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T N A N A T A Y A U O P Y T P
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N C C E R G D F T R E N E K C
K A S C C N I D N B R I R I R
I R T A O O T O E I I D I E E
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W E R C T O N P S T H O H T I
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J O U R N A L K I R R E R N U
A E C S V N M U P N T R T O I
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F T I B E D O R O T S E V N I
G U R G I O S C B U I O Y R B
U Y R W R E C O R D I N G T Y
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A U R G
C D T N C
C I N I R
O T E I D E
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N S T O I
G T H E C T
J O U R N A L I R E
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T I B E D R O T S E V N I
R E C O R D I N G
What is accounting?
Who are the Users of Accounting Information
Nature of Accounting
Needs for accounting
Advantages of Accounting
Functions of Accounting
Purpose of Accounting
There are 3 most commonly accepted definition of accounting
1. Accounting Standard Council (ASC):
a service activity.
Its function is to provide quantitative information,
primarily financial in nature, about economic entries,
that is intended to be useful in making economic
decision.
As a service accounting intends to supply financial
reports to be used by economic decision makers.
Economic decision is the main reason why
accounting records and reports are prepared.
In recording transactions and events, accounting
give due importance to the measurement of
business activities that have monetary value.

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2. American Institute of Certified Public
Accountant (AICPA)
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 result
thereof.
As an ART, accounting demands critical thinking
and creative skills. Accountants gather relevant
data and convert them into organized financial
reports then draw certain economic meanings.
3. American Accounting Association (AAA)
The process of identifying, measuring, and
communicating economic information to permit informed
judgment and decision by users of the information.
As a process, accounting goes through an accounting
cycle to summarize the voluminous and repetitive
business transactions into organized and
understandable financial reports.
Accounting is an information system that
ascertains/discover the value of business
transactions and events, converts them into financial
reports and imparts the meaning of these reports to
the decision makers.
Accounting
Process
Financial Information
Asset=
(Liabilities + Owners equity
Profit or Loss =
(Revenue Expenses)
COMMUNICATED
TO
DECISION-MAKER
Internal:
Management
Sole proprietors
Partners
Board of directors
Officers, Managers
Supervisors

External:

Investors
Creditors
Customers
government
The users of accounting information are
classified based on the extent of their
participation in the affairs of the business.
The INTERNAL USERS- comprising the
management group
The EXTERNAL USERS- comprising the
financing and public groups.
Internal users (management group) are those
who own and/or manage the business entity.
The management group needs more detailed
accounting information to help them make
relevant economic decision in achieving the
goal of the firm.
Internal Financial reports are usually
prepared exclusively for the use in internal
users for the efficient operation and control of
business activities.
External users (financing and public group) do
not own and/or manage and control the
business entity.
They have no direct access to the management
of the business, but they use financial
statement to satisfy some of their different
needs for information
The external users of financial statements
includes the following..
1. INVESTORS
They need accounting records to assess their
return on investment.
To assess the risk of investments portfolio,
investors need information to help them
determine whether they should buy, hold, or sell
their investment.
The external users of financial statements
includes the following..
2. EMPLOYEES
They are interested in the financial statement to
determine the employers stability and
profitability.
The enterprises capability to provide
remuneration, retirement benefits and
employees, opportunities can be assessed
through financial statement.
The external users of financial statements
includes the following..
3. LENDERS
Financial statements are used by lenders to
determine whether borrowers can pay their
loans and interest attached to them when due.
The external users of financial statements
includes the following..
4. SUPPLIERS and other TRADE CREDITORS
They use financial statements of their
customers to determine the continuity of the
latters business.
They are interested in the information that
enables them to determine whether debt owed
to them will be paid when due.
The external users of financial statements
includes the following..
5. CUSTOMERS
Customers use the financial statements of their
suppliers to assess the latters continuity in
business because some customers are
dependent on the existence of their suppliers to
insure the viability of supplies that will sustain
their business operation.
The external users of financial statements
includes the following..
7. PUBLIC
Financial statements may assist the people by
providing information about the trends and
recent developments in the prosperity of the
enterprise and the range of its activities.
USERS OF ACCOUNTING INFORMATION
INTERNAL USERS EXTERNAL USERS
MANAGEMENT
GROUP
Sole proprietors
Partners
Board of Directors
Officers,
Managers,
Supervisors
Internal Financial
Reports
FINANCING
GROUP
Investors, Potential
Investors, Trade
Creditors, Potential
Creditors, Bank and
other Financing
institution
PUBLIC GROUP
Government,
Regulatory Agencies,
Taxing Authorities,
Labor Unions,
Employees, Retirees,
Economic Planners,
Customers.
External Financial
Reports
Implicit in the definition of accounting, the following are
the characteristics of accounting.
1. A Service Activity.
Accounting provides vital assistance through the making
of financial reports regarding the financial activities of
economic entities
It helps users to understand financial reports from which
to draw sound economic decisions.`
Implicit in the definition of accounting, the following are
the characteristics of accounting.
2. A Process, an Art and a Discipline
Accounting involves identifying, measuring and
communicating economic information to effect enforced
economic judgment.
It is also a discipline that observes accounting standards
and professional ethics.
Accounting practices guided by distinctive standards,
rules, methods and procedures to come up with reliable
general-purpose financial reports.
Implicit in the definition of accounting, the following are
the characteristics of accounting.
3.The Language of Business
Accounting is the medium of communication through
which financial reports are furnished to different parties
for decision making.
It is an information system that measures business
activities, processes information into reports and
communicates the reports to the decision making.
It interprets and communicates the true status of the
business in terms of its operating results and financial
condition.
Implicit in the definition of accounting, the following are
the characteristics of accounting.
3.The Language of Business
Accounting plays an essential role to businessmen and
help them to find out easily the needed information
anytime to answer the question about the following..
Profitability
How much is the increase in capital as a
result of business operation?
Implicit in the definition of accounting, the following are
the characteristics of accounting.
3.The Language of Business
Accounting plays an essential role to businessmen and
help them to find out easily the needed information
anytime to answer the question about the following..
Liquidity
Are there available funds to finance the
business operation?
Implicit in the definition of accounting, the following are
the characteristics of accounting.
3.The Language of Business
Accounting plays an essential role to businessmen and
help them to find out easily the needed information
anytime to answer the question about the following..
Solvency
Can the business pay its long-term
obligations to other?
The state of being able to pay debts as they become due. A company that
is unable to meet its current obligations is said to be insolvent.
Implicit in the definition of accounting, the following are
the characteristics of accounting.
3.The Language of Business
Accounting plays an essential role to businessmen and
help them to find out easily the needed information
anytime to answer the question about the following..
Stability
Can the business sustain its long-term
profitability and cash flow
Implicit in the definition of accounting, the following are
the characteristics of accounting.
3.The Language of Business
Accounting plays an essential role to businessmen and
help them to find out easily the needed information
anytime to answer the question about the following..
Capital
Structure
How much borrowed capital and owners
capital are invested in the business
Implicit in the definition of accounting, the following are
the characteristics of accounting.
3.The Language of Business
Accounting plays an essential role to businessmen and
help them to find out easily the needed information
anytime to answer the question about the following..
Financial
Stability
Is there excess cash available for
investment opportunities and other
uncertainties
Implicit in the definition of accounting, the following are
the characteristics of accounting.
3.The Eyes of the Business
Bookkeeping records , as the initial part of accounting
activities, enable the owner of a business to check on his
financial progress
Adequate accounting records assist the owner to prepare
plans for the future, avoid material mistakes, analyze the
causes of changes that take place, and draw the best
choice among economic alternatives.
Human beings have limitations. Every transactions
cannot be retained in the human brain for a quite period
of time without confusions and complications.
To avoid these, transactions and other important event
should be recorded. Such written records serves as
reference for future use.
In business, several parties are interested to its records
to seek answer to their questions and bases for their
decisions.
These parties can be classified into direct users or those
who have direct interest to business records and indirect
users or those who are indirectly interested to the accounting
information of the business.
Among the direct users are the following..
Owner..
The owner may asked..has the business improved?
Is it wise to make additional investment? Or is there
are need for it?
He is interested to know whether the business should be
maintained, increased, decreased, or disposed.
He is also interested to know whether he is getting a fair
return of his investment.
These parties can be classified into direct users or those
who have direct interest to business records and indirect
users or those who are indirectly interested to the accounting
information of the business.
Among the direct users are the following..
3. Prospective investors
Will their money grow in this business?
An investor is interested in the financial statement to
determine whether to acquire ownership and a measure of
its effectiveness.
These parties can be classified into direct users or those
who have direct interest to business records and indirect
users or those who are indirectly interested to the accounting
information of the business.
Among the direct users are the following..
4. Creditors
A creditors may ask before granting loans.
Can the business meet its obligations?
Creditors use financial statements as a basis to answer
such question.
These parties can be classified into direct users or those
who have direct interest to business records and indirect
users or those who are indirectly interested to the accounting
information of the business.
Among the direct users are the following..
5. Employees
Some may ask..
Are we receiving fair remuneration? Or can we ask for more
financial assistance/benefit?
Employees are interested in information to enable them to
assess the ability of the firm to provide remuneration and
other benefits.
These parties can be classified into direct users or those
who have direct interest to business records and indirect
users or those who are indirectly interested to the accounting
information of the business.
Among the direct users are the following..
6. Government
is the firm reporting the correct amount of income? This may
be ask by the BIR.
Government needs accounting information to regulate the
firms activities and determine the basis for taxation policies.
In order to appreciate and understand the
financial reports of the business, one should
have an understanding of how data are
gathered and recorded.
Accounting can also be ones profession- a
work which is interesting and highly rewarding.
Due to manifold advantages that accounting
provides to the business, it becomes a necessary
tool that is inseparable from business.
1. AID TO MANAGEMENT
It provides financial information to the management
to do this daily work properly and efficiently.
The financial information helps the management in
planning, organizing, evaluating, controlling or
correcting various business activities.
Due to manifold advantages that accounting
provides to the business, it becomes a necessary
tool that is inseparable from business.
2. REFERENCE
It removes the limitation of memory by recording
business transactions chronologically.
It serves as future reference and facilitates
comparative study of business financial status.
It helps in assessing the value of business at the
time of sale.
Due to manifold advantages that accounting
provides to the business, it becomes a necessary
tool that is inseparable from business.
3. Basic for Tax Assessment
It helps in assessing the tax liability of the
organization regarding income taxes, sale taxes
and other business taxes.
Due to manifold advantages that accounting
provides to the business, it becomes a necessary
tool that is inseparable from business.
4. Evidential Matter
It serves as good evidence to attest the
truthfulness of financial reports in any legal
investigation of court of law.
Due to manifold advantages that accounting
provides to the business, it becomes a necessary
tool that is inseparable from business.
5. Tool to evaluate management performance.
It helps businessmen know the true status of the
business in terms of the results obtained and the
financial condition of the business.
Accounting is a service activity. Its function is to
provide quantitative information, primarily financial
in nature, about economic activities, that is
intended to be useful in making economic decision.
The Primary Function of accountants is to
prepare financial reports and provide them to
economic decision maker
Accounting is a service activity. Its function is to
provide quantitative information, primarily financial
in nature, about economic activities, that is
intended to be useful in making economic decision.
The Basic Function of accounting is described in
this definition of accounting provided by the
American Accounting Association (AAA)
Accounting is the process of identifying, measuring
and communicating economic information to permit
informed judgment for an economic decision.
Accounting is a service activity. Its function is to
provide quantitative information, primarily financial
in nature, about economic activities, that is
intended to be useful in making economic decision.
The Advance or Critical Function of accounting
is its audit function- to test the reliability of the
financial reports, trace fraudulent transactions and
locate and rectify accounting errors
The purpose of accounting is to help financial
users to see the true picture of the business in
financial terms.
In helping financial users make sound economic
decision, it is necessary that the financial report
prepared by the accountants be understandable,
reliable, relevant and complete.
The purpose of accounting is to help financial
users to see the true picture of the business in
financial terms.
In a world of business, a well-informed
management is vital for the survival of a business
organization.
The management must have the right information
at the right time in the right way to keep due control
over its business affairs and to effect economic
decisions with minimal uncertainty.