FINANCIAL ACCOUNTING AND REPORT ING
CHAPTER ONE: INTRODUCTION TO ACCOUNTING
Definition of Accounting
Process of identifying, recording, and communicating economic
information that is useful in making economic decisions
Essential Elements of Definition of
1. Identifying
Accounting
2. Recording
3. Communicating
Identifying
Analyses
Recording
Recognizes
Communicating
Financial Statements
Nature of Accounting
Provide information to be useful in making economic decisions
Types of Information Provided by
1. Quantitative Information
Accounting
2. Qualitative Information
3. Financial Information
Quantitative Information
Numbers
Qualitative Information
Words
Accounting as Social Science
Body of Knowledge
Accounting as Practical Art
Creative skills and judgment
Accounting as an Information System
Input, process, and an output
Bookkeeping
Process of recording the accounts or transactions
Accounting
The whole process of identifying, recording, and communicating
Functions of Accounting in Business
“LANGUAGE OF BUSINESS”
Users of Accounting Information
1. Internal Users
2. External User
Internal Users
Directly involved in managing the business
External Users
Not directly involved in managing the business
Types of Accounting Information
1. General Purpose Accounting Information
Classified as to Users’ Needs
2. Special Purpose Accounting Information
General Purpose Accounting
Common needs; Financial Accounting; for External user
Information
Special Purpose Accounting
Specific needs; Management Accounting; for Internal users
Information
History of Accounting
Double Entry Records - 1340 A.D. in Genoa “Double Entry Recording
System” - 1494 by Far Luca Pacioli included in his book entitled
“Summa di Arithmetica Geometria Proporzioni and Proportionista”
Common Branches of Accounting
1. Financial Accounting
2. Management Accounting
3. Government Accounting
4. Auditing
5. Tax Accounting
6. Cost Accounting
7. Accounting Education
8. Accounting Research
Financial Accounting
General Purpose Financial Statements; common needs of external
users; governed by the Philippine Financial Reporting Standards
(PFRS)
Financial Statements
Structured representation
Financial Report
Financial Statement + Other Information
Financial Reporting
Useful to external users
Primary Objective of Financial
Provide information; Claim to those resources; Changes in those
Reporting
resources
Secondary Objective of Financial
Provide information on management’s stewardship
Reporting
Management Accounting
Internal Users
Government Accounting
Accounting for government
Auditing
Inspection of financial statements
Tax Accounting
Preparation of tax returns and rendering tax advice
Cost Accounting
Systematic recording and analysis of costs
Accounting Education
Teaching accounting
Accounting Research
Careful analysis of economic events and other variables
Forms of Business Organisation
1. Sole or Single Proprietorship
2. Partnership
3. Corporation
4. Cooperative
Sole or Single Proprietorship
Owned by one individual; Owner is called sole proprietor: Registered with
Department of Trade and Industry (DTI)
Partnership
Owned by two or more; Entered into a Contract; Owners are
called partners; Registered with Securities and Exchange Commission
(SEC)
Corporation
Owned by more than one individual; Operation of law; Ownership
is represented by shares of stocks; Owners are called stockholders
or shareholders; Artificial being; Registered with Securities and
Exchange Commission (SEC)
Incorporators shall not be less than 5 but more than 15 individuals
Cooperative
Owned by more than one individual; Formed in accordance with the
provisions of The Philippine Cooperative Code of 2008; Owners are
called members; Registered with Cooperative Development Authority
(CDA)
Founding members shall not be less than 15 individuals
Types of Business According to
1. Service Business
Activities
2. Merchandising (Trading) Business
3. Manufacturing
Service Business
Offer services
Merchandising Business
Sells goods without changing their physical form
Manufacturing Business
Buys raw materials and processes them into final products