Accounting

Keeping systematic record of business transactions

Recording transactions does not only involve entering the transactions in accounting books, the records should be systematic enough to enable easy understanding of readers. No matter how comprehensive the records are, if they are not produced systematically, then they provide little to no value. (FoA)

Journals

Records involve the input of information into accounting books called _____________

Art

Refers to a way of performing something, it entails creativity and skills to help us attain some objectives. (NoA)

True

Reports generated using management accounting are for internal users only.

Commission on Audit

Responsible for keeping of the government's general accounts.

Bureau of Internal Revenue

Responsible for the assessment and collection of taxes from its constituents.

Bureau of Treasury

Responsible for the safekeeping of national funds.

Bureau of Treasury

Responsible in maintaining accounts of financial transactions of all government agencies

Financial position (balance sheet)

Second type of financial statement

Classifying

Sorting or grouping of similar transactions into specific account titles

General Public

The financial statements of the economy can affect this group's decision to start a business given the current economic conditions, to stay or leave for a higher paying job, to determine the best use of resources, and to determine the optimal level of savings and consumption.

Ledgers

The journalised transactions and events are classified in ______________

Income, revenues, expenses

The three things the government particularly looks at

Management

Their goal is to produce income

Government

Their main purpose is to regulate the businesses within an economy. Their role is to scrutinise businesses, especially large ones. They see if businesses are not trying to deceive other users of financial statements by misinterpreting the amount of earnings or manipulating portions of the company's financial statements.

Audited financial statements

These are financial statements that underwent the process of auditing.

Journal entries

These are recorded in the journal

General Purpose financial statements

These financial statements are intended to provide information to those who do not have the capability to request directly from the company. (Customers, creditors, potential investors, government agencies). These can possibility answer the inquiries of a wide range of interested users.

Special purpose financial statements

These financial statements are usually produced based on the requests of parties which have the capability to ask for accounting information directly from the company. (Board of directors, managers, employees, and the stockholders or owners/existing investors)

Employees

They are concerned with the company's financial statements because if the company is profitable, they will timely and adequately receive their compensation and additional benefits. It also impacts their morale and performance.

Internal users

They are part of the company.

Commission on Audit

They are tasked to keep and update the accounting books of the whole organisation. Moreover, they disseminate accounting rules and regulations to be used by all agencies.

Owners or Stockholders

They are the existing investors of the company. They want to know if their investments will yield acceptable returns.

Creditors

They are the possible sources of additional funds. They lend their resources to the businesses in exchange for a fee. (Usually in the form of interest) They earn a fixed amount based on the resources that they lend.

Managers

They have authority to make judgements for the company.

Taxing authorities (government)

They need the income statement of the company in order to determine the necessary taxes to be paid

Potential investors

They put their resources (usually money) in a business hoping to earn a decent amount of return. They are people or entities who give their resources to have a claim (equity) in the business. They enjoy no limit on the amount of profits they can receive.

Department of Budget and Management

They shall be responsible for the efficient and sound utilisation of government funds and revenues to effectively achieve the country's development objectives

Cash flows (statement of cash)

Third type of financial statement

Mesopotamia

This is where the early development of accounting can be traced back to.

Meeting Legal Requirements

This procedure aims to protect the public by providing them with the necessary information to make sound decisions.

Analysing

This step in the accounting processes must determine the effect of economic events/transactions on the business. These events/transactions are generally supported by documentary evidences/proofs.

Mesopotamia > Rome > double-entry bookkeeping in Italy > Scotland > Formation of accounting standards like PAS and PFRS

Timeline of the history of accounting

False

True or False: Creditors enjoy no limit on the amount of profits they can receive.

True

True or False: Having high profits is not much of an upside if the company still has substantial debt.

False

True or False: Management reports need to follow accounting standards such as PFRS and PAS

False

True or False: There is a limit on the amount of profit an investor can receive

True

True or False: When a company becomes insolvent, creditors are paid first before investors.

True

True or false: a set of financial statements will only be useful to users after it has gone through the process of auditing

True

True or false: an audit of the financial statements improves their credibility.

General purpose financial statements, Special Purpose financial statements

Two types of financial statements typically produced by companies

Academe

Use financial statements as a blueprint to help understand the field of accountancy. Alternatively, researchers study financial statements to identify particular trends. They may also aim to improve the accountancy practice by searching for loopholes and improvements.

Management accounting

Used in deciding how the business should act going forward. It provides value to the business since it assists the company in selecting only those activities that deliver benefits more than the related costs.

External Users and internal users

Users of financial information

Financial, management, government, auditing, tax, cost, accounting education, accounting research

What are the 8 branches of accounting

Section 109 of Presidential Decree 1445

Where is government accounting defined

Recording

Writing the effects of the events/transactions that have been analysed. May be done manually or via data-processing machines.

Income

A good indicator of the profitability of a company.

Accounting

A system that identifies, records, and communicates relevant economic events to interested users.

Auditor's opinion

Audited financial statements are accompanied by this. It will be the bases whether or not the financial statements are prepared truthfully and without material errors.

Financial accounting

Branch of accounting primarily handling the recording of financial transactions of a business. The financial transactions are later summarised into standard accounting reports, more popularly known as financial statements.

Management

Composed of employees within the company that can implement decisions affecting the company's operations. They are the brains of the company and through financial information, they identify certain problems and respond to them. They also identify strong points in the business—thus they could allocate more resources to these profitable points.

Process

Composed of multiple steps that lead to a common end goal (NoA)

Interpreting

Directs attention to the significance of various matters and relationships, involves the computation of relationship of figures from the financial reports and schedules.

New Government Accounting System

Enhances responsibility accounting in all agencies.

Chartered Institute of Management Accounting

Even though management reports do not follow the requirements imposed by accounting standards like the PFRS and PAS, they are still expected to follow the code of ethics imposed by:

Documentary evidences/proofs

Events or transactions in accounting are generally supported by this

Customers, creditors, potential investors, government, academe, general public

External users

Friar Luca Pacioli

Father of modern accounting

Notes to the financial statement

Fifth type of financial statement

Financial statements

Final product or main goal of accounting. Contains information and all records of a company.

General Public

Financial statements give this group hints about the condition of the economy. If the economy is not doing well, they cut on their spending and increase their savings. If the economy is prosperous, they spend. By analysing the financial statements of companies, they can properly respond to the various economic cycles.

Analysing

First phase of accounting process.

Results of operation (income statement)

First type of financial statement

Changes in equity (statement of changes in equity)

Fourth type of financial statement

Keeping systematic record of business transactions, protecting properties of the business, communicating results to various parties in or connection with the business, meeting legal requirements

Functions of Accounting

General Appropriations Act

Government accounting starts after this. It is the enacted budget of the country for the upcoming year. It has the force of law and states how much an agency can spend for the year.

Summarising

Grouping the various transactions referred to in the classifying process. Accounts are grouped into assets, liabilities, owner's equity/investment, revenue, gains, losses, and expenses.

Management, employees, owners and stockholders.

Internal users

Reporting

Involves the preparation of financial statements

Communicating results to various parties in or connected with the business

Is essential for all concerned parties to enable them to make well-informed decisions. Not only used by external users but also internal users.

Bureau of Treasury

It serves like a bank where the funds are kept

Riskiness of lending, profitability of the company, company's amount of borrowings

Main factors considered by creditors before lending to a company

Customers

Main source of income for businesses. They are the people or entities that acquire goods and services for a fee. They analyse financial information to see if it would be profitable to transact with a business.

Forward-looking, historical

Management accounting is ______________ while financial accounting is _______________

Bureau of Internal Revenue

Meaning of BIR

Securities and Exchange Commission

Meaning of SEC

False - Financial Accounting

Modified true or false: Management accounting summarises financial information gathered within a specified period.

False - Specific Purpose

Modified true or false: The financial statements used by management accountants are general purpose

Double-entry bookkeeping

Most important event in accounting history

False

Owners or stockholders do not care if their invested business is acceptable, they only care if it is profitable.

Philippine Financial Reporting Standards and Philippine Accounting Standards

Philippine accounting standards which supply guidelines as to how companies should prepare their financial statements. These allow users to compare the results of operations of different companies regardless of size and nature.

Department of Budget and Management (DBM)

Prepares the General Appropriations Act and passes it to the Bureau of Treasury. They shall be responsible for the formulation and implementation of the national budget.

Investors, creditors, shareholders/stockholders, government agencies, auditors, other interested outside parties

Primary Users of General Purpose Financial Statements

Top management, department managers, other internal parties.

Primary users of special purpose financial statements

Management accounting

A branch of accounting which focuses on the preparation of financial reports used by managers in their day to day decision making.

Regulating businesses

A crucial role to prevent financial collapse

Steps in the accounting process

Analysing, Recording, Classifying, Summarising, Reporting, Interpreting

Accounting deals with financial information and transactions

Accounting deals only with quantifiable financial transactions. These are the only events identified by the accountants recorded in the books, and communicated to different parties. (NoA)

Accounting is an art

Accounting is a combination of techniques and its application requires applied skill and expertise. (NoA)

Accounting is means and not an end

Accounting is a tool to achieve specific objectives but is not the objective itself. (NoA)

Accounting is an information system

Accounting is recognized and characterized as a storehouse of information. As a service function, it collects processes and communicates financial information of any entity. (NoA)

Accounting is a process

Accounting performs ARCSRI with the end goal of providing information to internal and external parties. (NoA)

Protecting properties of the business

Accounting records serve as the evidence that properties of a business do exist, or how much of a particular resource the company has. Moreover, the accounting system helps in preventing employee frauds and misappropriation of company resources.

Bureau of Treasury

Although it's main role is the safekeeping of funds, they are also responsible for the management and control of the disbursements of such funds.

Government accounting

An accounting system which encompasses the process of analysing, recording, classifying, summarising, and communicating all transactions involving the receipt and disposition of government fund and property and interpreting the result thereof.

Auditing

An unbiased examination and evaluation of the financial statements of an organisation.

Process, art, financial information and transactions, means and not an end, information system

Basic features of accounting/nature of accounting

Summa de Arithmetica, Geometria, Proportioni et Proportionalita

Book of Friar Luca Pacioli

Management reports

Can be done whenever requested or required.