FABM 1: Introduction to Accounting

Course Information

• Course Title: Fundamentals of Accountancy, Business and Management 1 (FABM 1)
• Authors: Ariston G. Jayme Jr., Josephine S. Galanza, John Paul M. Lagao, Kenny Jones A. Amlos, Joan A. Mala
• Institution: University of the Cordillera Integrated School

Introduction to Accounting

• Definition (AICPA): Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character and interpreting the results thereof.
• Definition (ASC): Accounting is a service activity; its function is to provide quantitative information, primarily financial in nature, that is intended to be useful in making economic decisions.
• Definition (AAA): Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgment and decision by users of financial information.
• Accounting Cycle: A series of steps involving identifying, measuring, recording, classifying, summarizing and communicating financial transactions.
• Accountable Event: An event or transaction that must be recorded in monetary terms, has at least a twofold effect on the accounts, and affects one or more accounting elements.
• Identifying: Assessing whether a transaction constitutes a business transaction or accountable event.
• Measuring: Determining the monetary amount of transactions to be recorded in the accounts.

Accounting Cycle and Functions

• Identifying: Determining whether a transaction/event is considered a business transaction/accountable event, in monetary terms, and has a twofold effect on the accounting. This includes assessing if a transaction affects assets, liabilities, or equity.
• Measuring: Determining the monetary amounts at which transactions are recorded in the accounts.
• Recording (Journalizing): A chronological record of transactions entered in the journal, the book of original entry.
• Classifying: Grouping similar transactions into specific accounts.
• Posting: Transferring recorded transactions from the journal to the ledger accounts.
• Summarizing: Preparing the trial balance and the worksheet for financial statement preparation.
• Communicating (Reporting): Preparing financial statements for stakeholders. These include the Income Statement, Statement of Comprehensive Income, Statement of Changes in Owner's Equity, Balance Sheet, and Statement of Cash Flows, as well as the Notes to Financial Statements.

Branches of Accounting

• Financial Accounting: Processes historical data, focuses on external users (investors, creditors, government), produces financial statements (balance sheet, income statement), and abides by generally accepted accounting principles (GAAP).
• Managerial Accounting: Emphasizes internal users (managers, employees), provides timely and relevant information for decision-making (financial analysis, budgeting, and forecasting).
• Cost Accounting: Records, presents, and analyzes manufacturing costs for internal decision making (setting selling prices, assessing profitability). Often considered a subset of managerial accounting.
• Government Accounting: Records, analyzes, and communicates financial information for governments.
• Auditing: External auditors examine financial statements for accuracy, compliance with GAAP and internal controls. Internal auditors ensure operational efficiency and compliance with policies within a company.
• Tax Accounting: Plans and prepares tax returns, providing advice minimizing tax.
• Accounting Education: Creates accounting curriculum and teaches students.
• Accounting Research: Develops knowledge in the accounting field.
• Fund Accounting: Records, classifies, and controls funds specifically designated for a project/purpose.
• Forensic Accounting: Focuses on financial evidence in legal proceedings, investigating financial crimes, and resolving disputes.

Users of Financial Information

• External Users: Individuals or organizations outside the company who want financial information about that specific company.
• Internal Users: Individuals or organizations inside the company that plan, organize, and manage the business.

Forms of Business Organizations

• Sole Proprietorship: A business owned by one person, who has unlimited liability, and the business ends when the owner dies. Advantages include ease of formation, flexibility, and ease of dissolution.
• Partnership: Owned and operated by two or more persons (partners) who contribute resources to the business. Partners share profits and also liabilities within the agreement. Advantages include ease of formation, and ability to raise more capital.
• Corporation: A separate legal entity from its owners (shareholders). Shareholders have limited liability, and the business continues even if an owner leaves.

This quiz covers the fundamentals of accounting definitions and the accounting cycle. It assesses your understanding of key concepts essential for effective financial decision-making. Prepare to delve into the basics and enhance your knowledge in accountancy.