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Intro to Financial Accounting

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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

    by: Janice Rhea P. Cabacungan

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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 offinancial statements that show 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.

    by: Janice Rhea P. Cabacungan

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    Accountancy

    is a branch of mathematical science that is

    useful in discovering the causes of success

    and failure in business

    by: Janice Rhea P. Cabacungan

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    Application of the principles of

    accountancy

    are applied to business entities in three

    divisions of practical art, named accounting,

    bookkeeping, and auditing

    by: Janice Rhea P. Cabacungan

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    Our focused is on Accounting

    and Bookkeeping

    by: Janice Rhea P. Cabacungan

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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 economicdecision.

    Accounting Standard Council (ASC)

    by: Janice Rhea P. Cabacungan

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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, andinterpreting the results thereof.

    American Institute of Certified PublicAccountants (AICPA)

    by: Janice Rhea P. Cabacungan

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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)

    by: Janice Rhea P. Cabacungan

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    Bookkeeping

    Is the recording (recordkeeping ) function of

    the accounting process; a bookkeeper enters

    accounting information in the companys

    books.

    by: Janice Rhea P. Cabacungan

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    Accounting

    Process

    Financial Information

    Assets= Liabilities +

    Owners Equity

    Profit /Loss = Revenue-

    Expenses

    Communicat

    ed to

    DECISION

    MAKERS

    InternalManagemen

    t

    External:

    InvestorsCreditors

    Customers

    Governmen

    t

    by: Janice Rhea P. Cabacungan

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    Accounting Process

    A. Recording

    B. Classifying

    C. Summarizing

    D. Interpreting

    by: Janice Rhea P. Cabacungan

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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.

    by: Janice Rhea P. Cabacungan

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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 invarious sizes, colors and etc may have group

    as sales-coats, sales-shirts, sales-shoes and

    sales- slippers.

    Or simply: SALES

    by: Janice Rhea P. Cabacungan

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    Summarizing

    The accountant groups summarizes thedetails of the data in accounting recordspreparatory to the submission of reports to themanagement, this is normally periodically.

    yearly

    monthly

    quarterly

    semestrally

    by: Janice Rhea P. Cabacungan

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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 thisfunction, the accountant usually prepares

    additional explanatory reports. (Notes to

    financial statement)

    by: Janice Rhea P. Cabacungan

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    The Language of theBusiness Common Business Questions?

    A. How much is the increase in capital as a resultof business operation ?

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

    business operation?

    (Liquidity)

    C. Can the business pay its long term obligationsto others?

    (Solvency)

    by: Janice Rhea P. Cabacungan

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    D. Can the business sustain its long termprofitability and cash flow?

    (Stability)

    E. How much borrowed capital and ownerscapital are invested in the business?

    (Capital Structure)

    F. Is there excess cash available forinvestment opportunities and otheruncertainties?

    (Financial Flexibility)

    by: Janice Rhea P. Cabacungan

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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 ownerto prepare plans for the future.

    Auditing, an advanced part of accounting

    activity, verifies the truthfulness of the financialreports concerning the business results of

    operation and financial conditioning.

    by: Janice Rhea P. Cabacungan

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    Users and Types of Financial

    Reports

    Users:

    Internal and External Users

    Types:

    Internal and External Financial Reports

    by: Janice Rhea P. Cabacungan

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    Internal Financial Reports

    Are usually prepared exclusively for the use of

    management to effectively and efficiently operate

    and control the activities of the business.

    These reports contain a more detailed accountinginformation that helps management make

    operating decisions directed toward meeting the

    business goals. Internal financial reports are not

    governed by the generally accepted accountingprinciples.

    The area of accounting that is concerned with

    internal reporting is referred to as management

    accounting. by: Janice Rhea P. Cabacungan

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    Examples:

    Variance analysis of cost of production,

    differential cost report of capital budgeting.

    by: Janice Rhea P. Cabacungan

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    External Financial Reports

    Are usually prepared for those who have no

    direct access to management of the business,

    such as the government regulatory agencies,

    creditors , labor unions, etc. The preparation ofthese reports is governed by the generally

    accepted accounting principles.

    The area of accounting that is concerned with

    the preparation and presentation of external

    reports is referred to as Financial accounting.

    by: Janice Rhea P. Cabacungan

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    Examples:

    Balance sheet, income statement and cash

    flows statement.

    by: Janice Rhea P. Cabacungan

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    USERS OF ACCOUNTING

    INFORMATION

    INTERNALUSERS

    ManagementGroup

    Sole ProprietorsBOR

    OfficersManagers

    Supervisors

    ExternalUsers

    FINANCING GROUPInvestors

    Potential Investors

    Bank and other financinginstitutions

    PUBLIC GROUP

    Government

    Regulatory Agencies

    Taxing Authorities

    Labor Unions

    Employees

    Retirees

    Economic Planners

    Customers

    by: Janice Rhea P. Cabacungan

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    Advantages of Accounting

    1. Aid to management it provides financial

    information to the management to do its daily

    work properly and efficiently.

    2. Reference it removes the limitation ofmemory by recording business transactions

    chronologically , serves as future reference,

    facilitates comparative study of business

    financial status, and helps in assessing the

    value of the business at the time of sale.

    by: Janice Rhea P. Cabacungan

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    Advantages of Accounting

    3.Basis for tax assessment. It helps in

    assessing the tax liability of the organization

    regarding income taxes, sales taxes and other

    business taxes. 4. Evidential matter. It serves as a good

    evidence in the court of law or legal

    investigation.

    5. Tool to evaluate management performance.

    It helps businessman know the true status of

    the business in terms of the results obtained

    and the financial condition of the business.by: Janice Rhea P. Cabacungan

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