AE 111 Financial Accounting & Reporting Module 1 PDF

COLLEGE OF COMMERCE MODULE 1 PACKET AE 111 – FINANCIAL ACCOUNTING & REPORTING MODULE 1 OVERVIEW: Welcome to Module 1 – ACCOUNTING ENVIRONMENT In this module, we will discuss the basic principles of accounting. You are going to be introduced to fundamental ac...

COLLEGE OF COMMERCE MODULE 1 PACKET AE 111 – FINANCIAL ACCOUNTING & REPORTING MODULE 1 OVERVIEW: Welcome to Module 1 – ACCOUNTING ENVIRONMENT In this module, we will discuss the basic principles of accounting. You are going to be introduced to fundamental accounting terminologies and theories essential for you to fully grasp this course. At the end of this module, you are going to answer an assessment to apply the lessons you learned from this module. You are set for an incredible journey! Have fun in the world of accounting! CONSULTATION HOURS: Phone or Messenger: Virtual time: Class schedule MODULE 1 LEARNING OBJECTIVES: By the end of this module, the students will be able to: 1. Define accounting and explain its role in business. 2. Identify the users of accounting information and illustrate their information needs. 3. Distinguish between the different forms and activities of business organizations. 4. Explain the importance and phases of accounting. 5. Explain the fundamental concepts and the basic principles of accounting. 6. Explain why ethics are crucial in accounting. 7. Identify and discuss the career opportunities open to accountants. 8. Identify the different branches of accounting 2022-2023 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 1 o13 f  COLLEGE OF COMMERCE COURSE CONTENT FOR MODULE 1: ACCOUNTING & ITS ENVIRONMENT ACTIVITY DESCRIPTION TIME TO COMPLETE Lecture discussions Accounting and its environment 20 minutes Activity 1-1 Discussion Questions 30 minutes Activity 1-2 Multiple Choice Questions 30 minutes Activity 1-3 Summative quiz for Module 1 40 minutes LECTURE DISCUSSIONS ACCOUNTING & ITS ENVIRONMENT 1.1 DEFINITIONS AND NATURE OF ACCOUNTING ▪ Accounting - is a service activity. Its function is to provide quantitative information primarily financial in nature, about economic entities that is intended to be useful in making economic decisions (SFAS 1) - the process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by users of the information (AAA) - 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. (AICPA) - ACCOUNTING An information system that ❑ Measures business activities ❑ Processes information into reports ❑ Communicates the results to decision makers (thru FS) ACCOUNTING PROCESS Identifying Measuring Communicating Informed judgments and decisions by users 2022-2023 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 2 of 13  COLLEGE OF COMMERCE ACCOUNTING INFORMATION MUST Help in making economic decision Show results of how management operated the business (stewardship) Have predictive value ACCOUNTABLE EVENTS Transactions must be ✓ Financial in nature ✓ Measurable ✓ Monetary Value 1.2 USERS OF ACCOUNTING INFORMATION External ❑ Make decisions concerning their relationship to the business Internal ❑ Make decisions directly affecting the internal operations of the business EXTERNAL USERS Investors ❑ Risk associated with the capital invested ❑ To buy, hold or sell shares ❑ Ability of business to pay dividends Employees ❑ Ability of the business to pay remuneration, retirement, employment opportunities Lenders ❑ Ability of the business to pay for loans as well as interest Suppliers & Other Trade Creditors ❑ Ability of the business to pay for the items purchased Governments & their Agencies ❑ Regulate the activities of the business ❑ Pay taxes Customers ❑ Ability of the business to maintain the products and services required Public 2022-2023 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 3 of 13  COLLEGE OF COMMERCE ❑ Contribution to local economy ❑ Corporate social responsibility INTERNAL USERS Managers ❑ Measurement of the achievement of planned goals ❑ Efficiency and effectivity of persons with authority and responsibility in terms of the implementation of action plans Board of Directors ❑ Direction of the company towards its profitability and sustainability 1.3 FORMS OF BUSINESS ORGANIZATION 2022-2023 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 4 of 13  COLLEGE OF COMMERCE 1.4 TYPES OF BUSINESS ORGANIZATION 2022-2023 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 5 of 13  COLLEGE OF COMMERCE 1.5 PHASES OF ACCOUNTING 1.6 FUNDAMENTAL CONCEPTS 1. ENTITY CONCEPT – states that the personality of the owner and the personality of the business are distinct and separate from each other a. When a person opens a business, he will give a name to his business enterprise. b. Since the owner and the business are separate entities, each can transact business separately. 2022-2023 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 6 of 13  COLLEGE OF COMMERCE c. The business can buy, sell, enter contracts, pay liabilities, and many others as if it had one personality. 2. PERIODICITY CONCEPT- an entity’s life can be subdivided into equal time periods for reporting purposes. One year is the usual accounting period 3. STABLE MONETARY UNIT CONCEPT – the Philippine peso is a reasonable unit of measure and that its purchasing power is relatively stable 4. GOING CONCERN – it is assumed that the entity will continue to operate for the foreseeable future BASIC PRINCIPLES 1. OBJECTIVITY PRINCIPLE - also called the reliability principle -transactions should be verifiable by other parties and properly supported by evidence 2. HISTORICAL COST - transactions have to be recorded based on actual cost and not what management thinks they are worth as at reporting date 3. REVENUE RECOGNITION PRINCIPLE - revenue is to be recognized in the accounting period when good are delivered or services rendered 4. EXPENSE RECOGNITION PRINCIPLE - expenses should be recognized in the accounting period in which goods and services are used up to produce revenue 5. ADEQUATE DISCLOSURE - requires that all relevant information that would affect the user’s understanding and assessment of the accounting entity be disclosed in the financial statements 6. MATERIALITY -financial reporting is only concerned with information that is significant enough to affect evaluations and decisions 2022-2023 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 7 of 13  COLLEGE OF COMMERCE 7. CONSISTENCY PRINCIPLE -firms should use the same accounting method from period to period to achieve comparability over time within a single enterprise 1.7 SCOPE OF PRACTICE OF ACCOUNTANCY 1. Practice of Public Accountancy - partner or staff member of an accounting or auditing firm who are offering or rendering to clients on a fee basis such services as * audit of financial transactions and accounting records * design, installation, and revision of accounting systems * preparation of income tax returns 2. Practice in Commerce and Industry - employed in a private company and their scope of activities and responsibilities vary widely. Ex. accounting staff, internal audit staff, financial analyst, budget analyst, credit analyst, cost accountant 3. Government Service Accountants may be hired by the following: Congress of the Philippines, Commission on Audit (COA), Bureau of Internal Revenue (BIR), Department of Finance, Department of Budget & Management, Bangko Sentral ng Pilipinas, and local government units 4. Education/Academe They make others understand the body of accounting knowledge and prepare candidates for the CPA exam 1.8 BRANCHES OF ACCOUNTING Auditing ▪ External audit – independent examination that ensures the fairness and reliability of reports that management submits to users outside the business entity. ▪ Internal audit- involves detailed checking of the company's accounting procedures 2022-2023 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 8 of 13  COLLEGE OF COMMERCE Bookkeeping ▪ Systematic and chronological recording of business transactions Cost Accounting ▪ Deals with the collection, allocation, and control of the cost of producing specific goods and services Financial Accounting ▪ Focused on the recording of business transactions and the periodic preparation of reports on financial position and results of operations Financial Management ▪ Involves setting financial objectives, making plans based on those objectives, obtaining the finance needed to achieve the plans, and generally safeguarding all the financial resources of the entity. Management Accounting ▪ Incorporates cost accounting data and adapts them for specific decisions which management may be called upon to make Taxation ▪ Includes the preparation of tax returns and the consideration of the tax consequences of proposed business transactions or alternative courses of action Government Accounting ▪ Concerned with the identification of the sources and uses of resources consistent with the provisions of city, municipal, provincial, or national laws. 2022-2023 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 9 of 13  COLLEGE OF COMMERCE 1.9 ACCOUNTING PROCESS Activity 1-1 Discussion Questions. 1. What is accounting? Why is accounting often referred to as the language of business? 2. What are the three forms of business organization? Define and give examples. 3. Enumerate and distinguish the four phases of accounting. 4. What are the basic financial statements? What is the significance of each? 5. Who are the users of accounting information? In what way do the financial statements help them? 6. What are the branches of accounting? Explain each briefly. 2022-2023 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 10 of 13  COLLEGE OF COMMERCE REFERENCES: Aliling, Leonardo E. (2013). Fundamentals of basic accounting. Quezon City: Rex Printing Company, Inc. Ballada, Win Lu, Susan Ballada (2019). Basic financial accounting & reporting. Manila, Philippines: Made Easy & Domdane Publisher. Cabrera, Ma. Elenita B., Cabrera, Gilbert Anthony B. (2019) Financial accounting and reporting fundamentals.. Manila, Philippines: GIC Enterprises & Co., Inc. Cabrera, Ma. Elenita B. (2018). Financial accounting Printed Learning Resources and reporting -comprehensive edition. Manila, Philippines: GIC Enterprises & Co. Inc. Mroczkwowski, Nicholas, David Flanders. (2015). Accounting basic reports. 10th ed. Australia: Cengage Learning Australia. Valix, Conrado T., Christian Aris M. Valix. (2017). Theory of accounts. Manila, Philippines: GIC Enterprises & Co. Weygandt, Jerry J., Paul D. Kimmek Donald E. Kieso. (2016) Accounting principles. International Student Version. 12th ed. Hoboken, NJ: John Wiley & Sons. 2022-2023 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 11 of 13  COLLEGE OF COMMERCE Wild, John, et al. (2015) Principles of accounting. International edition. New York: Mc Graw Hill. Basic Accounting Equation – Assets. Retrieved from https://www.youtube.com/watch?v=vKRz4krHrww Basic Accounting Equation – Liabilities. Retrieved from https://www.youtube.com/watch?v=K3dR8Kc3bd0 Basic Accounting: Debits & Credits. Retrieved from https://www.youtube.com/watch?v=5CUCojBKuBo https://www.youtube.com/watch?v=UjTHkywTlTs Financial Transaction Worksheet (Part 1). Retrieved from https://www.youtube.com/watch?v=fQ0P17eUR9M&t= 6s Financial Transaction Worksheet (Part 2). Retrieved Web and other Learning Resources from https://www.youtube.com/watch?v=E50Tj5s6LIc&t=4s https://youtu.be/pGNB-8VN-cA https://youtu.be/ckVVKkUXR7E Complete Accounting Cycle for Sole Proprietor. Retrieved from https://www.youtube.com/watch?v=bnRY3c_KFrA ProfAlldredge (2016). Financial Accounting for Sole Proprietorships. Retrieved from https://www.youtube.com/playlist?list=PL8Sg4W1XyH vCrLMHxYeZsXBmv7DYpRzVC 2022-2023 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 12 of 13  COLLEGE OF COMMERCE Christy Lynch (2016). Journal Entries of Sole Proprietorship. Retrieved from https://www.youtube.com/watch?v=KWna4QjBf7A 2022-2023 Module Packets for AE 111 (Financial Accounting & Reporting) | College of Commerce | University of San Agustin, Iloilo City, 5000, Philippines Page 13 of 13