ParCor Chapter 1 - Introduction To Accountancy PDF

**Why choose ABM in Senior High?** - It focuses on teaching students about business management concepts such as accounting, finance, operations, entrepreneurship, business mathematics, and marketing. - Help students hone their business acumen, acquire many other skills, and prepare...

**Why choose ABM in Senior High?** - It focuses on teaching students about business management concepts such as accounting, finance, operations, entrepreneurship, business mathematics, and marketing. - Help students hone their business acumen, acquire many other skills, and prepare them to be competitive industry experts in the future. **What is Accountancy?** - Body of knowledge (consisting of principles, postulates, assumptions, conventions, concepts, and rules governing the science of recording, classifying, and analyzing financial transactions. - **Accountancy** -- practice and art of the science of accounting. **Accounting** - According to **American Institute of Certified Public Accountants (AICPA)**, it is an art of recording, classifying, summarizing in a significant manner and in terms of money, transactions, and events, which are, of a financial character, and interpreting the results thereof. - According to **American Accounting Association (AAA)**, process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by users of the information. Three important processes: 1. **Identifying** -- analyzing events and transactions to determine whether they will be recognized. 2. **Measuring** -- assigning numbers (monetary terms) to the economic transactions and events. 3. **Communicating** -- transforming data into useful economic data into useful accounting information such as financial statements and other accounting reports. - According to **Accounting Standards Council (ASC)**, accounting is a service activity. Tells businessmen how much they got, how much they used to have, the increases or decreases in what they got, and what they get in the future. **Phases of Accounting** 1. Recording -- technically known as **bookkeeping**. - recording the economic activities of the business or its historical events 2. Classifying -- grouping of similar accounting elements or items affected into useful groups or categories. 3. Summarizing -- preparation of financial reports or financial statements. 4. Interpreting -- interpreted or analyzed to evaluate liquidity, solvency, and profitability of the business. **Bookkeeping vs. Accounting** +-----------------------------------+-----------------------------------+ | **Bookkeeping** | **Accounting** | +===================================+===================================+ | - Part of the accounting | - Compiles and present the data | | process | into reports which are | | | interpreted for use by its | | - Accounting support function | stakeholders | | that involves the systematic | | | recording of business | - Functions in a higher degree | | transactions in financial | | | terms | - Accountants are responsible | | | for the design and management | | - "How" of accounting | of accounting information | | | systems that bookkeepers use | | - Mechanical or procedural | | | | - Supervise the work of | | - Development and maintenance | bookkeepers | | of accounting records | | | | - Certify the reliability of | | | the financial statements and | | | income tax returns | +-----------------------------------+-----------------------------------+ **Purpose of Accounting** - Provide quantitative, financial information about economic entities that is intended to be useful in making economic decisions - Basis for two main assumptions: \(1) monetary unit assumption \(2) economic entity assumption **Classical Notion of Stewardship** - **Stewardship** -- careful and responsible management of something entrusted to one's care. - Classical stewardship in accounting applies to: 1. Valuation 2. Stewardship role - Accounting places an obligation on stewards or agents responsible for providing economic and financial information about the entity, relating to resources over which they have control, but which are owned by others. **Accounting Standards** - Authoritative standards for financial reporting and are the primary source of Generally Accepted Accounting Standards. - Specific how transactions and other events are to be recognized, measured, presented,, and disclosed in financial statements. **What is GAAP?** - Collection of commonly followed accounting rules, standards and procedures for financial reporting. - Includes: 1. Definition of concepts and principles 2. Industry-specific rules - Purpose is to ensure that financial reporting is transparent and consistent from one company to another. - Used to prepare, present, and report financial statements. **Uses and Users of Accounting Information** - Used to prepare financial statements and provide answers to many questions raised by various users of accounting information. - Can also be useful in: 1. Necessity of remembering various transactions 2. Compare results from one period with that of another period 3. Tax authorities are likely to believe the facts contained in the set of accounting books 4. Authenticated records used as evidence in a court law 5. Bargains proper price for the business **Branches of Accounting** 1. Business Accounting (also known as Enterprise or Commercial Accounting) 2. **Auditing** **Fields of Specialization in the Accounting Profession** 1. **Public Practice** -- engaged in practicing their profession as an individual or those who joined accounting or an auditing or a consulting firm who will provide services to the public 2. **Commerce and Industry** -- employed in private firms 3. **Government** -- working in government offices or public enterprises 4. **Education** -- teaching profession including academic administrations **Philippine Institute of Certified Public Accountants** - Duly recognized national professional organization of CPAs in the Philippines - Recognized the four sectors of which a CPA may practice - All CPAs whose name appear in the Registry of Professionals of the Professional Regulation Commission (PRC) are automatically members of PICPA except when they are: 1. deceased 2. no longer practice their profession/retired - 1992 memorandum agreement with four sectoral organizations: 1. Association of CPAs in Public Practice 2. Association of CPAs in Commerce and Industry 3. Association of CPAs in Education 4. Government Association of CPAs **Types of Business Organization** +-------------+-------------+-------------+-------------+-------------+ | **Ownership | **Sole | **Partnersh | **Cooperati | **Corporati | | ** | Proprietors | ip:** | ve:** | on:** | | | hip:** | | | | +=============+=============+=============+=============+=============+ | | Owned by | Owned by | Owned by | Owned by | | | one | two or more | members who | shareholder | | | individual | partners | use its | s | | | | | services | | +-------------+-------------+-------------+-------------+-------------+ | Purpose | Regulated | Regulated | Regulated | Regulated | | | by local or | by local or | by a | by the | | | state | state | cooperative | Securities | | | business | business | board and | and | | | authorities | authorities | government | Exchange | | | | | agencies | Commission | | | | | | (SEC) and | | | | | | state | | | | | | agencies | +-------------+-------------+-------------+-------------+-------------+ | Function | Purpose is | Purpose is | Purpose is | Purpose is | | | to generate | to generate | to serve | to generate | | | profit for | profit for | the needs | profit for | | | the owner | the | of its | shareholder | | | | partners | members | s | +-------------+-------------+-------------+-------------+-------------+ | How It | Provides | Provides | Provides | Provides | | Operates | goods or | goods or | mutual | goods or | | | services | services | benefits, | services | | | for profit | for profit | services, | for profit | | | | | or goods to | and raises | | | | | members | capital | | | | | | through the | | | | | | sale of | | | | | | stocks | +-------------+-------------+-------------+-------------+-------------+ | Liability | Owner has | Partners | Operated | Managed by | | | full | share | with | a board of | | | control | decision-ma | democratic | directors, | | | over | king | control by | officers, | | | decisions | and profits | members, | and | | | and | | who elect a | executives | | | operations | | board of | | | | | | directors | | +-------------+-------------+-------------+-------------+-------------+ | Profit | Unlimited | Partners | Members | Shareholder | | Distributio | personal | have joint | have | s | | n | liability | or several | limited | have | | | | liability | liability | limited | | | | | | liability | +-------------+-------------+-------------+-------------+-------------+ | Capital | Owner | Profits are | Profits are | Profits are | | | retains all | shared | distributed | distributed | | | profits | based on | based on | as | | | | partnership | member | dividends | | | | agreement | participati | to | | | | | on | shareholder | | | | | | s | +-------------+-------------+-------------+-------------+-------------+ | Taxation | Capital is | Capital is | Capital | Capital is | | | limited to | pooled from | comes from | raised | | | the owner's | the | member | through | | | personal | partners | contributio | selling | | | funds | | ns | stocks and | | | | | and | bonds | | | | | external | | | | | | funding | | +-------------+-------------+-------------+-------------+-------------+ | Ownership | Taxes are | Partners | Taxation | - Subject | | | paid as | pay taxes | varies, may | to | | | part of the | as personal | be taxed as | corpora | | | owner\'s | income | a separate | te | | | personal | | entity or | taxatio | | | income | | passed | n, | | | | | through to | and | | | | | members | shareho | | | | | | lders | | | | | | also | | | | | | pay | | | | | | taxes | | | | | | on | | | | | | dividen | | | | | | ds | | | | | | | | | | | | - Stockho | | | | | | lder | | | | | | or | | | | | | shareho | | | | | | lder | +-------------+-------------+-------------+-------------+-------------+ | Advantages | - Full | - Shared | - Democra | - Limited | | | control | financi | tic | liabili | | | over | al | decisio | ty | | | decisio | commitm | n-making | for | | | n-making | ent | (one | shareho | | | | | member, | lders | | | - Easy | - Easy to | one | (person | | | and | set up | vote) | al | | | inexpen | with | | assets | | | sive | fewer | - Profits | are | | | to set | formali | are | protect | | | up | ties | distrib | ed) | | | | | uted | | | | - Owner | - Combine | based | - Easier | | | keeps | d | on | to | | | all the | skills | member | raise | | | profits | and | partici | capital | | | | resourc | pation | by | | | - Simple | es | | issuing | | | tax | from | - Focuses | stock | | | structu | multipl | on | | | | re | e | member | - Perpetu | | | (taxed | partner | needs | al | | | as | s | and | existen | | | persona | | communi | ce | | | l | - Shared | ty | (busine | | | income) | decisio | welfare | ss | | | | n-making | | continu | | | | can | - Limited | es | | | | reduce | liabili | even if | | | | the | ty | ownersh | | | | burden | for | ip | | | | on one | members | changes | | | | person | | ) | | | | | | | | | | | | - Easier | | | | | | to | | | | | | transfe | | | | | | r | | | | | | ownersh | | | | | | ip | | | | | | through | | | | | | buying/ | | | | | | selling | | | | | | shares | +-------------+-------------+-------------+-------------+-------------+ | Disadvantag | - Unlimit | - Joint | - Slower | - Complex | | es | ed | and | decisio | and | | | persona | several | n-making | costly | | | l | liabili | due to | to set | | | liabili | ty | democra | up and | | | ty | (partne | tic | maintai | | | | rs | process | n | | | - Limited | are | | | | | access | persona | - Limited | - Double | | | to | lly | ability | taxatio | | | capital | liable | to | n | | | | for the | raise | (corpor | | | - Difficu | busines | capital | ation | | | lt | s) | | pays | | | to | | - Profits | taxes, | | | expand | - Dispute | are | and | | | | s | shared | shareho | | | - Busines | between | among | lders | | | s | partner | all | are | | | ends | s | members | taxed | | | with | can | | on | | | the | affect | - Potenti | dividen | | | death | the | al | ds) | | | or | busines | for | | | | retirem | s | ineffic | - More | | | ent | | iency | regulat | | | of the | - Profits | with | ory | | | owner | are | many | require | | | | shared | owners | ments | | | | | involve | and | | | | - Partner | d | governm | | | | ship | in | ent | | | | may | decisio | oversig | | | | dissolv | ns | ht | | | | e | | | | | | if one | | - Less | | | | partner | | direct | | | | leaves | | control | | | | or dies | | for | | | | | | individ | | | | | | ual | | | | | | shareho | | | | | | lders | | | | | | (run by | | | | | | a board | | | | | | of | | | | | | directo | | | | | | rs) | +-------------+-------------+-------------+-------------+-------------+ **Types of Business Activities** 1. **Service firms** -- perform services for a fee 2. **Merchandising (trading firms)** -- those that will buy and sell merchandise or goods that are in salable form 3. **Manufacturing firms** -- those that buy raw materials, convert them into finished products, and then sell the manufactured products