Financial Accounting & Reporting (Fundamentals) PDF

FINANCIAL ACCOUNTING & REPORTING (Fundamentals)  Learning Objectives 1. Define accounting. 2. Describe the nature and purpose of accounting. Introduction 3. Give examples of branches of accounting. to...

FINANCIAL ACCOUNTING & REPORTING (Fundamentals)  Learning Objectives 1. Define accounting. 2. Describe the nature and purpose of accounting. Introduction 3. Give examples of branches of accounting. to 4. State the function of accounting in a business. Accounting 5. Differentiate between external and internal users of accounting information. 6. Narrate the history/origin of accounting. 7. State the forms of business organization. 8. State the types of business according to their activities.  Definition of accounting Accounting is a process of identifying, recording and communicating economic information that is useful in making economic decisions. (AAA – (American Accounting Association)  Essential elements of the definition of accounting 1. Identifying – The accountant analyzes each business transaction and identifies whether the transaction is an “accountable event” or “non-accountable event.” This is because only “accountable events” are recorded in the books of accounts. “Non-accountable events” are not recorded in the books of accounts. 2. Recording – The accountant recognizes (i.e., records) the “accountable events” he has identified. This process is called “journalizing.” After journalizing, the accountant then classifies the effects of the event on the “accounts.” This process is called “posting.” 3. Communicating – At the end of each accounting period, the accountant summarizes the information processed in the accounting system in order to produce meaningful reports. Accounting information is communicated to interested users through accounting reports, the most common form of which is the financial statements.  Nature of accounting Accounting is a process with the basic purpose of providing information about economic activities intended to be useful in making economic decisions.  Other Definition of Accounting Accounting is a service activity. Its function is to provide information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions. (ASC- Accounting Standards Council)  Other Definition of Accounting Accounting is an information system that measures, processes and communicates financial information about an economic entity. (FASB – Financial Accounting Standards Board)  Other Definition of Accounting Accounting is the art of recording, classifying and summarizing in 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 – American Institute of Certified Public Accountants)  Types of information provided by accounting 1. Quantitative information 2. Qualitative information 3. Financial information Functions of Accounting in Business 1. To provide external users with information that is useful in making investment and credit decisions; and 2. To provide internal users with information that is useful in managing the business.  Brief history of accounting Accounting can be traced as far back as the prehistoric times, perhaps more than 10,000 years ago. Archaeologists have found clay tokens as old as 8500 B.C. in Mesopotamia which were usually cones, disks, spheres and pellets. These tokens correspond to commodities like sheep, clothing or bread. They were used in the Middle West in keeping records. After some time, the tokens were replaced by wet clay tablets. During such time, experts concluded this to be the start of the art of writing. (Source: http://EzineArticles.com/456988) Double entry records first came out during 1340 A.D. in Genoa. In 1494, the first systematic record keeping dealing with the “double entry recording system” was formulated by Fra Luca Pacioli, a Franciscan monk and mathematician. The “double entry recording system” was included in Pacioli’s book titled “Summa di Arithmetica Geometria Proportioni and Proportionista,” published on November 10, 1494 in Venice. The concept of “double entry recording” is being used to this day. Thus, Fra Luca Pacioli is considered as the father of modern accounting. Aristotle Socrates Loko-Loko Agpasuli Luca Pacioli Common Branches of Accounting Common Branches of Accounting Common Branches of Accounting Common Branches of Accounting  Scope of Accounting Practice 1. Practice of Public Accountancy ACPAPP – Association of CPAs in Public Practice 2. Practice in Commerce and Industry ACPACI – Association of CPAs in Commerce and Industry 3. Practice in Government GACPA – Government Association of CPAs 4. Practice in Education/Academe NACPAE – National Association of CPAs in Education  Users of Accounting Information 1. Internal users – those who are directly involved in managing the business. Examples: Business owners who are directly involved in managing the business Board of directors Managerial personnel 2. External users – those who are not directly involved in managing the business. Examples: Existing and potential investors (e.g., stockholders who are not directly involved in managing the business) Lenders (e.g., banks) and Creditors (e.g., suppliers) Non-managerial employees Public Forms of Business Organizations Advantages and Disadvantages Advantages and Disadvantages Chapter 1: Introduction to Accounting (FAR by: Millan) Advantages and Disadvantages Advantages and Disadvantages Advantages and Disadvantages Advantages and Disadvantages Advantages and Disadvantages Chapter 1: Introduction to Accounting (FAR by: Millan)  Types of Business According to Activities 1. Service business 2. Merchandising (Trading) 3. Manufacturing Advantages and Disadvantages Chapter 1: Introduction to Accounting (FAR by: Millan) Advantages and Disadvantages Chapter 1: Introduction to Accounting (FAR by: Millan) Advantages and Disadvantages APPLICATION OF CONCEPTS TRUE OR FALSE 1. Only accountable events are recorded in the books of accounts. Accountable events are those that affect Mr. John Sen Aguda, CPA, the accountant of the business.False 2. General purpose financial statements are the end product of the financial accounting process. These statements are intended for Ms. Princess Janine C. Bacud, the manager. True 3. Mr. Stephen Aldy A. Bautista stand firm that accounting is the major facet of a business that is responsible in generating funds needed to support the business operations. False 4. Ms. Narbie M. Bugarin asserted that a business transaction is considered an accountable event if it affects the assets, liabilities, income, or expenses of the business. True 5. Sayrel Guillermo and Shella Guillermo are members in a cooperative, Sayrel hold 1 share, while Shella holds 10,000 shares. During members’ meetings, Shella can cast 10,000 votes, whereas Sayrel can only cast 1 vote. False 6. Mr. Mark V. Bringas owns and manages a sole proprietorship business. The financial reports prepared tailored to Mr. Bringas’ financial information needs are not general purpose financial statements. 7. Mr. Bringas (in #6) accepts Ms. Bea Katrina S. Nagtalon as co- owner to his business. The business is now called B&N Co. The business of Mr. Bringas and Ms. Nagtalon is a partnership. 8. Ms. Irene Kaye T. Negre is a taxi and jeepney operator. Ms. Negre has three taxis and five jeepneys. Ms. Negre’s business is a registered with the DTI. Ms. Negre’s business is a corporation. 9. Mr. Bringas and Ms. Nagtalon (in # 7) decided to acquire the business of Ms. Negre (in #8). The newly formed business is called WOW, Inc. WOW, Inc. is owned by Mr. Bringas , Ms. Nagtalon, Ms. Negre and two drivers of Ms. Negre (Devon Carl Sadorra and Joeco Rosendo). WOW, Inc. issued shares of stocks to the owners representing their ownership interest in the business. The newly formed business is a partnership. 10. The word “Inc.” in WOW, Inc. (see # 9 above) is the abbreviation for incorporated, which connotes a corporate business.  QUESTIONS????  REACTIONS!!!!! END BUT WAIT! THERE’S MORE!!!!!! Read about “Accounting Concepts and Principles”