Introduction to Accounting

• Accounting is the art of recording, classifying, and summarizing financial transactions and events, then interpreting the results
• Accounting serves as a service activity by providing quantitative, primarily financial, information to aid economic decisions

Nature of Accounting

• Accounting can be described as a science or art, an information system, a social force, a profession, a service activity, and a system or process

Functions of Accounting

• Accounting functions fulfill stewardship, support daily operations, and inform decision-making

Bookkeeping vs. Accounting

• Accounting is broad, while bookkeeping is specific

Accounting vs. Accountancy

• Accounting refers to the nature of the work and accountancy refers to the profession

Objectives of Financial Statements

• Financial statements provide information on an entity's financial position, performance, and cash flows for a wide range of users in making economic decisions

Key Dates in Accounting

• Luca Pacioli introduced double-entry bookkeeping in 1494
• The Philippines' first Accountancy Law, Republic Act (RA) 3105, was passed in 1923 and created the Board of Accountancy (BoA)
• In 1975, the Philippine Accountancy Law was revised under Presidential Decree No. 692
• The Philippine Institute of Certified Public Accountants (PICPA) created the Accounting Standards Council (ASC) in 1981
• The Philippines started transitioning to International Accounting Standards (IAS) in 1997 from American-based accounting standards (SFAS)
• In 2004, the Professional Regulation Commission (PRC) created the Financial Reporting Standard Council (FRSC), and RA 9298, the Philippine Accountancy Act of 2004, was passed
• The Philippines aligns with International Financial Reporting Standards (IFRS) from 2005 to present

The Accounting Process

• Accounting involves analyzing transactions, journalizing, posting, preparing financial statements, adjusting entries, unadjusted trial balance, closing entries, post-closing trial balance, and reversing entries

Three Important Activities in the Accounting Process

• Identifying means recognizing accountable events that affect assets, liabilities, and equity
• Measuring determines the monetary amounts for financial statement elements
• Communicating involves preparing and distributing accounting reports, making accounting the "universal language of business"

Accounting - Recording

• Recording, or journalizing, involves writing down business transactions and events chronologically

Accounting - Classifying

• Classification groups similar transactions into categories by posting them to the ledger

Accounting - Summarizing

• Summarizing refers to the preparation of financial statements

Sectors of Accounting (RA 9298) - Public Practice

• Public practice accountants offer business and accounting services, including attest reports

Sectors of Accounting (RA 9298) - Private Accounting

• Private accountants hold executive positions in companies, such as VP for finance or chief accountant, and manage company operations

Sectors of Accounting (RA 9298) - Government Accounting

• Government accountants work in government agencies like the Bureau of Internal Revenue, handling accounting and related positions

Sectors of Accounting (RA 9298) - Accounting Education

• Accounting education includes instructors in colleges and universities and equipping students

Branches/Areas of Accounting - Financial Accounting

• Financial accounting focuses on recording business transactions and preparing general purpose reports for internal and external users, following GAAP

Branches/Areas of Accounting - Management Accounting

• Management accounting supports internal users through financial reports, dealing with management needs rather than strict GAAP compliance

Branches/Areas of Accounting - Government Accounting

• Government accounting analyzes, classifies, summarizes, and communicates transactions involving government funds and interprets the results

Branches/Areas of Accounting - Auditing

• Auditing examines financial statements to express an opinion on their fairness, including external and internal auditing

Branches/Areas of Accounting - Tax Accounting

• Tax accounting prepares tax returns, determines tax consequences, and offers tax advisory services

Branches/Areas of Accounting - Cost Accounting

• Cost accounting determines the cost of projects, processes, or services to improve quality, efficiency, and decision-making

Branches/Areas of Accounting - Accounting Education

• Accounting education involves teaching various accounting and related subjects.

Accounting Research

• Accounting research examines how individuals, organizations, and governments use accounting and the consequences of their practices

Classification of Users - Primary Users

• Primary users include existing and potential investors who assess risks and returns
• Primary users include lenders and other creditors who determine the ability to repay debts

Classification of Users - Other Users

• Other users include employees interested in stability and profitability, customers interested in the entity's continuance, and government and their agencies for regulation and taxation

Classification of Users - Other Users PUBLIC

• Other users include the public which is assisted by information on trend and range of activities

Other Classification of Users

INTERNAL USERS

• Internal users have direct access and are involved within the organization

INTERNAL USERS - OWNERS

• Owners need data to assess profitability and make strategic decisions

INTERNAL USERS - Managers

• Managers use data to manage operations and evaluate performance

INTERNAL USERS - Employees

• Employees need data to understand their compensation and benefits

EXTERNAL USERS

• External users make decisions, but do not connect to the business

EXTERNAL USERS - INVESTORS

• Investors analyze financial data to evaluate returns

EXTERNAL USERS - Creditors/Lenders

• Creditors and Lenders use statements assess the ability to loans or credits

EXTERNAL USERS - Auditors

• Auditors check records complie with standards
• Auditors independtly verify but don't have permament access

EXTERNAL USERS - Public

• The public accesses data but has no interaction

EXTERNAL USERS - Research Scholars

• Research Scholars need publicly accessible data to conduct reaserach

EXTERNAL USERS - Tax Authorities

• Tax Authorites cannot access data however use statements determine taxes

EXTERNAL USERS - Consumers

• Consumers use data but cannot access the deatils

EXTERNAL USERS - Suppliers

• Suppliers asses if organizations can make payments but are uninvolved

EXTERNAL USERS - Members Of Non-Profit Organizations

• Members rely on reports to understand how funds are being used

Sole Proprietorship

• A sole proprietorship ownership is by a single person
• Owners facing unlimited liability

Organization of Sole Proprietorship

• A sole proprietorship requires you to register buisness name, with the local, the mayor, The Bureau of Internal Revenue, the Social Security System

Sole Proprietorship ADVANATGES

• A sole proprietorship is easy to establish, establish and requires little setting up capital
• A sole proprietorship has operations of freedom and all ownership

Sole Proprietorship DISADVANTAGES

• A sole proprietorship has limited life amount of capital and faces unlimited liability
• A sole proprietorship difficulty in day-to-day operations and has limited opportunities

Partnership

• A partnership has contract between two or more entities that provide fund to divide profits

CHARACTERISTICS OF A PARTNERSHIP

• Mutual Agency
• Unlimited Liability
• Limited Life
• Mutual Participation in Profits
• Legal Entity
• Co-ownership of Contributed Assets
• Income Tax

TYPES OF PARTNERS

• Capitalist
• Industrial
• General
• Limited

TYPES OF PARTNERSHIP

• Trading
• Non-trading
• General
• Limited

ORGANIZATION OF PARTNERSHIP

• It is easy to organize partnership with securities and exchange. You must also Register with the local
• You must also Register with the Mayor and The Bureau of Internal Revenue You must also Register with the Social Security System

PARTNERSHIP ADVANTAGES

• Limited abilities of the partners
• Its easy and inexpensive to organize

PARTNERSHIP DISADVANTAGES

• Managerial difficulties in having potential disagreement
• Its Limited life or easy dissolution

CORPORATION

• A corportation artifical being created by law and has rights

CHARACTERISTICS OF A CORPORATION

• Separate Legal Entity
• Creation by Operation of Law
• Right of Succession
• Powers, Attributes, Properties Authorized by Law
• Ownership is Divided into Shares
• Board of Directors

TYPES OF CORPORATION

• Stock
• Non-Stock
• Public
• Private
• Domestic
• Foreign
• Open
• Closely-held/Family

ORGANIZATION OF CORPORATION

• To organize a corporation register with certain organization You must also Register with the Social Security System

CORPORATION ADVANTAGES

• Large-scale business has succession and many individuals can invest
• Shareholder liabilities are limited

CORPORATION DISADVANTAGES

• More taxes on centralized management because complications

COOPERATIVE

• A cooperative includes:
  • "duly registered association"
  • "a common bond of interest
  • "a lawful common, social, or economic end making equitable contribution
  • has RA 6938

PRINCIPLES OF COOPERATIVES

• Open and Voluntary Membership
• Democratic Control
• Limited Interest on Capital
• Division of Net Surplus
• Cooperative Education
• Cooperation among Cooperatives

PRINCIPLES OF COOPERATIVES

• Credit Cooperative
• Consumers Cooperative
• Producers Cooperative
• Marketing Cooperative
• Service Cooperative
• Multi-purpose Cooperative

Steps to prepare a cooperative

• To prepare a cooperative, prepare a statement and draft bylaws
• Draft actiles of cooperation and secuare a bond or affidavit
• Complete Membership Education Seminar

Cooperative Advantages

• Cooperative has Unlimited life and changes do does not dissolve
• Cooperative can be democratic

Cooperative Disadvantages

• Cooperative includes a lack of membership and has difficulty with investor capital

SERVICE BUSINESS

• A service buisness provdes skills

Examples: salons

• Examples include banks and law firms

SERVICE BUSINESS ADVANTAGES

• The advanatges of service buisness is that has no inventory or production

SERVICE BUSINESS DISADVANTAGES

• Services are hard to measure or value

MERCHANDISING BUSINESS

• This buisness wholesale or retail price buisness is also "buy and sell"

MANUFACTURING BUSINESS

• Manufacturing involves sells purchased items or producing convert materials

Examples: car and electronic companies

MANUFACTURING BUSINESS ADVANTAGES

• The advnatage of manufacturing is the continual demand

MANUFACTURING BUSINESS DISADVANTAGES

• The Disadvanatge is maintenence

OPERATION CYCLE

• Operation cycle is defined period need to produce good services sell them

OPERATION CYCLE - Qualitative

• Qualitative includes Qualitative characteristics. and definition

CONCEPTUAL FRAMEWORK Qualities

• The qualities can assist and develop accounting standar and can deal with standards not in line with GAAP

Qualitative Reports

• Qualitative Reports must be relevant and have faithful representation

Economic Entity

• The entity is separate from others

Monetary Unit

• Quantitative value
• Stability over Pesso
• Tim epreiod is equally to prepare financial

ACCOUNTS Principles

• Accrual accounting is the effects of transactions

Income must me recognizable

There must be objective and cost Benifit

ACCOUNTS PRINCIPLES

• There must be full disclosure to avoid conflict

There should be Maching principle to maintain proper records

ASSETS

• Assets must be the result of current even

ASSETS - CASH

• Cash includes other current to maintain bank

ASSETS - ACCRECEIVABELS

• These may arise from servers

ASSETS MERCHADISE- INVENTORY

• Goods in inventory can be made availabe

Non Current Assets

• Examples include: Propert, Plant, Trademark, Copyright Patents

Liabilities Equity

• Owed obligations that flow back if settlements are complete with economic Benifits

LIABILITIES Payble

• Should consist with all Payble

WORKING CAPITAL

• Working captial should measure

EQUITY

• Should measure owners interests

INCOME

• Should measure with increased benefit

Accounting

• Nominal account should carry to carry records. Equations assets liabilities

There can be general or subsidary ledgers

Account

• There are simple or compound entries

should apply double entry