Accounting

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accounting

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language of business

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art of recording, classifying, and summarizing, in a significant manner in terms of money, transactions and events, which are, in part of financial character and interpreting the results thereof.

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definition of accounting according to american institute of CPA

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accounting is an art

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you need skills to do it, needs training

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accounting is a science

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follows a systematic approach

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recording

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listing down

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classifying

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grouping of transactions

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summarizing

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reporting of transactions

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accounting should be expressed in money

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measurable

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accounting reports should be able to make

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decisions

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accounting is not the end

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but the means

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accounting used as a tool to reach

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objective

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accounting is the language of business

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means to communicate

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function of accounting

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to give information and create decisions

keep systematic record, protect properties, communicate results, meet legal requirements

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mesopotamia

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where informal accounting started

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roman empire

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used to collect taxes and build empire

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friar luca pacioli

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father of modern accounting, double -entry bookkeeping

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summa arithmetica geometria, proportioni et proportionalita

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book of friar luca pacioli

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queen victoria

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issued a royal charter for accountants

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charted accountants

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institute of accountants in glassgow

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financial accounting

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general purpose accounting based on GAAP

based on historical data, internal and external use

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GAAP

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General Accepted Accounting Principles

guiding principles in accounting

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management accounting

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specific purpose accounting; does not necessarily need to follow GAAP; internal; made for projections; forward-looking

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cost accounting

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supports both financial and management accounting

costing and manufacturing costs

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external auditing

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gives opinions on the fair presentation of a business financial statement; should be independent

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internal auditing

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checks operational process; effectiveness and internal controls

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auditing

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entry for most accountants; provides the auditor's report

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tax accounting

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follows pronouncements of the national internal revenue code; experts on preparing the tax returns

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government accounting

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starts after the declaration of the general appropriations act

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General appropriation act

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budget of the government

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COA

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focused on government agency

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NGAS

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New Government Accounting System; Accountability

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Accounting education

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trains learners to become accountants

accountants in the academe; continuing professional development unit providers

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accounting research

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deals with the creation of new knowledge (e.g. new standards)

studies financial impact on unusual economic activities

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internal users of accounting info.

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people inside the business

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external users

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people outside the business

people not directly involved in managing the business

creditors, investors, gov't agencies

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liquidity

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ability of the business to settle its obligation when they fall due; short term

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solvency

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bank related obligation; long-term

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form of business acc. to ownership

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sole proprietorship

partnership

corporation

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sole proprietorship

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simplest and most common

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advantages of sole proprietorship

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disadvantages of a sole proprietorship

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partnership

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owned by 2 or more; bounded by the articles of partnership

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advantages of partnership

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disadvantages of partnerships

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mutual agency

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partners are liable for actions of another partner

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general partnership

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all partners are liable; unlimited liability

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limited partnership

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partners can give experience or not be liable; but one must be liable

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industrial partner

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gave experience instead of money

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corporation

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separate legal entity under articles of incorporation; shares of stocks; shouldn't exceed 50 years

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advantages of corporations

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disadvantage of corporation

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management of a corporation

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board of directors

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dividend

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earn through stocks/income

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cooperative

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duly registered association of persons with a common interest; members contribute equitably to the capital; cooperative development authority

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advantages of a cooperative

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disadvantages of a cooperative

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forms of business acc to acitivity

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service, merchandising, manufacturing

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service business

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skills are sold

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merchandising

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buy and sell

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manufacturing

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raw material to finished goods

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GAAP

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common set of rules adopted by all businesses

enhances consistency and comparability

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IASB

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international accounting standards board

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international financial reporting standards

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Ifrs

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FRSC

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financial reporting standards council

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pfrs

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philippine financial reporting standards

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International accounting standards

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standards used by accountants all over the world

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philippine accounting standards

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standards CPAs in the philippines abide by

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accounting business entity principle

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business has separate identity from its owner

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going concern

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business is assumed for indefinite life and not liquidate any time soon

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periodicity

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indefinite life to equal lengths of period

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accrual principle

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income is recognized when earned; expense is recognized when incurred

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prudence (conservatism)

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anticipate losses; never assume profit

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materiality

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exclusion or misstatement of info could influence user's decision

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matching principle

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expenses should be recognized in the same period related to its income

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substance over form

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used through leases; business transactions are recorded in economic manner than its legal form

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business

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owns nothing and owes nothing on the start

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assets

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resources

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liability

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obligation

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owner's equity

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residual interest

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cash

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money

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capital

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adds up/increases the value of the business's owner's equity in the form of investment into the business

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drawing

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withdrawal of the owner from the business's resources to outside

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income

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increases the value of owner's equity through services rendered or through sales of goods

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expense

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decreases owner's equity through usage of resources/ through enjoyment of a benefit

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loans payable

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obligation of a business to a third party institution particularly bank and other lending institutions

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assets

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resources owned and controlled by the businesses

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equipment

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machines assets

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furniture and fixtures

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assets cabinets etc

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taxes and licenses

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paid to the government

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accounts payable

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obligation to pay the business's supplier verbal

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notes payable

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obligation in writing

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inventory

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source of income

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supplies

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to be used in the business

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service income

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income earned for services rendered

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accounts receivable

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right of a business to receive cash on a future date oral

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sales

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amount of inventory sold

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cost of sales/cost of goods sold

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supplier price

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cash sales

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sales is cash received

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credit sales

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sales is on credit

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advances to employees

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services to be received

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business transactions have two fold effect

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the value parted with and values received

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income

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net of revenue and expenses

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revenue

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day to day gain

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gain

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net of revenue and expenses