INTRODUCTION
ACCOUNTING
- a system that measures business activities
- it quantifies business communication
- “language of every business”
- a service activity, provide quantitative information
- art of recording, classifying and summarizing in a significant manner
- process of identifying, measuring and communicating economic information
Accounting Process is a series of activities
Identification of events (business transaction) -> recording -> communication to intended users
MAIN FUNCTIONS;
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Systematic record – always record
Protecting business properties
Communicating the results to various parties linked with the business
Meeting legal requirements
BRIEF HISTORY
Accounting is old as civilization itself. Started from recording of repetitive changes.
EVOLUTION
The Cradle Civilization
- mesopotamia (modern Iraq)
- clay tablet is the oldest evidence of this practice
- dealt with accounts receivable and payable} transaction
Double-Entry Bookkeeping
- most important event
- Luca Pacioli is the father of accounting (Summa de Arithmetica, first book published)
- Arabic numerals first to commonly used to track business
French Revolution
- thorough study of accounting
- influence accounting into different sectors
The Industrial Revolution
- mass production and the importance of fixed assets – cannot be easily liquidate
example; machineries
19th Century
- expantion across Europe and America
- accounting society set up in 1887
Present
- investments for money to grow
Merger – business expanded by acquiring other companies
example; union of two or more companies for better negotiation.
SUMMARY
*In accounting everything should be recorded and relevant. It made reports by digits. We do business
because we want to gain profit. Accounting will tell if the business is gaining or not.
It uses numerical data for proof report. The economic decisions will come up and tell if the business is
growing or expanding. Needed to cope up with the result/proof.
Connected to finances – need to take consideration
BRANCHES
Financial Accounting
- broadest branch
- wherein the recording happen
- recording, measurement and communication of economic activities
- external users
“Balance Sheet”
elements: assets, liabilities and owner’s equity
“Financial Report Statement”
income statement – company’s revenue
net loss and net income
“Statement of Cash flows”
inflow and outflow of money
“Comparative Analysis
to know the betterment company’s state, we have to compare (past and present) to come up
with the decision making/analysis
Managerial Accounting
- objective: provide relevant and timely information
- confidential, sensitive information
- internal users
examples; financial analysis, budgeting, evaluation etc.
Government Accounting
- it should be all recorded
- deals with the funds of government
- to record the details, receipts and spending
Auditing
“External Auditing”
examination of the financial statements by an independent CPA
“Internal Auditing”
Evaluating the adequency of company’s internal control structure
Tax Accounting
- computation of taxes of the company (tax planning and tax returns)
Cost Accounting
- subset of managerial accounting
- the total cost (manufacturing cost)
expound; in here you can manipulate the amount or the prices of the products depend on its costs
Education Accounting
- developing the future accountants
Accounting Research
- creating new knowledge
- addresses all aspects of accounting profession
USERS
Internal Users
- individuals inside the company who plan, organize and run the business
- directly involved in managing and operating the business
Primary Users – management, employees and owners
External Users
-individuals or organization outside the company who want financial information
- not directly involved in managing and operating
most common type; investors (one who buys shares) and creditors (one who lend loans)
Secondary Users – creditors, tax authorities, investors and regulatory authorities
FORMS
Sole-Proprietorship (Proprietor)
- owned by one person
- simplest and most common form
- “owner” is also called “proprietor” who is generally the manager
Partnership (Partner)
- owned or composed by 2 or more person
- dividing the profits and combined the assets to create a capital
- “owner” is called “partner”
Corporation (Shareholders/Stockholders)
- artificial being created by law
- bigger companies or organization
- approved by government
micro, small and medium enterprise
-“owner” is called “shareholders or stockholders” they are the one who delegated the management of
the business
- ownership divided into shares
Cooperative (Members)
- an organization
- voluntarily joined
- tax free and earning by helping
- “owners” is called “members”
TYPES
Service Business
- offers professional skills and activities
- use employees to provide service
- direct service
Merchandising Business
- buys at wholesale then sell at retail
- buy and resell
- make profit by putting “tubo”
- known as “buy and sell”
Manufacturing Business
- buys raw materials then make a product for sale