Professional Documents
Culture Documents
CONCEPTS
ACCOUNTING DEFINED
Language of business
6. Prepare financial
statements
BRANCHES OF ACCOUNTING
Financial accounting- information
gathered is intended both for internal (e.g.
managers) and external (e.g. banks and
other creditors, government agencies,
investment advisers, etc.) parties.
Information recording is subject to certain
ground rules internationally known as
Generally Accepted Accounting Principles
(GAAP).
BRANCHES OF ACCOUNTING
Information
Accounting Non-accounting
information information
1. Operating Information
2. Financial Information
3. Management Information
OPERATING INFORMATION
Constitutes the largest quantity of accounting
information; it provides the basic data for both
managerial and financial accounting.
FINANCIAL ACCOUNTING
Information intended for managers and by
external parties, including shareholders,
banks and other creditors, government
agencies, investment advisers and the
general public.
MANAGEMENT ACCOUNTING
Used internally for planning,
implementation and control. This
accounting information is prepared to
aids mangers.
Operating Information
Management Accounting Information
Financial Accounting Information
OBJECTIVES OF ACCOUNTING
SYSTEMS
• IDEA OF BALANCING
One total should always equal some other total
DEBIT AND CREDIT
Assets = Liabilities + Owner’s equity
Dr Cr Dr Cr Dr Cr
+ - + - + -
ACCOUNTING CONCEPTS
• Money measurement
• Entity
• Going-concern
• Cost
• Dual aspects
• Accounting period
• Conservatism
• Realization
• Matching
• Consistency
• Materiality
Assets = Liabilities + Owners equity
Dr Cr Dr Cr Dr Cr
+ - + - + -
BASIC ACCOUNTING CONCEPTS
• Money Measurement- An accounting record is made
only of information that can be expressed in monetary
terms.
• The Entity Concept- The owners of the business are
considered separate and distinct from the business
itself. Hence, accounts are kept for the entity as
distinguished from the persons associated with the
entity.
• The Going-Concern Concepts- unless there is good
evidence to the contrary, it is assumed that the
business will operate indefinitely.
• The Cost Concept- The economic resources of an
entity are called assets. An asset is ordinarily entered
in the accounting records at the price paid to acquire it-
that is, at its cost.
BASIC ACCOUNTING CONCEPTS
1. The Dual-Aspect Concept- Assets= Liabilities+
Owner’s Equity
2. Accounting Period- Accounting measures activities for
a special time interval, usually one (1) specified.
3. Conservatism- revenues are recognized only when
they are reasonably certain, whereas Expenses are
recognized as soon as they are reasonably possible.
4. Realization- Revenues are usually recognized in the
period in which goods were delivered to costumers or
in which services were rendered. The amount
recognized is the amount that costumers are certain to
pay.
BASIC ACCOUNTING CONCEPTS
1. Matching- when a given event affects both revenues
and expenses, the effect on each should be
recognized in the same accounting period.
2. Consistency- Once an entity has decided on a certain
accounting method, it should use the same method in
all subsequent events of the same character unless it
has sound reasons to change methods.
3. Materiality- insignificant events may be disregarded,
but there must be full disclosure of all important
information.
THREE REPORTS
BALANCE SHEET
INCOME STATEMENT
CASH FLOW STATEMENT
BALANCE SHEET
Income Statement
- summarizes the results of operations
for a period of time.
- it is a flow report as contrasted with a
balance sheet which is a status report.
MAMAGEMENT ACCOUNTING CONTRASTED WITH
FINANCIAL ACCOUNTING
Dimension Management Accounting Financial accounting
1) Necessity Optional Required
1) Purpose A means to the end of the Produce statements for outside
assisting management users
1) Users Relatively small group; known Relatively large group; mostly
identity unknown
1) Underlying structure Varies according to use of the One basic equation:
information Asset = Liabilities + Owner's
Equity
1) Source of principles Whatever is useful to GAAP
management
1) Time Orientation Historical and estimates of the Historical
future
1) Information content Monetary and nonmonetary Primarily monetary
1) Information Precisions Many approximations Fewer approximations
1) Report Frequency Varies with purpose; monthly & Quarterly & annually
weekly common
1) Report timeliness Reports issued promptly after Delay of weeks or even months
end of period covered
1) Report entity Responsible center Overall organization
1) Liability Potential Virtually none Few lawsuits, but threat is
always present
SIMILARITIES OF FINANCIAL AND
MANAGEMENT ACCOUNTING