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Introduction To Accounting
Introduction To Accounting
Accounting
The Accounting Standards Council
definition:
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 decision.
Accounting
The Committee on Accounting Terminology
of the American Institute of Certified Public
Accountants definition:
Accounting is 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.
Accounting
The American Accounting Association
definition:
Accounting is the process of
identifying, measuring and
communicating economic
information to permit
informed judgment and
decision by users of the
information.
Three Important Activities in the Accounting Process
IDENTIFYING
ACCOUNTING
PROCESS
MEASURING COMMUNICATING
IDENTIFYING
It means the recognition or nonrecognition
of “accountable” events.
Not all business activities are accountable.
An event is accountable or quantifiable
when it has an effect on assets, liabilities
and equity.
Only economic activities are emphasized
and recognized in financial accounting.
Economic Activities
Referred to as transactions which may be
classified into external and internal.
1. External Transactions
Those economic events involving one entity and
another entity.
Examples: Purchase of merchandise from a supplier,
borrowing money from a bank, sale of merchandise to
customer
2. Internal Transactions
Economic events involving the entity only.
Examples: Production and casualty losses
MEASURING
It is the process of determining the
monetary amounts at which the elements of
the financial statements are to be
recognized and carried in the balance sheet
and income statement.
The Philippine peso is the unit of
measuring accountable economic
transactions,
Four Financial Bases or Financial Attributes
1. Historical cost – original acquisition cost.
2. Current cost – replacement cost or current
purchase price.
3. Realizable value – current selling price or the
amount that could currently be obtained by
selling the asset in an orderly disposal.
4. Present value – discounted value of the future
net cash inflows that the asset is expected to
generate in the normal course of the business.
COMMUNICATING
It is the process of preparing and distributing
accounting reports to potential users of
accounting information. Users include
investors, owners, managers, creditors, and
other interested parties.
It is for this reason that accounting has been
called the “language of business”.
Implicit in the communication process are
recording, classifying and summarizing aspects
of accounting.
COMMUNICATING
1. Recording or journalizing is the process of
systematically maintaining a record of all
economic business transactions after they
have been identified and measured.
2. Classifying or posting is the sorting or
grouping of similar and interrelated economic
transactions into their respective class.
3. Summarizing in the preparation of financial
statements.
Purpose of Accounting
“to provide quantitative
financial information
about a business that is
useful to statement users
particularly owners and
creditors in making
economic decisions.”
ACCOUNTANCY PROFESSION
Republic Act No. 9298 is the law regulating
the practice of accountancy in the Philippines
also known as Philippine Accountancy Act of
2004.
Accountancy has developed as profession
attaining a status equivalent to that law and
C A medicine.
P The Board of Accountancy is the body
authorized by law to promulgate rules and
regulations affecting the practice of profession
in the Philippines.
ACCOUNTING ASSUMPTION
The basic notions or
fundamental premises on
which the accounting process
is based.
It is the foundation of
accounting which are the
“givens” and they exist without
saying.
Also known as postulates and
underlying assumptions
5 BASIC ACCOUNTING
ASSUMPTIONS
1. Accrual
2. Going Concern
3. Accounting Entity
4. Time Period
5. Monetary Unit
Solvency
Availabilityof cash over a long term to
meet financial commitment when they
fall due.
Financial structure
The source of financing for the assets
of the entity either from borrowed
capital or invested or equity capital.