FUNDAMENTALS OF ACCOUNTING

INTRODUCTION TO 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.
- is an information system that measures, processes and communicates financial information abount an economic entity

- is the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information.
- 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.

THE ACCOUNTING PROCESS

1. Analyzing

- examine methodically and in detail the constitution or structure of (something, especially information), typically for purposes of explanation and interpretation.
 

2. Recording

- a thing constituting a piece of evidence about the past, especially an account of an act or occurrence kept in writing or some other permanent form.
 

3. Classifying

- designate as officially secret or to which only authorized people may have access.
 

4. Summarizing

- give a brief statement of the main points of the financial statement.
 

5. Reporting

- give a spoken or written account of something that one has observed, heard, done, or investigated.
 

6. Interpreting

-  is a clarifying statement promulgated (issued) by an accounting standards group.

THE ACCOUNTING INFORMATION SYSTEM

1. Business Activities
2. Documents or Supporting Accounting papers
3. Analyzing, Recording, Classifying, Summarizing
4. Reporting with the Financial Statements
5. Decisions by Users of Financial Statements

BASIC ACCOUNTING PRINCIPLES

Objectivity Principle

- states that all business transactions that will be entered in the accounting records must be duly supported by verifiable evidence

Historical Cost

- means that all properties and services acquired by the business must recorded at their original acquisition cost

Accrual Principle

- states that income should be recognized at the time it is earned such as when goods are delivered or when service have been rendered

Adequate Disclosure

- states that all materials facts that will significantly affect the financial statements must be indicated

Materiality

- means that financial reporting is only concerned with information significant enough to affect decisions

Consistency

- means that approaches used in reporting must be uniformly employed from period to period to allow comparison of results between time periods.

THE DIFFERENT BRANCHES OF ACCOUNTING

1. Financial Accounting

- deals with theoretical framework covering accounting principles and concepts relative to measurement and valuation as applied assets, liabilities, stockholder's equity, retained earnings, revenue, and expense accounts in relation to the preparation and presentation of financial statement

2. Management Accounting

- profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of organization's strategy.

3. Government Accounting

- encompasses the process of analyzing, classifying, summarizing and communicating all transactions involving the receipt and disposition of goverment funds, property, and interpreting results thereof.

4. Auditing

- the examination and review of accounting reports in order to ascertain their fairness, proprietary and reliability.

5. Tax Accounting

- tax services provided by accountants include the preparation of monthly valur added tax, percentage tax, expanded withholding tax return, quarterly and annual tax returns, and any other taxes applicable to business.

6. Cost Accounting

- includes the collection, determination, allocation, assessment, interpretation, and control of cost data, particularly the cost of production in a manufacturing concern.

7. Accounting Research

- involves conducting a careful and diligent study aimed at discovering and interpreting facts, revising accepted theories in the light of new facts, or the practical application of such new and revised theories for the generation of a new knowledge.

8. Accounting Education

- involves planned grading and formal teaching in an educational institution.