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    ACT103 - Topic 1

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    Juan Frivaldo
    This document discusses the importance and uses of accounting. It defines accounting and outlines its objectives and nature. It describes the phases and branches of accounting, including public, private, government, and education accounting. It discusses the need for accounting information and who the primary and other users are. It also outlines key accounting principles like cost, fair value, and revenue/expense recognition. It defines generally accepted accounting principles and accounting concepts like accrual basis, going concern, accounting entity, time period, and monetary unit. Finally, it defines the basic accounting elements of assets, liabilities, equity, income, and expenses.

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    ACT103 - Topic 1

    Uploaded by

    Juan Frivaldo
    48 views3 pages
    This document discusses the importance and uses of accounting. It defines accounting and outlines its objectives and nature. It describes the phases and branches of accounting, including public, private, government, and education accounting. It discusses the need for accounting information and who the primary and other users are. It also outlines key accounting principles like cost, fair value, and revenue/expense recognition. It defines generally accepted accounting principles and accounting concepts like accrual basis, going concern, accounting entity, time period, and monetary unit. Finally, it defines the basic accounting elements of assets, liabilities, equity, income, and expenses.

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    This document discusses the importance and uses of accounting. It defines accounting and outlines its objectives and nature. It describes the phases and branches of accounting, including public, private, government, and education accounting. It discusses the need for accounting information and who the primary and other users are. It also outlines key accounting principles like cost, fair value, and revenue/expense recognition. It defines generally accepted accounting principles and accounting concepts like accrual basis, going concern, accounting entity, time period, and monetary unit. Finally, it defines the basic accounting elements of assets, liabilities, equity, income, and expenses.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    48 views3 pages

    ACT103 - Topic 1

    Uploaded by

    Juan Frivaldo
    This document discusses the importance and uses of accounting. It defines accounting and outlines its objectives and nature. It describes the phases and branches of accounting, including public, private, government, and education accounting. It discusses the need for accounting information and who the primary and other users are. It also outlines key accounting principles like cost, fair value, and revenue/expense recognition. It defines generally accepted accounting principles and accounting concepts like accrual basis, going concern, accounting entity, time period, and monetary unit. Finally, it defines the basic accounting elements of assets, liabilities, equity, income, and expenses.

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    of 3

    Topic 1: ACCOUNTING – ITS IMPORTANCE &

    USES, PRINCIPLES, & ELEMENTS OF


    FINANCIAL STATEMENTS

    1.1 Importance of Accounting

    Definition of Accounting:

    “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 Standards Council

    “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.”
    - American Institute of Certified Public Accountants

    “Accounting is the process of identifying, measuring and communicating economic


    information to permit informed judgement and decision by users of the
    information.”
    - American Accounting Association

    Objective of Accounting:

    - To provide quantitative financial information about a business that is useful to


    statement users particularly owners and creditors in making economic decisions.

    Nature of Accounting:

    a. A discipline
    b. A service activity
    c. An art and science
    d. The language of business
    e. The eyes of the business

    Phases of Accounting:

    a. Recording
    b. Classifying
    c. Summarizing
    d. Interpreting
    Branches of Accounting:

    a. Public accounting – refers to practice in public accountancy

    1. External auditing – critical examination of financial statements by an


    independent CPA to express an opinion regarding the fairness of the contents
    of the financial statements.
    2. Tax services – preparation of the client’s income tax returns.
    3. Managerial advisory services – assistance to the management regarding
    accounting, finance, budgeting, business policies, and organization procedures,
    systems, product costs, distribution and other business activities.

    b. Private accounting – refers to practice in commerce and industry

    1. General accounting – recording transactions and preparing financial reports for


    the use of interested parties.
    2. Internal auditing – accounting system and internal control to determine the
    operational efficiency of the company regarding protection of company assets,
    accuracy and reliability of the accounting data, and adherence to prescribed
    managerial policies.
    3. Tax accounting – preparation of various tax returns and tax planning
    necessary to minimize the impact of taxes on the company.
    4. Cost accounting – inventory costs and/ or product costs of the manufactured
    goods and assisting in product pricing activities of the company.
    5. Budgeting – efficient management of cash by anticipating or predicting
    monetary objectives in the future period.
    6. Accounting systems design – evaluation of the company’s control system to
    find out any area of improvement.
    7. Not-for-profit accounting – special accounting for charitable organizations,
    philanthropic foundations, relegation groups, governmental agencies,
    hospitals, schools and cooperatives.
    8. International accounting – transactions and special problems of
    multinational business organizations in their dealings in the international trade.
    9. Social accounting – measurement of social costs and benefits to identify how
    well community organization is achieving its aims and values, and keeping track
    of the impact.

    c. Government accounting – focuses on the proper custody of government funds


    and their purposes.

    d. Accounting education – involves teaching accounting, taxation, and some business


    subjects.

    1.2 Need for Accounting Information

    Users of Accounting Information:


    1. Primary users
    a. Owners
    b. Prospective investors
    c. Lenders and Creditors
    2. Other users
    a. Management
    b. Employees
    c. Customers
    d. Government
    e. Public
    1.3 Basic Accounting Principles and Concepts
    Accounting Principles – represent the rules, procedures, practice and standards
    followed in the preparation and presentation of financial statements.
    a. Cost Principle – requires that business entities should account for and report
    many assets and liabilities on the basis of acquisition price.
    b. Fair Value Principle – is market-based and is currently increasing because it
    provides more relevant information regarding the expected future cash flows
    related to the asset or liability.
    c. Revenue Recognition Principle – means that revenues are recognized when
    earned or has been substantially completed, generally at the point of sale.
    d. Expense Recognition Principle – means that expenses are recognized when
    income is earned. It is applied in three ways:
    1. Associating cause and effect
    2. Systematic and rational allocation
    3. Immediate recognition

    Generally Accepted Accounting Principles (GAAP) – are used uniformly by accountants


    in measuring, recording, and reporting financial activities of an entity. The GAAPs used
    in the Philippines as adopted by the Financial Reporting Standards Council are:
    a. Philippine Accounting Standards
    b. Philippine Financial Reporting Standards

    Accounting Concepts/ Assumptions/ Postulates – are important ideas which


    accountants assume in recording business transactions.
    a. Accrual Basis – means that income is recognized when earned, regardless of
    when received, and expenses is recognized when incurred, regardless of when
    paid.
    b. Going Concern – means that the accounting entity is viewed as continuing in
    operation indefinitely in the absence of evidence to the contrary.
    c. Accounting Entity – means that the entity is separate from the owners,
    managers and employees who constitute the entity.
    d. Time Period – means that the life of the enterprise is divided into several
    periods, normally at equal lengths of time.
    e. Monetary Unit – assumes that money is the common denominator in measuring
    economic activity.

    The Conceptual Framework for Financial Reporting mentions only one assumption, that
    is Going Concern.

    1.4 Accounting Elements

    Assets – are present economic resources controlled by the entity as a result of past
    events.

    Liabilities – are present obligations of the entity to transfer an economic resource as a


    result of past events.

    Equity – refers to residual interest in the assets of the entity after deducting all its
    liabilities.

    Income – are increases in assets, or decreases in liabilities, that result in increases in


    equity, other than those relating to contributions from holders of equity claims.

    Expenses – are decreases in assets, or increases in liabilities, that result in decreases in


    equity, other than those

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