INTRO TO FINANCIAL ACCOUNTING 1st Lecture

Janice Rhea P. Cabacungan

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

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 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

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

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

Our focused is on Accounting and Bookkeeping

by: Janice Rhea P. Cabacungan

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)

by: Janice Rhea P. Cabacungan

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 results thereof. American Institute of Certified Public Accountants (AICPA)

by: Janice Rhea P. Cabacungan

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

Bookkeeping

Is the recording (recordkeeping ) function of the accounting process; a bookkeeper enters accounting information in the companys books.

by: Janice Rhea P. Cabacungan

Accounting Process

DECISION MAKERS

Communicat ed to Financial Information Assets= Liabilities + Owners Equity

Profit /Loss = RevenueExpenses

Internal Managemen t

External: Investors Creditors Customers Governmen t

by: Janice Rhea P. Cabacungan

Accounting Process

A. Recording B. Classifying C. Summarizing D. Interpreting

by: Janice Rhea P. Cabacungan

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

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. Or simply: SALES

by: Janice Rhea P. Cabacungan

Summarizing

The accountant groups summarizes the details of the data in accounting records preparatory to the submission of reports to the management, this is normally periodically. yearly monthly quarterly semestrally
by: Janice Rhea P. Cabacungan

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, the accountant usually prepares additional explanatory reports. (Notes to financial statement)

by: Janice Rhea P. Cabacungan

The Language of the Business

Common Business Questions? A. How much is the increase in capital as a result of business operation ? (Profitability) B. Are there available funds to finance the business operation? (Liquidity) C. Can the business pay its long term obligations to others? (Solvency)
by: Janice Rhea P. Cabacungan

D. Can the business sustain its long term profitability and cash flow? (Stability) E. How much borrowed capital and owners capital are invested in the business? (Capital Structure) F. Is there excess cash available for investment opportunities and other uncertainties? (Financial Flexibility)
by: Janice Rhea P. Cabacungan

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 reports concerning the business results of operation and financial conditioning.
by: Janice Rhea P. Cabacungan

Users and Types of Financial Reports

Users: Internal and External Users Types: Internal and External Financial Reports

by: Janice Rhea P. Cabacungan

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 accounting information that helps management make operating decisions directed toward meeting the business goals. Internal financial reports are not governed by the generally accepted accounting principles. The area of accounting that is concerned with internal reporting is referred to as management by: Janice Rhea P. Cabacungan accounting.

Examples: Variance analysis of cost of production, differential cost report of capital budgeting.

by: Janice Rhea P. Cabacungan

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 of these 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

Examples: Balance sheet, income statement and cash flows statement.

by: Janice Rhea P. Cabacungan

USERS OF ACCOUNTING INFORMATION

INTERNAL USERS Management Group Sole Proprietors BOR Officers Managers Supervisors External Users
FINANCING GROUP Investors Potential Investors Bank and other financing institutions
PUBLIC GROUP Government Regulatory Agencies Taxing Authorities Labor Unions Employees Retirees Economic Planners Customers

by: Janice Rhea P. Cabacungan

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 of memory 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

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 by: and the financialJanice Rhea P. Cabacungan business. condition of the