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Introduction to Accounting
Accounting
The art of recording, classifying and summarizing in asignificant manner and in terms of money, transaction andevents that are, in part at least, of a financial character, and
interpreting the results thereof . ( American Institute of CertifiedPublic Accountant)
A system that measures business activities, processes giveinformation into reports, and communicates those findings
to decision makers.( Philippine Institute of Certified PublicAccountant)
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Introduction to Accounting
Accounting consists of three basic activities it identifies,records and communicates the economic events of anorganization.
Identifies economic events relevant to business
to record those events in order to provide a history offinancial activities
Records recording consist of keeping a systematic chronological diary
of events.
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Introduction to Accounting
Communicates communicates the collected information to interested users
by means of accounting reports.
These reports are called FINANCIAL STATEMENTS
The data presented in the financial statements are inaggregate. by presenting the data in the aggregate, the
accounting process simplifies a multitude of transactions andmakes a series of activities understandable and meaningful.
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Introduction to Accounting
a vital element in communicating economic events is theaccountants ability to analyze and interpret the reportedinformation.
Often referred to as the Language of business
Means of measuring business activity and processing thisinformation into reports to communicate results to decision
makers
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Introduction to Accounting
ACCOUNTING PROCESS
Accounting process includes the BOOKKEEPING function.
Bookkeeping usually involves only the recording of economicevents. It is just one part of accounting process
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Introduction to Accounting
Bookkeeping
- deals primarily with the systematic method of
recording and classifying financial transaction of thebusiness.
- It is a procedural element of accounting. Books are
set up and prepared in a manner that ensures anorderly recording and classification of business
transactions.
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INTRODUCTION TO ACCOUNTING
- Bookkeeping process is now basically done through
the use of computers and software designed for
such purpose
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USERS OF ACCOUNTING DATA
Accounting is a language of business because it is themedium of communication between a business firm andvarious parties interested in its financial activities.
(1) Internal Users - those individuals inside a company whoplan, organize and run the business
---Managerial accounting is the branch of accounting whichprovides internal reports to help internal users in decision
making
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USERS OF ACCOUNTING DATA
a. Ownersthe owners provides the money/capital that
the business needs to begin operation. Through the
the financial reports, the owner can properly
manage, monitor the business, analyzing whether
or not he can expect reasonable return from his
business.
.
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USERS OF ACCOUNTING DATA
b. Management managers of business use
accounting information to set goals for the
organization, to evaluate the progress made
toward those goals and to make corrective action ifnecessary.
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USERS OF ACCOUNTING DATA
c. Employees the employees that made up the work force ofthe company will be interested in information about thestability and profitability of the company. Through theFinancial Statement, employees will be able to assess theability of the enterprise to provide remuneration, retirementbenefits and other employee opportunities and benefits.
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USERS OF ACCOUNTING DATA
(2) External Users are individuals and organization outside acompany who want financial information about thecompany
a. Potential Investors use financial reports in evaluatingwhat income they can reasonably expect from theirinvestment
b. Creditors - potential money lenders, suppliers and othercreditors. Potential lenders or current creditors determinethe borrowers ability to meet scheduled payment.
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USERS OF ACCOUNTING DATA
c. Customers is interested in information about thecontinuance of an enterprise, especially when they have along-term involvement with, or are dependent on thecompanys offerings either in the form of goods or services.
d. Taxing Authorities local or national government levy taxeson individuals and businesses. The amount of tax isdetermined using the accounting information.
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USERS OF ACCOUNTING DATA
e. Government regulation agencies Most organizations facegovernment regulation. For example, the Securities andExchange Commission (SEC) requires businesses to disclosecertain financial information to the public. The SEC, like
many government agencies, bases its regulatory activity inpart on the accounting information it receives from firms.
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USERS OF ACCOUNTING DATA
f. Non-profit organizations non-profit organizations e.g.churches, most hospitals, government agencies, andcolleges, which operates other than to earn a profit useaccounting information in much the same way that profit
oriented businesses do.
g. Other Users Consumer groups and the general public mayalso be interested in the amount of income that the
businesses earned.
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Financial Statements
The principal accounting reports are the
Financial Statements
(1) Statement of Financial Positiongives information about the financial condition or position
of the business, i.e. the amount and kind of assets andliabilities, and the status of the owners equity
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Financial Statements
(2) Income Statement
gives information about the financial performance
or results of the business during a given period of
time.
(3) Statement of Cash Flows
gives information about financing and investing
activities which is responsible for the changes inthe financial resources of the business i.e. sources
and application of fund during a given period of
time.
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Financial Statements
(4) Statement of Changes in Owners Equity
gives information about increases and decreases in theowners equity due to income earned, losses incurred andadditional investment/withdrawal by the owner.
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The Accounting Profession
The success of the accountants in the accounting professiondepends on how well he understands the accountingprocedures and principles, and how clearly and accuratelyhe can communicate financial information to users of thefinancial statements.
CERTIFIED PUBLIC ACCOUNTANT
is a professional accountant who earns his title through acombination of education, qualifying experience and an
acceptance score in the written national examination givenby the Board of Accountancy.
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CAREER OPPORTUNITIES IN ACCOUNTING
(1) Public AccountingIndividuals in public accounting offer expert service to
general public and collect professional fees for their
work.
a. Auditing
CPAs examines financial statement and provides
opinion as to how accurately the financial
statement presents the companys results and
financial position.
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CAREER OPPORTUNITIES IN ACCOUNTING
b. Taxation
Tax advise and planning, preparing tax returns and
represent clients before governmental agencies
such as BIR.
c. Management
- Installing basic accounting software or highly
complex
- enterprise resource planning system providing
support services for major marketing process,
merger and acquisition.
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CAREER OPPORTUNITIES IN ACCOUNTING
(2) Private Accounting
You may choose to be an employee of a profit
companies, ,and get involved in activities such as
cost accounting, information systems Design and Support,Tax Planning and Preparation.
(3) Government Accounting
You may work for BIR, SEC, DBM, DOF
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REGULATORY BODIES IN ACCOUNTING
(1) Professional Regulation Commission (PRC)
In charge of regulating and licensing the practice ofprofession like accounting, medicine, engineering , nursing
and the like. Included in the functions are the maintenanceand enforcement of professional examination, standardsand ethics.
(2) Board of Accountancy
In charge of regulating the accounting profession by settingup and promulgating a set of professional standards andethics
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REGULATORY BODIES IN ACCOUNTING
(3) Philippine Institute of Certified Public Accountant
The integrated national profession organization of certifiedpublic accountant. It set up and implement rules vital tothe accounting profession
(4) Financial Reporting Standards Council (FRSC)
PICPA established FRSC in order to formalize the accountingstandard-setting function in the Philippines
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REGULATORY BODIES IN ACCOUNTING
FRSC cont..
The councils main function is to established and improveaccounting standards that will be generally accepted in the
Philippines)
The FRSC ( known before as Accounting Standards Council) isthe same body that formulates the Generally Accepted
Accounting Accounting Principles (GAAP) or known as theInternational Financial Reporting Standards (IFRS)
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BASIC PROFESSIONAL VALUES AND ETHICS
Users of accounting information both external and internalrecognize that the usefulness, reliability of accountinginformation is affected by the personal attributes ofcompetence, professional judgment and ethical behavior of
accountants.
In general, the accountant should be able to recognize andunderstand ethical issues to identify and evaluate the
possible consequences of each of the alternatives which willensure relevant, reliable, comparable and consistent financialinformation to serve the best of the users interests as awhole.
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BASIC PROFESSIONAL VALUES AND ETHICS
Ethicsis a term that refers to a code or moral system that provides criteria forevaluating right and wrong.
One of the elements that many believe distinguishes a profession from otheroccupations is the acceptance by its members of a responsibility for the interests
of those it serves.
Because of the important role of accounting in society, accountants mustmaintain high ethical standards.
Facing pressures and influence of numerous groups with conflicting interests, theaccountant should always alert about ethical behavior. The Code of Ethicspromulgated by the Board of Accountancy (BOA) provides guidelines forpracticing accountants.
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BASIC PROFESSIONAL VALUES AND ETHICS
Integrity. A professional accountant should bestraightforward and honest in performing professionalservices.
Objectivity. A professional accountant should be fair andshould not allow prejudice or bias, conflict of interest orinfluence of others to override objectivity.
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BASIC PROFESSIONAL VALUES AND ETHICS
Professional Competence and Due Care. A professionalaccountant should perform professional services with duecare, competence and diligence and has a continuing duty tomaintain professional knowledge and skill at a level required
to ensure that a client or employer receives the advantage ofcompetent professional service based on up to datedevelopments in practice, legislation and techniques.
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BASIC PROFESSIONAL VALUES AND ETHICS
Confidentiality.A professional accountant should respectthe confidentiality of information acquired during the courseof performing professional services and should not use ordisclose any such information without proper and specific
authority or unless there is a legal or professional right orduty to disclose.
Professional Behavior. A professional accountant should
act in a manner consistent with the good reputation of theprofession and refrain from any conduct which might bringdiscredit to the profession.
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FORMS OF BUSINESS ORGANIZATION AS TO
OWNERSHIP AND ACTIVITY
(1) PROPRIETORSHIP
A business owned by one person The owner is often the Manager/Operator of the business
Usually only a relatively small amount of money (capital)is necessary to start in business. The owner receives profit, suffer any losses and is
personally liable for its debts.
There is no legal distinction between, but the accountingrecords of the business activities are kept separate fromthe personal records and activities of the owner.
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FORMS OF BUSINESS ORGANIZATION AS TO
OWNERSHIP AND ACTIVITY
(2) PARTNERSHIP
A business owned by 2 or more persons associated aspartners
Must have a Partnership agreement ( initial investment,duties of each partner, division of net income, settlementto be made upon the death or withdrawal of a partner).
Often used by retail and service type of business includingprofessional practices.
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FORMS OF BUSINESS ORGANIZATION AS TO
OWNERSHIP AND ACTIVITY
(3) CORPORATION
A business organized as a separate legal entity undercorporation law and having ownership divided into
transferrable shares of stocks. Stockholders holder of shares
- enjoying limited liability
- may transfer all or part of their
share to other investors Has unlimited life
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Classification of Business according to
Operation or Activity
(1) Service Concern Businesses engage in the rendering ofservices to others for a fee, like the beauty parlor, law firm,dental clinic and medical clinic.
(2) Merchandising or Trading Concern Businesses that are intothe buying and selling of goods or commodities likegrocery store, drug store and department store.
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Classification of Business according to
Operation or Activity
(3) Manufacturing Concern Businesses that are engaged in theprocessing of products or the conversion of raw materialsinto finished goods that are then sold like the furniturefactory and shoe factory.