HO#1 -Intro to Financial Accounting 1

8/8/2019 HO#1 -Intro to Financial Accounting 1

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INTRO TO FINANCIAL

ACCOUNTING

Janice Rhea P. Cabacungan

1st Lecture


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Objectives:

1. Define Accountancy

2. Identify the principles of accountancy

3. Define Accounting 4. Identify accounting process

5. Accounting Language of Business

6. Accounting Eyes of the Business

7. Users of Accounting Information


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Accountancy

is the process of communicating financial

information about a business entity to users such as

shareholders and managers. The communication is

generally in the form of financial statements thatshow in money terms the economic resources under

the control of management; the art lies in selecting

the information that is relevant to the user and is

reliable.


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Accountancy

is a branch of mathematical science that is useful in

discovering the causes of success and failure in

business


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The principles of accountancy

are applied to business entities in three divisions of

practical art, named accounting, bookkeeping, and

auditing


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Accounting

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 Standard Council (ASC)


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Accounting

"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 financial character, and interpreting the resultsthereof.

American Institute of Certified Public Accountants(AICPA)


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Accounting

The process of identifying, measuring and

communicating economic information to permit

informed judgments and decisions by users of the

information.

American Accounting Association (AAA)


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AccountingProcess

Financial Information

Assets= Liabilities +Owners Equity

Profit /Loss = Revenue-

Expenses

Communicated

to

DECISION

MAKERS

Internal

Management

External:Investors

Creditors

Customers

Government


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Accounting Process

A. Recording

B. Classifying

C. Summarizing D. Interpreting


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A. Recording

This function deals with the writing on the books or

records of the business transactions or events. This is

technically referred as BOOKKEEPING.

Bookkeeping is the systematic and chronological

recording of business transactions or events.


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Classifying

In the recording and summarizing functions, similar

items are grouped or sorted .

Example: A store dealing in the buying and selling

of coats, shirts, shoes and slippers in various sizes,

colors and etc may have group as sales-coats,

sales-shirts, sales-shoes and sales- slippers.


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Summarizing

The accountant groups summarizes the details ofthe data in accounting records preparatory to thesubmission of reports to the management, this is

normally periodically.

yearly

monthly

quarterly

semestrally


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Interpreting

Due to technical and specialized nature of

accounting, reports and statements submitted by the

accountant require further interpretation for the

guidance of management. In this function, theaccountant usually prepares additional explanatory

reports such as Analysis of Working Capital Report,

Accounting Statement Analysis Report, Statement of

Affairs and the like.


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The Language of the Business

Common Business Questions?

A. How much is the increase in capital as a result ofbusiness operation ?

(Profitability) B. Are there available funds to finance the business

operation?

(Liquidity)

C. Can the business pay its long term obligations toothers?

(Solvency)


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D. Can the business sustain its long term profitabilityand cash flow?

(Stability)

E. How much borrowed capital and owners capitalare invested in the business?

(Capital Structure)

F. Is there excess cash available for investmentopportunities and other uncertainties?

(Financial Flexibility)


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The eyes of the business

Bookkeeping records the initial part of accounting

activities, enable the owner of a business to check

on his financial progress

Adequate accounting records assist the owner to

prepare plans for the future.

Auditing, an advanced part of accounting activity,

verifies the truthfulness of the financial reportsconcerning the business results of operation and

financial conditioning.


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USERS OF ACCOUNTING INFORMATION

INTERNALUSERS

Management

GroupSole Proprietors

BOR

Officers Managers

Supervisors

ExternalUsers

FINANCING GROUPInvestors

Potential InvestorsBank and other financing

institutions

PUBLIC GROUP

Government

Regulatory AgenciesTaxing Authorities

Labor Unions

Employees

Retirees

Economic Planners

Customers


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HO#1 -Intro to Financial Accounting 1

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