MODULE 1: ACCOUNTING INFORMATION – USERS AND USES (8/19/2024)
BASICS OF ACCOUNTING
•
•
Good decision-making depends on good
information
Accounting – “language of business”
• Helps the business communicate its “financial
health status” to various interested users, who in
turn, use these information in their decisionmaking process.
•
•
Economic/Quantitative/Financial information
– the backbone of accounting is financial
information. All accounting reports are based on
the quantitative information applicable to a
certain economic entity
Economic Entity – may refer to a person, forprofit organization, non-profit organization, or
governmental entity capable of transacting with
other persons, for-profit organization, nonprofit organization, or governmental entity.
NATURE OF BUSINESS
•
•
GENERAL STEPS OF ACCOUNTING
Business – organization in which basic resources
are assembled and processed to provide goods and
services to customers.
Generally, most businesses’ objective is to earn
profit
BUSINESS ACTIVITIES
1. Operating Activities – generate revenues (selling,
providing services)
2. Investing Activities – acquire long term assets
(construction, investing in equipment needed)
3. Financing
Activities
–
obtain
funds
FORMS OF BUSINESS ORGANIZATIONS
1. Single Proprietorship – single owner
2. Partnership – owned and managed by two or more
- Creditors may go after the separate assets of
partners
3. Corporation – owned by stockholders
- Separate legal entity: liable for its own
liabilities, therefore, creditors cannot go after
the separate assets of stockholders
- Have a lot more opportunities for funding
- Life of corporation is separate to the life of
owner
1. Identifying (business transactions)
2. Measuring (record, classify, summarize)
3. Communicating (provide information,
accounting reports)
prepare
Identification – process of selecting economic events or
transactions; may be internal (within the entity) or external
(involves outsiders) events.
Recording – process of inputting the financial information
in the entity’s book of accounts and summarizing them.
Communicating – involves the preparation of accounting
reports, and analyzing and interpreting them for the users
BOOKKEEPING
• A more familiar term used by laymen in lieu of the
word “accounting” is bookkeeping.
• A step under the recording activity.
• Involves journalizing of the transactions and posting
to the respecting ledgers, up to the preparation of
trial balances.
BOOKKEEPING VS ACCOUNTING
➢
➢
Bookkeeping
- a routine recording process subsequent to
transaction analysis
- Relating only to the recording of transactions
- A component of accounting
Accounting
- Involves the analysis of transactions
- Includes providing information for decisionmaking and can affect the economic
consequences
USERS AND THE RELEVANT ACCOUNTING
METHODS
RELATIONSHIP OF ACCOUNTING TO BUSINESS
•
ACCOUNTING is the language of BUSINESS
- Provides information for making informed
decisions about how to best use the
available resources of an organization
- Products of the accounting process may be
used by the users to determine the best use
of the available resources of the organization
and determine the best strategy in managing
the organization’s obligations.
- Accountants play two roles with regard to
these activities:
➢ Measuring and reporting (through the
accounting cycle)
➢ Advising
• Managerial accounting produce reports that are
available for use of internal users only since these
may contain sensitive internal management
strategies which, when released to outsiders, may
compromise the entity’s competitive position against
other parties.
- ex. budgets, forecasts, variance reports, cost
schedules, sales reports, procurement
reports
• Financial accounting focuses on producing reports
for use of both internal and external users
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WHO USES ACCOUNTING INFORMATION?
IASs are discontinued since the IASC was dissolved and
replaced by the IASB. Hence, there is no existing conflict
between IFRS and IAS.
ORGANIZATIONS WHICH INFLUENCE THE
ACCOUNTING PROFESSION
•
•
Internal Users – the people who run/manage the
organization (top management; HR, marketing,
finance,
sales,
procurement,
accounting
departments)
External Users – people outside the
organization.
- Considered interested users since these may
have financial interests to the organization
(investors and creditors), regulatory agencies
(primarily government agencies), and others
(labor unions)
- Labor unions are considered external users
because their interest focuses on themselves
rather than the entity.
ACCOUNTING ENVIRONMENT AND THE
PROFESSION
IMPORTANT FACTORS THAT INFLUENCE IN WHICH
ACCOUNTING OPERATES
1. GENERALLY
ACCEPTED
ACCOUNTING
PRINCIPLES (GAAP)
• Common set of accounting standards that
indicate how to report economic events
• Compliance with GAAP ensures the consistency
of the presentation of financial information so as
not to mislead users
• The Philippines adopts the
accounting standards issued
by
the
International
Accounting Standards Board
(IASB)
• These standards are called International
Financial Reporting Standards (IFRS), locally
known as Philippine
Financial Reporting
Standards (PFRS).
The IFRS comprise the following set of standards:
1. IFRS, as issued by the IASB
2. International Accounting Standards (IAS), as
issued by the International Accounting Standards
Council (IASC)
3. Official interpretations of the IFRS, as issued by
the IFRS Interpretations Committee (IFRIC)
• Securities and Exchange Commission (SEC)
- provides protection to the
general
public
by
exercising
supervisory
powers over partnerships
and corporations, capital
market participants, and
investment markets.
• Philippine
Institute
of
Certified
Accountants (PICPA)
- regulates the accountancy
profession
in
the
Philippines, and the PICPA
serves as its arm in the
implementation of the
applicable
laws
and
regulations.
• Bureau of Internal Revenue (BIR)
- as the tax administrator of
the country, is mandated to
implement the tax laws
and ensure that the
taxpayers pay correct
taxes.
Public
2. INTERNATIONAL BUSINESS
• the international nature of business requires
companies to be able to make their financial
statements understandable to users all over the
world.
• Multinational businesses are required to adopt
IFRS to ensure the compatibility of the financial
statements worldwide
• The way organizations conduct business may
also open up opportunities in unexplored areas in
the accounting profession.
- Ex. Availability of cryptocurrency as a method
of investment. (as a result of the said
development, accounting standards were
revisited to check where cryptocurrencies fit
in, and new jobs such as crypto brokers were
created.
3. ETHICS
•
the standards of conduct by which actions are
judges as right or wrong, honest or dishonest,
and/or fair or not fair.
•
Steps to analyze the ethical impact of the situation
1. Recognize an ethical situation and the ethical
issues involved
- Use your personal ethics
2. Identify and analyze the principal elements in
the situation
- Identify the stakeholders – persons or
groups who may be harmed or benefited
3. Identify the alternatives, and weigh the impact
of each alternative on various stakeholders.
4. TECHNOLOGY
•
•
•
Computer technology allows companies to easily
gather information and compile large amounts of
data quickly and accurately
Lendors and investors are able to acquire and
analyze financial information in an effective and
efficient manner
Technology has not replaced judgement
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