Accounting
= Identifying, measuring, and communicating Fact
economic informations = If measurement is unaffected by estimates
Three activities included in accounting 3. Communicating
1. Identifying = Transform economic data into useful accounting
2. Measuring information
3. Communicating = also involves interpreting processed information
1. Identifying = Analyzing events THREE ASPECTS OF COMMUNICATING
1. Recording
Recognition = Writing identified and measured
= Include effects of an accountable event accountable events in the journal
in balance sheet or income statement
through a journal entry 2. Classifying
= Grouping similar items into their
Accountable events respective classes through posting in ledger
= Affects the five elements of accounting
= Only these are recognized 3. Summarizing
= Also called economic activity = Expressing in condensed form the
recorded and classified transactions
Non-accountable event = Includes preparation of financial
= Only disclosed in notes if accounting statements and other reports.
relevance
= not an application of the recognition Interpreting
process = recorded in memorandum entry = involves computation of financial ratios.
TYPES OF EVENTS OR TRANSACTIONS “The basic purpose of accounting is to provide
1. External events = involve an entity with information that is USEFUL IN MAKING
another entity ECONOMIC DECISIONS.”
Types of External Events “A lot of sources of information are used when
Exchange making decisions and the Financial Statements
= there is reciprocal giving and receiving are ONLY one of them.”
Non-reciprocal An economic entity may either be a:
= does not receive in return, does not Not-for-profit entity
give anything in exchange = Carries out socially desirable needs of
community
External event other than transfer = Not directed towards making profit
= changes in economic resources caused
by external party but doesn’t involve Business entity
transfers of resources = Operates for profit
Economic Activities
2. Internal events = No external parties = Affects the assets, liabilities, and owner’s
equity
Types of Internal Parties
Production Economic Activities include:
= Resources are transformed into 1. Production = Converting economic
finished goods resources into outputs
2. Exchange = Process of trading resources
Casualty 3. Consumption = Using the final output of
= Loss from disasters the production process
4. Income distribution = allocating rights to
2. Measuring the use of output among individuals
= Assigning numbers in monetary terms to 5. Savings = Setting aside rights to present
economic transactions and events consumption for future consumption
= Most commonly used measurement base is 6. Investment = using current inputs to
historical cost increase resources available for output
“Financial statements are said to be a mixture of Types of Information in accounting
fact and opinion” 1. Quantitative info = expressed in numbers
2. Qualitative info = expressed in words =
Opinion Found in notes to financial statements
= If measurement is affected by estimates
3. Financial information = expressed in 9. Historical cost concept = always record
money the original cost, not the market value
10. Concept of Articulation = All financial
Types of Accounting information for users’ needs statements are connected = What
1. General purpose accounting information happens in one statement affects the
= Designed to meet the common needs others = Similar to relevance
of the users. = Provided in financial 11. Full disclosure principle = Share all
accounting = Governed by GAAP, important information that could affect
represented by PFRS decisions
2. Special purpose accounting information 12. Consistency concept = Use the same
= designed to meet the specific needs of methods and rules for recording. =
users. = Provided by other types of Changes in accounting policies are
accounting other than financial disclosed in notes
accounting 13. Matching = Match costs to the revenue
they create
Information = information in financial 14. Entity theory = Objective is geared
statements is not obtained from towards proper income determination. =
accounting records becoz some are emphasizes the income statement,
actually obtained from external exemplified “Assets = Liabilities +
sources Capital”
15. Proprietary theory = Looks at the value
Accounting as science and art of assets to measure how much the
As a social science = Accounting is a business is worth. = Sees the business as
body of knowledge the owner’s property. = Emphasizes
As a practical art = Accounting requires importance of Balance Sheet
the use of creative skills and judgment 16. Residual Equity = Helps figure out what
belongs to the ordinary shareholders
“Accounting is often referred to as a language of after paying off the preferred
business” shareholders and company debts
17. Fund theory = Managing and tracking
ACCOUNTING CONCEPTS cash flows, not focusing on profit or asset
= principles upon which the process of accounting value.
is based 18. Realization = Business earns money by
turning its products or services into cash
Accounting Assumptions = Fundamental 19. Prudence = It is about being honest and
concepts or principles of accounting careful
process
Accounting theory = logical reasoning in Expense Recognition Principles
the form of a set of principles. = 20. Matching Concept = Costs related to the
organized set of concepts that guide the earning of revenue are recognized as
accountant’s action in identifying, expenses in the same period the related
measuring, and communicating revenue is recognized
information. = comprises Conceptual 21. Systematic and rational allocation = Cost
Framework and PFRS benefits are first recorded as assets.
Then, the cost becomes an expense over
Examples of accounting concepts the periods of time when the business
1. Double-entry system = recorded in debits uses or benefits from it.
and credits 22. Immediate recognition = If something
2. Going concern assumption = carry on for loses its usefulness, it’s treated as
an indefinite period of time. expense right away
3. Separate entity = entity is viewed
separately from owners Common branches of accounting
4. Stable monetary unit = all elements of 1. Financial accounting = focuses on
accounting are stated in peso in the general purpose financial statements =
Philippines Governed by PFRS. = Often called
5. Time Period = entity is divided into a “financial reporting”
series of periods
6. Materiality concept = omission or “Other financial reporting” = Outside
misstatement influence the economic financial statements that assists in the
decisions interpretation
7. Cost-benefit = Only do something if
benefits are bigger than the costs Financial Statements vs Financial Reports
8. Accrual basis = Income is recognized Financial statements = The end product
when service is rendered while expense of the accounting process
is recognized when incurred
Financial report = Includes financial professional knowledge in the science of
statements plus other informations accounting.
3. Practice in Academe/Education =
Financial reporting = Provision of Teaching of accounting
financial information about an entity that 4. Practice in Government = Position in an
is useful to external users. accounting professional group in the
government or in a government-owned
OBJECTIVE OF FINANCIAL REPORTING and/or controlled corporation
- To provide infos about an entity’s
economic resources, claims, and changes
to those.
SECONDARY OBJECTIVE OF FINANCIAL REPORTING
- To provide information that helps assess
how well a company’s management uses
its resources
2. Management accounting = Accumulation
and communication of information for
use by internal users or management
3. Cost accounting = Recording and
analysis of the cost of materials, labor,
overhead incident to production
4. Auditing = Evaluating correspondence of
certain assertions and expressing an
opinion
5. Tax accounting = Preparation of tax
returns and rendering of tax advice
6. Government accounting = Accounting for
government, placing emphasis on the
public funds, purposes, and responsibility
and accountability of the individuals
entrusted with those funds
7. Fiduciary accounting = Managing
someone else’s money or keeping track
of it
8. Estate accounting = Managing and
keeping track of assets, debts, and
expenses for someone who has passed
away
9. Social accounting = Measuring and
reporting how a business or organization
impacts society and the environment
10. Institutional accounting = Accounting for
non-profit entities other than government
11. Accounting systems = installation of
accounting procedures
12. Accounting research = careful analysis of
economic events and other variables to
understand their impact on decisions
Bookkeeping = Recording the accounts
0r transactions = normally ends with the
preparation of trial balance
Accountancy = Refers to the profession
of accounting. Can be classified into two
– Public and private practice. Public
involves employer-employee relationship
while Private involves it.
Four Sectors in practice of accountancy
1. Public Practice = Rendering of audit to
more than one client
2. Practice in Commerce and Industry =
Involves decision making requiring
