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CHAPTER 1 C.

According to the Accounting Standards


Council (ASC), accounting is a service
BASIC FINANCIAL STATEMENTS (FS)
activity. Its function is to provide
- One of the most important documents in quantitative information, primarily
starting a business financial in nature, about economic
entities, that is intended to be useful in
*Stewardship Function – business should be making economic decisions.
transparent on the performance and standing of
the business to its stakeholders. NATURE OF ACCOUNTING

A COMPLETE FS HAS THE FF: *Monetary Transactions= ACCOUNTING


*Non-Monetary Transactions= NOT ACCOUNTING
A. Statement of Financial Position
B. Income Statement Accounting is also an “information system”
C. Statement of Changes in Equity *INFORMATION SYSTEM – set of
D. Statement of Cash Flows interrelated components that work together to
E. Notes achieve a common purpose.
OBJECTIVES OF FS *For businessmen, entrepreneurs, managers,
- Provide information about the financial and stakeholders, accounting is a service
position, financial performance, and activity.
cash flows of a business FUNCTION OF ACCOUNTING IN BUSINESS
- Provide information about a business
assets, liabilities, equity, income and 1. To fulfill the stewardship functions of
expenses the management
2. To help interested users come up with
BUSINESS TRANSACTIONS informed decisions
- Interaction between business and other 3. To support daily operations of the
stakeholders. business
- Have to be identified, measured, and BOOKKEEPING vs ACCOUNTING
documented.
BOOKKEEPING: recording of monetary
DEFINITION OF ACCOUNTING transactions
A. According to American Accounting ACCOUNTING: is broader as it includes the
Association (AAA), accounting is the bookkeeping functions
process of identifying, measuring, and
communicating economic information to FRATER LUCA BARTOLOMES PACIOLI
permit informed judgement and
- Italian monk
decisions by users of the information.
- Mathematician
- Father of Modern Accounting
B. According to the American Institute of
- Lived in Venice
Certified Public Accountants (AICPA),
- Popularized the system of recording
accounting is the art of recording,
business transactions using
classifying, and summarizing in a
memorandum books, journal books, and
significant manner and in terms of
ledger books.
money, transactions and events which
are in part at least of financial character,
and interpreting the results thereof.
CHAPTER 2 SERVICES OF A PRIVATE ACCOUNTANT:

BRANCHES OF ACCOUNTING 1. FINANCIAL ACCOUNTING


- Provides economic and financial
A. PUBLIC ACCOUNTING information for investors, creditors, and
- Offers to perform any activity that will other external users.
result to the issuance of an attest report - Focuses of recording and classifying of
that is in accordance with professional business transactions while applying
standards. generally accepted accounting principles
- Usually works in firms offering its (GAAP).
services to various clients - Information gathered from financial
- Certified Public Accountants (CPAs) accounting helps investors and creditors in
deciding where to place their scarce
SERVICES OF A PUBLIC ACCOUNTANT: resources.
1. EXTERNAL AUDITING
2. COST ACCOUNTING
- Expresses an opinion whether
- Focuses on accumulating manufacturing
statements have been fairly presented or
costs for financial reporting and decision-
not
making purposes
- Issues an independent audit report for
the findings 3. BUDGETING
- Detailed collection and reporting of the
2. TAX PREPARATION AND expenditures and revenues involved ina
PLANNING SERVICE business or company operations.
- Advises and help clients in tax planning
and preparing tax returns 4. ACCOUNTING INFORMATION
- Represents the clients in any tax-related SYSTEM
case filed by the BIR - Collects and processes transaction data

3. MANAGEMENT ADVISORY 5. TAX ACCOUNTING


SERVICES - Deals with the preparation of various tax
- Financial planning and control and the returns and doing tax planning for the
development of accounting and business.
computer systems
- Advices managers on the installation of 6. INTERNAL AUDTING
accounting system, finance, budgeting, - Checks if business operations are
business processes, introduction to new complying to management policies.
- Evaluates the efficiency of business
products, and other business activities.
operations.
B. PRIVATE ACCOUNTING
- Development and interpretation of
accounting information intended to C. GOVERNMENT ACCOUNTING
- System used in government offices to
assist management in operating the
record and report financial transactions
business.
- This reveals how public funds have been
- Deals with the day-to-day accounting
generated and utilized.
needs of a business/company.
D. ACCOUNTING EDUCATION 3. Owners- provide the capital of business.
- Responsible for training future Need accounting information to help them
accountants decide whether they should withdraw or
increase their investments.

CPAs in SPECIALIZED AREAS:


EXTERNAL USERS
1. Forensic Accounting: provide the
detective work needed to investigate and - Who make their decisions based on the
examine evidence of white-collar financial company’s financial information.
crimes such as stealing or fraud.
2. Information Technology Services: seeks 1. Potential and Existing Investors- to help
individuals who can design and implement them decide whether they should invest or
customized software systems. not in the business. Want to know
3. Environmental Accounting: determine potential returns on their investments.
how companies can be both profitable and 2. Creditors and Potential Creditors-
environmentally responsible. assess the credit worthiness and the
4. International Accounting: capability of the business to pay its
knowledgeable in international trade rules obligation including the related interests
and regulations, international mergers, on maturity date.
government regulations, tax laws, and 3. Customers- assess the financial position
overseas transactions. Often travel abroad of their suppliers. To know whether the
and can speak and understand different business will continue to honor its product
languages. warranties.
4. Suppliers- to determine whether the debts
CHAPTER 3 owed to them will be paid when due or
INTERNAL USERS whether the customer has enough fun or
resources to pay the goods to be delivered
- Make decisions on behalf of the or the services to be rendered.
organization. 5. Tax Authorities- to determine the
credibility of the tax returns filed on
1. Managers/Management- they plan, run, behalf of the company. To know if the
and organize a business. business paid the correct amount of taxes.
a. Top-level Management – oversee the 6. Regulatory Bodies- ensure the company’s
performance of the whole disclosure of accounting information is in
organization and set its strategic accordance with the rules and regulations
direction set in order to protect the interest of the
b. Middle-level Management – ensure stakeholders.
that their unit’s performances are 7. Public- to know how the business affects
aligned with the organization’s the economy possible prospects for
objectives. employment and/or for educational and
c. Lower-level Management – oversee research purposes.
the day-to-day operations and direct
employees in the performance of
tasks.
2. Employees/Labor Unions- assess the
company’s profitability and stability and
their consequence on future salary and job
security.
CHAPTER 4 4. Cooperative
- At least 15 members to function
TYPES OF BUSINESSES ACCORDING TO - Board of directors and officers to manage
OWNERSHIP: the business operations.
1. Sole Proprietorship - Members become part of the cooperative
- Owned by only one individual by purchasing shares
- Simplest and least costly form of a. Incorporated
ownership b. Unincorporated
- Risky; assumes unlimited liability and in TYPES OF BUSINESS ACCORDING TO
most cases personal assets are on the line ACTIVITES
if the business cannot pay its creditors.
- Common to small business entities 1. Service Business
- Taxes the owner and not the business - Provide intangible products (skills,
proposals, expertise)
2. Partnership
- Owned by two or more individuals 2. Merchandising Business
- Profit is divided among the partners as per - “buy and sell” business
partner’s agreement with written
agreement called articles of co- 3. Manufacturing Business
partnership. - Materials are bought to create a new
a. General Partnership – unlimited product
liability.
b. Limited Partnership – limited
partners and at least one general
partner.
- Unlimited liability and limited life

3. Corporation
- 5-15 incorporators
- Owners have limited liability and limited
involvement from the operations
- Board of directors take control of the
operation’s activities.
a. Profit Corporation – issues to its
owners or shareholders shares of
stocks which are evidenced by stock
certificate.
b. Non-Profit Corporation – does not
issue shares of stocks
*By-laws- contain provisions for internal
administration of the operation.