2. Introduction to Accounting
1. Definition of Accounting
2. Purpose of Accounting
3. Users of Financial Statements
4. Types / branches of Accounting
5. Areas of Practice
6. Types and forms of Business
3. 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 decisions, and in making
reasoned choices among alternative choice of action.
(ASC)
Accounting is commonly known as the "language of business". It is a
means through which information about a business entity is
communicated. Through the financial statements – the end-product
reports in accounting – it delivers information to different users to help
them in making decisions.
4. 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.“
(AICPA)
"Accounting is the process of identifying, measuring and
communicating economic information to permit informed judgment
and decision by users of the information.“
(AAA)
5. 1. Accounting is considered an art
-Accounting is considered an art because it requires the use of
skills and creative judgment.
2. Accounting involves interconnected "phases“
-Recording, Classifying, and summarizing into reports which we
call financial statements.
3. Concerned with transactions and events having financial character
-payment of salaries, acquisition of an office building, sale of
goods, etc.
4. Business transactions are expressed in terms of money
-P 20,000 salaries expense
5. Interpreting the results
-The amounts, figures, and other data in the financial reports
have meanings that are useful to the users.
6. Purpose of Accounting
To provide information to different users. The users utilize the
information in making economic decisions. (1)
7. Accounting Information
1. Results of Operations.
Income Less Expenses
2. Financial Position
Assets (Resources) and Liability (amount owed to third parties)
Equity (amount owned by owners)
3. Solvency and liquidity
Solvency - to pay obligations when they become due.
Liquidity - ability to meet short-term obligations.
8. Accounting Information
4. Cash Flows
Inflows less outflows (Operating, Financing, Investing)
5. Other Information
The financial statements provide qualitative, quantitative, and
financial information.
9. Users of Financial Information
1. Owners and investors
2. Management
3. Lenders
4. Trade creditors or suppliers
5. Government
6. Employees
7. Customers
8. General Public
10. Branches of Accounting
1. Financial Accounting
2. Managerial Accounting
3. Cost Accounting
4. Auditing
5. Tax Accounting
6. Accounting Information System
7. Fiduciary Accounting
8. Forensic Accounting
11. Areas of Accounting Practice
1. Public Accounting
Accountants in public practice are working in accounting firms or
individually to provide audit and attestation, tax planning and
preparation, and advisory services to their clients.
2. Private Accounting
Accountants in private accounting provide a staff function which
supports the company by performing accounting-related tasks.
3. Government Accounting
Accountants employed in government including Auditors
4. Accounting Education
This area is made up of accountants who are into teaching, research, and training
& development.
12. Types of Business
1. Service Business - A service type business provides intangible
products (products with no physical form).
2. Merchandising Business - This type of business buys products at
wholesale price and sells the same at retail price. They are known
as "buy and sell" or "reseller" businesses.
3. Manufacturing Business - a manufacturing business is one which
buys products with the intention of using them as raw materials to
make a new product. A manufacturing business combines raw
materials, labor, and overhead costs in its production process.
13. Forms of Business
1. Sole Proprietorship - A sole proprietorship is a business owned by
only one person.
2. Partnership - A partnership is owned by two or more persons who
contribute capital to conduct business.
3. Corporation - A corporation is a business organization that has a
separate legal personality from its owners. Ownership in a stock
corporation is represented by shares of stock.
4. Cooperative - A cooperative is a business organization owned by a
group of individuals and is operated for their mutual benefit.