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Chapter 1 PPT in PDF

FAR lecture notes

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162 views11 pages

Chapter 1 PPT in PDF

FAR lecture notes

Uploaded by

Alexandra Drije
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CHAPTER 1:

ACCOUNTING AND
ITS ENVIRONMENT
ACCOUNTING DEFINED

✓Accounting Standards Council (ASC).


Accounting is a service activity. Its function is to provide quantitative information,
primarily financial in nature, about economic entities, that is intended to be useful in
making economic decisions.

✓American Institute of Certified Public Accountants (AICPA).


Accounting is an 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
a financial character and interpreting the results thereof.

✓American Accounting Associations (AAA).


Accounting is the process of identifying, measuring and communicating economic
information to permit informed judgment and decision by users of the information.
Elements of the Definition of Accounting

▪ Identifying
The accountant analyzes each business transaction and identifies whether the
transaction is an “accountable event” or “non-accountable event”.

▪ Recording
The accountant recognizes the accountable events he has identified. This process is
called journalizing. After journalizing, the accountant then classifies the effects of the
event on the accounts. This process is called posting.

▪ Communicating
At the end of each accounting period, the accountant summarizes the information
processed in the accounting system in order to produce meaningful reports.
Basic Features or Nature of Accounting

▪ Accounting is a process.
▪ Accounting is an art.
▪ Accounting deals with financial information and
transactions.
▪ Accounting is a means and not an end.
▪ Accounting is an information system.
The main functions of accounting can be summarized as:

1) Keeping systematic record of


business transactions
2) Protecting properties of the
business
3) Communicating results to
various parties in or
connected with the business.
Brief History of Accounting
▪ Accounting is believed to have started thousands of years ago. Their early
developments suggests traces dated back to ancient Mesopotamia.
▪ In 1494, the first systematic record keeping dealing with the “double entry
recording system” was formulated by Fra Luca Pacioli, a Franciscan monk and
mathematician. The “double entry recording system” was included in Pacioli’s
book titled Summa di Arithmetica Geometria Proportioni and Proportionista,”
published on November 10,1494 in Venice.
▪ Fra Luca Pacioli is considered as the father of the modern
accounting/double-entry accounting. He stated that the purpose of
bookkeeping was to give the trader without delay information as to his assets
and liabilities.
PACIOLI’S BOOKKEEPING AND ITS EVOLUTION

Three books in the Summa:


1. Memorandum – the book where all transactions are recorded, in the
currency in which they are conducted , at the time they are conducted.
2. Journal – the merchant’s private book. The entries made are in one
currency, in chronological order, and in narrative form.
3. Ledger – is an alphabetical listing of all the business’ accounts along
with the running balance of each particular account.
Branches of Accounting
▪ Auditing
The accountancy profession’s most significant service to the public. One accounts
have been prepared, they may have to be checked in order to ensure that they do
not present a distorted picture. The checking of accounts and the reporting on them
is known as auditing. Businesses have their accounts audited as a legal
requirement.

▪ Bookkeeping
It is a mechanical task involving the collection of basic financial data. The data are
first entered in the accounting records or the books of accounts and then extracted,
classified and summarized in the form of income statement, balance sheet, and cash
flow statements.
Branches of Accounting
▪ Cost Bookkeeping, Costing and Cost Accounting
It is the process that involves the recording of cost data in books of account. It is
therefore similar to bookkeeping except that data are recorded in very much detail.
Cost accounting makes use of those data one they have been extracted from the
cost books in providing information for managerial planning and control.

▪ Financial Accounting
The more specific term applied to the preparation and subsequent publication of
highly summarized financial information. The information supplied is usually for the
benefit of the owners of an entity, but it can also be used by management for
planning and control purposes.
Branches of
Branches
Accounting
of Accounting
▪ Financial Management
Financial managers are responsible for setting financial objectives, making plans
based on those objectives, obtaining the finance needed to achieve plans, and
generally safeguarding all the financial resources of the entity.

▪ Management Accounting
It incorporates cost accounting data and adapts them for specific decisions which
management may be called upon to make. A management accounting system
incorporates all types of financial and non-financial information from a wide range of
sources.
Branches of Accounting
▪ Taxation
It includes the preparation of tax returns and the consideration of the tax
consequences of proposed business transactions or alternative courses of action.

▪ Government Accounting
It is concerned with the identification of the sources and uses of resources consistent
with the provisions of city, municipal, provincial or national laws. The government
collects and spends huge amount of public funds annually so it is necessary that
there is a proper custody and disposition of these funds.

▪ Other Aspects

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