. Included in the functions are the maintenance and enforcement of professional examination, standards and ethics. (2) Board of Accountancy

In charge of regulating the accounting profession by setting up and promulgating a set of professional standards and ethics

REGULATORY BODIES IN ACCOUNTING

(3) Philippine Institute of Certified Public Accountant The integrated national profession organization of certified public accountant. It set up and implement rules vital to the accounting profession (4) Financial Reporting Standards Council (FRSC) PICPA established FRSC in order to formalize the accounting standard-setting function in the Philippines

REGULATORY BODIES IN ACCOUNTING

FRSC cont..

The councils main function is to established and improve accounting standards that will be generally accepted in the Philippines)
The FRSC ( known before as Accounting Standards Council) is the same body that formulates the Generally Accepted Accounting Accounting Principles (GAAP) or known as the International Financial Reporting Standards (IFRS)

BASIC PROFESSIONAL VALUES AND ETHICS

Users of accounting information both external and internal recognize that the usefulness, reliability of accounting information is affected by the personal attributes of competence, professional judgment and ethical behavior of accountants. In general, the accountant should be able to recognize and understand ethical issues to identify and evaluate the possible consequences of each of the alternatives which will ensure relevant, reliable, comparable and consistent financial information to serve the best of the users interests as a whole.

BASIC PROFESSIONAL VALUES AND ETHICS

Ethics is a term that refers to a code or moral system that provides criteria for evaluating right and wrong. One of the elements that many believe distinguishes a profession from other occupations is the acceptance by its members of a responsibility for the interests of those it serves. Because of the important role of accounting in society, accountants must maintain high ethical standards. Facing pressures and influence of numerous groups with conflicting interests, the accountant should always alert about ethical behavior. The Code of Ethics promulgated by the Board of Accountancy (BOA) provides guidelines for practicing accountants.

BASIC PROFESSIONAL VALUES AND ETHICS

Integrity. A professional accountant should be straightforward and honest in performing professional services. Objectivity. A professional accountant should be fair and should not allow prejudice or bias, conflict of interest or influence of others to override objectivity.

BASIC PROFESSIONAL VALUES AND ETHICS

Professional Competence and Due Care. A professional accountant should perform professional services with due care, competence and diligence and has a continuing duty to maintain professional knowledge and skill at a level required to ensure that a client or employer receives the advantage of competent professional service based on up to date developments in practice, legislation and techniques.

BASIC PROFESSIONAL VALUES AND ETHICS

Confidentiality. A professional accountant should respect the confidentiality of information acquired during the course of performing professional services and should not use or disclose any such information without proper and specific authority or unless there is a legal or professional right or duty to disclose. Professional Behavior. A professional accountant should act in a manner consistent with the good reputation of the profession and refrain from any conduct which might bring discredit to the profession.

FORMS OF BUSINESS ORGANIZATION AS TO OWNERSHIP AND ACTIVITY

(1) PROPRIETORSHIP A business owned by one person The owner is often the Manager/Operator of the business Usually only a relatively small amount of money (capital) is necessary to start in business. The owner receives profit, suffer any losses and is personally liable for its debts. There is no legal distinction between, but the accounting records of the business activities are kept separate from the personal records and activities of the owner.

FORMS OF BUSINESS ORGANIZATION AS TO OWNERSHIP AND ACTIVITY

(2) PARTNERSHIP A business owned by 2 or more persons associated as partners Must have a Partnership agreement ( initial investment, duties of each partner, division of net income, settlement to be made upon the death or withdrawal of a partner). Often used by retail and service type of business including professional practices.

FORMS OF BUSINESS ORGANIZATION AS TO OWNERSHIP AND ACTIVITY

(3) CORPORATION A business organized as a separate legal entity under corporation law and having ownership divided into transferrable shares of stocks. Stockholders holder of shares - enjoying limited liability - may transfer all or part of their share to other investors Has unlimited life

Classification of Business according to Operation or Activity (1) Service Concern Businesses engage in the rendering of services to others for a fee, like the beauty parlor, law firm, dental clinic and medical clinic. (2) Merchandising or Trading Concern Businesses that are into the buying and selling of goods or commodities like grocery store, drug store and department store.

Classification of Business according to Operation or Activity

(3) Manufacturing Concern Businesses that are engaged in the processing of products or the conversion of raw materials into finished goods that are then sold like the furniture factory and shoe factory.