Financial Accounting and Reporting PDF

FINANCIAL ACCOUNTING and REPORTING CHAPTER 1: Introduction to Accounting BSA 1-A Saturday –1:00 pm to 4:00 pm  DISCUSSION OVERVIEW I. Definition of Accounting II. Steps of Accounting Process III. Objectives of Accounting IV. Users of Accounting Information V. Branches of...

FINANCIAL ACCOUNTING and REPORTING CHAPTER 1: Introduction to Accounting BSA 1-A Saturday –1:00 pm to 4:00 pm  DISCUSSION OVERVIEW I. Definition of Accounting II. Steps of Accounting Process III. Objectives of Accounting IV. Users of Accounting Information V. Branches of Accounting VI. Forms of Business Organizations  What is Accounting? "Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money; transactions and events which are, of a financial character and interpreting the results thereof". STEPS OF ACCOUNTING PROCESS 1. IDENTIFICATION OF FINANCIAL TRANSACTIONS - Records only monetary transactions. E.g. purchase of raw materials, sale of goods by a firm. Events which cannot be measured in money terms are not recoded in books of account. 2. RECORDING - Process of entering business transactions in Journal. Also called as book of original entry. 3. CLASSIFYING - Process of grouping transactions of one nature at one place. Transactions recorded in journal are posted to main book of account called Ledger 4. SUMMARISING - Presenting the classified data in an understandable manner. Preparing financial statements 1. Profit & Loss b. Balance Sheet 5. INTERPRETING - Analyzing financial data so that users can make judgment about profitability & financial position of the business. 6. COMMUNICATING - Communicating financial information to its users. To internal as well as external users.  Financial Transactions (sales to customer, salary of employees, purchase of equipment) Communication to the Users Recording (Are the users of financial information (record the financial transaction will be satisfied with the company’s financial statements? in the GENERAL JOURNAL) Interpreting Classifying (Do the company suffers loss? Do the (grouping of the financial entity generate income?) transaction/s as an expense, an income, etc.in the LEDGER) Summarizing (where the financial transactions classified as expense, as income, etc. should be presented?) Profit & Loss Statement - Expense and Income Balance Sheet Statement – Assets, Liabilities and Capital ILLUSTRATIVE EXAMPLE: ▪ GENERAL JOURNAL (left) - The journal consists of raw accounting entries that record business transactions, in sequential order by date. ▪ LEDGER (right) - The general ledger is more formalized and tracks five key accounting items: assets, liabilities, owner's capital, revenues, and expenses.  ILLUSTRATIVE EXAMPLE: Profit & Loss Statement Balance Sheet (Statement of Financial Performance) (Statement of Financial Position)  MAINTAINING RECORDS DETERMINE PROFIT OR LOSS OBJECTIVES FACILITATE MANAGEMENT OF ACCOUNTING PROVIDE INFORMATION TO USERS DETERMINE FINANCIAL POSITION  OBJECTIVES OF ACCOUNTING MAINTAINING ACCOUNTING RECORDS To record financial transactions & events in the books of account in a systematic manner. DETERMINING PROFIT OR LOSS To determine the Net results of transactions over a period of time through Profit & Loss also called as Income Statement. DETERMINING FINANCIAL POSITION To determine financial position through Balance Sheet Also called as Position statement  FACILITATING MANAGEMENT Provides financial information to management. Assists management in decision making, effective control & forecasting. PROVIDING INFORMATION TO USERS Provides Accounting information to users to analyze information as per their needs  USERS OF ACCOUNTING INFORMATION INTERNAL EXTERNAL USERS USERS CREDITORS OWNERS EMPLOYEES GOVERNMENT INVESTORS MANAGEMENT BANKS  TEST YOUR UNDERSTANDING FARmates! 1. Information in financial reports is based on _________ transactions. 2. ______ & ________ are External users of accounting. 3. Which of the following is not an internal user of financial statements? a. Shareholders b. Employees c. Managers d. Creditors 4. Which of the following is NOT a business transaction? a. Bought furniture of Php 10,000 for business b. Paid for salaries of employees Php 5,000 c. Paid sons fees from his personal bank account Php 20,000 d. Acquired office supplies worth Php 2,500. 5. Which of the following will not be recorded in the books of account? a. Sales of goods b. Quarrel between managers c. Payment of salary d. Purchase of goods 6. Which is the last step of accounting Process? 7..Transactions are posted into ________ from journal book 8. The following are user of financial statements. As far as internal users are concerned, which is not incorrect? a. Board of directors b. Banks c. Supplier d. Creditor  BRANCHES OF ACCOUNTING COST MANAGEMENT ACCOUNTING ACCOUNTING GOVERNMENT ACCOUNTING AUDITING FINANCIAL TAX ACCOUNTING ACCOUNTING  BRANCHES OF ACCOUNTING 1. Financial Accounting  the broadest branch and is focused on the needs of external users.  information is communicated in a complete set of financial statements.  primarily concerned with processing historical data.  uses information for decision-making needs. 2. Management Accounting  provide timely and relevant information for those internal users of accounting information, such as the managers and employees in their decision-making needs.  involves financial analysis, budgeting and forecasting, cost analysis, evaluation of business decisions, and similar areas. 3. Government Accounting  Deals with how the funds of the government are recorded and reported. The recording of inflow and outflow of funds of the government.  Question 1: What are the source of income of the government? Answer: Taxes paid by Filipinos  Question 2: Where do these taxes go? Answer: Hospitals, Roads, Education, Public infrastructure, etc. 4. Auditing - Involves looking at financial records to ensure they’re accurate and honest. It's a way to verify that things are being done properly. Two types of Auditing:  a) Internal - deals with determining the operational efficiency of the company regarding the protection of the company’s assets, accuracy and reliability of the accounting data, and adherence to certain management policies.  b) External - refers to the examination of financial statements by an independent CPA (Certified Public Accountant) with the purpose of expressing an opinion as to fairness of presentation and compliance with the generally accepted accounting principles (GAAP). The audit does not cover 100% of the accounting records but the CPA reviews a selected sample of these records and issues an audit report. 6. Tax Accounting  Tax accounting helps clients follow rules set by tax authorities. It includes tax planning and preparation of tax returns. It also involves determination of income tax and other taxes, tax advisory services such as ways to minimize taxes legally, evaluation of the consequences of tax decisions, and other tax-related matters.  Involves the preparation of income tax returns and the determination of correct amount of taxes due and payable to the government. 7. Cost Accounting  Sometimes considered as a subset of management accounting, cost accounting refers to the recording, presentation, and analysis of manufacturing costs.  Cost accounting is very useful in manufacturing businesses since they have the most complicated costing process. Cost accountants also analyze actual and standard costs to help managers determine future courses of action regarding the company's operations. Cost accounting will also help the owner set the selling price of his products. For example, if the cost accounting records shows that the total cost to produce one can of sardines is PHP50, then the owner can set the selling price atPHP60.00  TEST YOUR UNDERSTANDING FARmates! Identify what branch of accounting renders this service/s: 1. Preparation of general-purpose financial statements. 2. Evaluation of the performance of a sales department. 3. Review entity’s accounting records for operational impr0vement. 4. Review tax compliance of the business. 5. Evaluate whether a branch of the business complies with the collection and deposit policy of the company. 6. Review whether the financial statements are presented fairly and in compliance with accounting standards. 7. Report on the spending of government funds. 8. Report on the total cost of materials and labor used in the production. 9. Preparation of financial reports for loan application in bank.  TEST YOUR UNDERSTANDING FARmates! Identify what branch of accounting renders this service/s: 1. Preparation of general-purpose financial statements. – 2. Evaluation of the performance of a sales department. – 3. Review entity’s accounting records for operational impr0vement. – 4. Review tax compliance of the business. – 5. Evaluate whether a branch of the business complies with the collection and deposit policy of the company. – 6. Review whether the financial statements are presented fairly and in compliance with accounting standards. – 7. Report on the spending of government funds. – 8. Report on the total cost of materials and labor used in the production. – 9. Preparation of financial reports for loan application in bank. –  FORMS OF BUSINESS ORGANIZATIONS DEFINITION OF TERMS Organization - a collection of people working together to achieve a common purpose. Business Organization - a collection of people working together to achieve a common purpose in relation to their organization's mission, vision, goals, and objectives, sharing a common organizational culture. SINGLE PROPRIETORSHIP - a form of business that is owned, managed and controlled by an individual. It is the simplest and the most numerous form of business organization. Self-Employed Business Owner - A self-employed business owner is someone who conducts a trade or business with the intent of making a profit. The self- employed individual may conduct the business on a full-time basis or as a part- time venture.  Advantages Disadvantages  Ease of Formation ▪ Unlimited liability ▪ Owner has full control of the business ▪ Difficulty of raising additional ▪ The owner can freely mix personal capital assets with business assets ▪ Owner's bias ▪ Owner has all the profits for himself or herself ▪ Simple Taxation