DEFINITION OF ACCOUNTING

 
ACCOUNTING
 Is a system designed to identify, collect, process, measure and communicate
economic information about the business entity to those users having interest in
the financial affairs of the entity.
 Information produced by accounting serves as a service activity which informs
users as to its financial status, condition and other quantifiable measures of a
business.
 The need for effective and efficient information as the end product of
accounting cycle becomes more in demand today.
 Accounting provides quantitative information. The main orientation of
accounting is economic events quantifiable and measurable in terms of money.
 Accounting information is financial in nature. Most businesses' reports may be
financial or non financial in nature but financial accounting reports are
financial in nature.
 The information affects the decision making of the particular users. Decision
making plays a vital role in the development and growth of one entity.
 Accounting plays an important role with decision making in which provides the
necessary information to be used.
 
3 KNOWN ORGANIZATIONS DEFINED ACCOUNTING IN 3 DIFFERENT THING:
 
 ACCOUNTING STANDARDS COUNCIL ( ASC ) - Accounting is a service
activity. Its function is to provide quantitative information, primarily financial
in nature, about finances, about economic entities, that is intended to be useful
in making economic decision.
 ACCOUNTING TECHNOLOGY OF THE AMERICAN INSTITUE OF
CERTIFIED PUBLIC ACCOUNTANTS -  Define accounting 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 financial character
and interpreting the results thereof.
 AMERICAN ACCOUNTING ASSOCIATION ( AAA ) - In its statement Basic
Accounting Theory describes accounting as the method of recognizing,
appraising and communicating economic details to permit informed judgement
and decision by users of the information.
 
NATURE OF ACCOUNTING
 
 Standards of discipline. Just like any other person ( lawyer, engineer, architect,
etc. ) engaged in professional services, accountants follow certain standards in
performing their professional services.
 Art and Science. Accounting as an art follows certain style to make its reporting
more meaningful, relevant and useful to the users of financial statements.
 Example: journal entries should maintain a slant format to give distinction of
the item to be debited and to be credited.
 Accounting as a science on the other hand follows a systematic process before
the financial statements will be produced. Step by step procedure to attain the
reliable and relevant information for the users of financial information. This
coherent system is condensed into the accounting cycle process.
 Service Activity. Accountants are merely concerned with giving professional
services to the client rather than engage in the actual business of the company.
 Language of Business. Through the end-product of accounting, financial
statements, different users of financial information can be able to ask for its
assistance for their individual needs. By means of accounting, users may be able
to assess the following:
 
FUNCTIONS OF ACCOUNTING
 
 Accounting plays significant role in the business today. The functions of
accounting can be summarized into five categories:
 
 RECORDING
 This is the simple and basic function of accounting. It is essentially focus on not
just ensuring all business transactions of at least financial in nature are
completely recorded but also they are recorded in manner acceptable to both
users of financial information. Recording is done in the books of original entry,
the "Journal".
 
CLASSIFYING
 Classification is concerned with the systematic analysis of the journalized data,
in view to group of transactions or entries of one nature at one a certain
account. The work of classification is completed in a book known as the
"Ledger".
 
SUMMARIZING
 This involves presenting and condensing the classified data in a system manner
which is understandable and useful to the internal as well as external and users
of accounting statements. This procedures leads to the preparation of the
following statements:
 
1.) The balance
2.) Income Statement
3.) Capital Statement
4.) Cash Flow Statement
5.) Statement of Financial Position
 
ANALYSIS AND INTERPRETS
  This is the final end-function of accounting. The recorded, classified and
summarized financial data is analyzed and interpreted in a manner that the
end-users can make a meaningful judgment about the conditions, stability, and
profitability of the business operation. The data is also used for preparing the
future plan and developing of policies and procedures in executing financial
and non financial plans.
 
COMMUNICATE
 The accounting information after being meaningfully analyzed and interpreted
has to be communicated in a proper form and manner to the proper person.
This is done through preparation and distribution of accounting reports, which
include besides the usual income statement and the balance sheet, additional
information in the form of accounting ratios, graphs, diagrams, funds flow
statements etc.
 
BRANCHES OF ACCOUNTING
 
FINANCIAL ACCOUNTING
 Is the discipline of accounting concerned with recording and classifying
business transactions concluding to the preparation of general- purpose
financial statements. This branch of accounting is mainly concerned on the
reports on the entity's financial position ( its resources and claims), financial
performance ( income and expenses ), and the changes in a particular owners'
equity.
 
MANAGEMENT ACCOUNTING
 The main objective of management accounting is to provide assistance to the
internal users of financial information particularly the management in doing
economic decisions such as planning, controlling, and strict implementation of
the plan.
Example: A company plan to produce 300,000 doughnuts this year ( planning ). Based on
the plan, the company will have to buy for its needed material in order to execute the plan.
It needs to allocate its business resources to produce the 300,000 doughnuts ( executing).
During the production, managers strictly monitor the materials being used, the labor
employed and other miscellaneous cost in other to assure that the plan will be
implemented ( controlling ).
 
GOVERNMENT ACCOUNTING
 This branch of accounting is mostly focused on the allocation of the resources
and funds of the National Government. It basically reports on the income and
expenditures of government, the allotment to different departments ( DOH,
DepEd, DBM, etc. ), agencies and projects.
 
AUDITING
  External primarily focuses on the systematic, coherent and critical examination
of financial statements by an independent Certified Public Accountant. Using
the professional judgement and skepticism of the external CPA, the main
objective of external auditing is to express an opinion by issuing an audit report
regarding the fairness of the contents of the financial statements in accordance
with the given reporting standards.
 
INTERNAL AUDITING
  Deals with determining the operational efficiency and effectiveness of the
company regarding protection and safeguarding of the company's assets,
accuracy and reliability of the accounting data, and adherence to prescribed
managerial policies set by the Board of directors.
 
TAX ACCOUNTING
 Taxes are the life-blood of one country. Without these taxes one country could
not allot income to its operating departments. There will be no funds to be used
for the continuous development of infrastructure, transportation and tourism.
The proper collection and valuation of taxes depends on the use of one of the
branches of accounting - tax accounting. It is concerned on the proper
measurement of the amount to be paid by one entity or individual.
 
COST ACCOUNTING
 Have you wondered how a company knows the price of their individual
product? The price a bakery sells its "PANDESAL" ? The cost of labor and
materials a candy shop have incurred to finish a piece of its candy? Cost
accounting information can answer that. Basically speaking, cost accounting
deals with the valuation of the materials, labor and other cost incorporated in
producing one product. It is mainly oriented on manufacturing business.
 
ACCOUNTING EDUCATION
 One of the professional fields one Certified Public Accountant can engage with
is the Accounting Education. One of the requirements before one CPA
candidate can take the licensure examination is to have a degree of Bachelor of
Science in Accountancy, because of this, the need to have an Accounting teacher
which will train every individual.
 
USERS OF ACCOUNTING INFORMATION
 Users need different types of financial information. They are classified as
external and internal users based on their interest to one entity. Users of
financial information are enumerated below with their corresponding interest
in the financial statements of one specific entity.
 
 1. GOVERNMENT - Concern not only with the taxes being paid by one entity
based on the reported net income but also with the compliance of the entity
with their particular regulations.
2. LENDERS - May be existing or potential users of financial statement. With the
financial statement represented by one entity, this type of user can assess the
capability of one entity to pay its long- term and short- term obligations.
3. INVESTORS - May also be classified as existing or potential users of financial
statement. Investors are mostly concerned with how much will they earn
( earning power ) if they will invest in one company. How will be the return on
their investment and the turnover of  their investment or return of investment?
4. MANAGEMENT - Described by the nature of accounting, accounting as the
language of business focuses on the status of the growth and possible downfall
of every client. The financial statements will help managers predict their future.
Plan certain inputs and control and apply corrective actions. For instance, F
Company using the previous data for sales presented in the financial statement
can predict what will be the next period sales. From the forecast,
manufacturing and planning of action for the production can now be possible.
5. PUBLIC - As part of the public, user will be concerned on the particular pros
and cons as well as the benefits and costs if one company will start operation.
Pros and benefits will focus on how one entity responds to the corporate social
responsibility.
 
TYPES OF FINANCIAL INFORMATION
Needs of users of financial information vary according to the interest and effect to their
financial decision making. Here are some of the needs that are common in the decision
making of the users.
 
 PROFITABILITY - The increase in the owner's capital as a results of the
business operations or simply the company's net income at the end of one
period.
 LIQUIDITY - The availability of cash that one entity has in able to meet the
currently maturing obligations and claims and to sustain its business
operations.
 SOLVENCY - The availability of cash that one entity has in able to meet the
long term obligations.
 STABILITY - The capacity of one entity to sustain its growth and to meet
future expansion requirement.
 CAPITAL STRUCTURE - The source of financing one company has.
Resources of one entity may come from external financing which provided by
the creditors and lenders and the internal financing which come from the
investors and owners.
 FINANCIAL FLEXIBILITY - Whether the company has excess cash after
satisfying its claims and obligation to meet additional investment ( e.g.
Investment in Banks ) and contingency requirement.