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Lecture 1 - Introduction To Accounting

Accounting is defined as the art and science of recording, classifying, summarizing, and interpreting financial transactions. The accounting process consists of four phases: recording, classifying, summarizing, and interpreting, which serve various users including owners, management, and creditors. Different branches of accounting, such as financial, cost, and managerial accounting, cater to both internal and external stakeholders, providing essential financial statements like income statements and balance sheets.

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8 views22 pages

Lecture 1 - Introduction To Accounting

Accounting is defined as the art and science of recording, classifying, summarizing, and interpreting financial transactions. The accounting process consists of four phases: recording, classifying, summarizing, and interpreting, which serve various users including owners, management, and creditors. Different branches of accounting, such as financial, cost, and managerial accounting, cater to both internal and external stakeholders, providing essential financial statements like income statements and balance sheets.

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fathemamanalo
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Financial

Accounting
WHAT IS
ACCOUNTING?
ACCOUNTING
The Committee on Terminology, American Institute of Accountants
defined accounting as the art of recording, classifying, 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.

Accounting , however, is not only an art but also a science in a way that
there are accounting principles that serve as guide in accomplishing
data and preparing reports.

Ex. Office Equipment 300,000


Cash 300,000
FOUR PHASES OF ACCOUNTING
1. Recording
This is technically called bookkeeping. In this phase, business transactions
are recorded systematically and chronologically in the proper accounting books.

Two kinds of bookkeeping: the single entry bookkeeping and the double
entry bookkeeping.
● Single entry bookkeeping does not show the two-fold effects of business
transactions. It shows only the debit or the credit of each transaction.
● Double entry bookkeeping, however, reflects the two-fold effects of business
transactions. It has a debit and a credit. In this book the double entry
bookkeeping will be dealt.
FOUR PHASES OF ACCOUNTING
2. Classifying
In this phase, items are sorted and grouped. Similar items are
classified under the same name. They may be classified as:
● Asset accounts
● Liability accounts
● Capital accounts
● Revenue accounts
● Expense accounts
FOUR PHASES OF ACCOUNTING
3. Summarizing
After each accounting period, data recorded are summarized through
financial statements. These reports are submitted to the management at the
end of each accounting period or as the need arises.

4. Interpreting
Usually due to the technicality of accounting reports,
the accountant’s interpretation on the financial statement
is needed. In this case, analysis reports are submitted
together with the financial statements.
Who are the Direct Users of Accounting?
1. Owner
2. Management
3. Prospective investors
4. Creditors
5. Employees
6. government
CLASSIFICATION
OF
BUSINESS
ORGANIZATION
BUSINESS ORGANIZATION
1. According to Ownership 2. According to the Nature of the Business

● Single/Sole proprietorship - ● Service Concern - deals with the rendering


owned only by one person. of services to customers such as tailoring
● Partnership - with two or shops, beauty shops, firms of CPAs,
lawyers, doctors, etc.
more owners called partners.
● Trading/Merchandising - deals with the
● Corporation - with not less buying of goods and selling the same goods
than 5 persons organized by in the same form for profit (e.g. sari-sari
operation of law. stores, department stores, grocery stores,
● Cooperative - owned by etc.
several people called ● Manufacturing Concern - involves
members. purchase of raw materials and converting
them into finished goods. (e.g. textile and
candy manufacturing firms, etc.)
CHARACTERISTICS OF THE DIFFERENT FORMS OF BUSINESS
ORGANIZATION
Sole Proprietorship Partnership Corporation Cooperative

1. One owner 1. Two or more 1. Unlimited 1. Unlimited


called proprietor owners called owners called owners called
partners shareholders members

2. Unlimited liability 2. Unlimited liability 2. Limited liability 2. Limited liability

3. Owner manages 3. There is a 3. Management is 3. Management is


the business managing partner vested in the board vested in the board
of directors of directors
BUSINESS AS AN ACCOUNTING ENTITY
-In accounting, the business is always assumed to be distinct and
separate from its owner or owners which means that the personal
properties of the owner are different from the assets of the business, the
liabilities of the business are different from his personal obligations, and
the expenses incurred by the business are also different from his
personal expenses.

-The transactions therefore, entered into by the owner in behalf of the


business should be recorded in the books of the firm.
BUSINESS AS AN ACCOUNTING ENTITY
-For example, Mr. V. Santos, who owns a store, manages his own business
and the monthly salary he is entitled to receive is P30,000. Since this
amount of salary that Mr. Santos should receive at the end of each month
is an expense of the business, it should be recorded in the accounting
books of the firm. This principle holds true to all types of business,
whether sole proprietorship, partnership, and corporation.
BRANCHES
OF ACCOUNTING
BRANCHES OF ACCOUNTING
● Financial Accounting - deals with the reporting of past activities and events.
It is extended primarily for the external users.
● Cost Accounting - deals with the determination of the cost of goods
manufactured and sold. It also includes the determination of the profitability
of the business as well as the valuation of inventories. It can be useful to both
internal and external readers.
● Managerial or Management Accounting - this branch originated from cost
accounting. It focuses mainly on the information which can be useful to
management when it performs its basic functions or when making decisions.
This is primarily for internal reader.
3 ACCOUNTING ELEMENTS OR VALUES
2. Liabilities - are debts or obligations of a business to a party other than
its owner. It can be classified as current or short-term liabilities and
fixed or long-term liabilities.

Ex: Accounts payable, notes payable, unearned income, long term


liabilities, bonds payable, mortgage payable, accrued expenses,
unearned income etc.

3. Capital - represents the owner’s equity or investment in the business.


Other terms which can be used synonymously are Owner’s Equity and
Proprietorship.
BRANCHES OF ACCOUNTING
● Government Accounting - deals with the reporting of past activities or
transactions of the government.
● Auditing - deals with the verification of the fairness of the accounting
reports prepared and whether they are in accordance with the generally
accepted accounting principles.
● Taxation - deals with the determination of the different taxes imposed upon
a business by the government whether local or foreign.
ACCOUNTING REPORTS OR FINANCIAL STATEMENTS
Income Statement - shows the results of operations of a business enterprise. It
shows whether the business makes a profit or incurs a loss.

Balance Sheet - shows the financial condition of a business.

Statement of Changes in Owner’s Equity - this is a statement supplementing the


balance sheet. It shows increases or decreases in the equity of the owner/s/

Cash Flow Statement - this is a statement which shows the sources (inflows) and
uses (outflows) of cash
3 ACCOUNTING ELEMENTS OR VALUES
1. Assets - are economic resources owned by the business. They
include properties and other things of value the ownership title of
which is in the name of the business.

It can be grouped into current assets and noncurrent assets.

Ex: Cash, accounts receivable, goods or merchandise, finished goods,


furniture, land, buildings, etc.
TRANSACTION
-The data that we record in the accounting book are called transactions.

-Transactions are the economic activities of the firm. These activities could
involve one enterprise and another enterprise which is called external
transaction or it maybe activities within the enterprise which is called internal
transaction.

-When there is transaction there is an exchange of value for value. In every


transaction, there is always a value received and a value parted with. These values
received and parted with may either be money, property or services.
Transactions Value Received Value Parted With

1. Purchased tools for cash Tools Money

2. Purchased office supplies on credit Office Supplies Obligation or debt

3. Completed repair work for S. Andolong and Cash Services


received cash

4. Completed repair work for C. de leon on credit Receivable Services

5. Paid for advertising in the local paper Advertising services Money

6. Paid the account in no. 2 Cancellation of obligation Money

7. Received payment from C. de leon Money Cancellation of receivable

8. Paid the monthly salary of the assistant Services Money

9. Paid the rent of the shop space Right to occupy the space Money

10. Paid the monthly telephone bill Services Money


PRACTICE QUESTIONS:
Indicate if the listed business below is (a). Service concern, (b). Merchandising
concern, (c). Manufacturing concern
1. Hotels -
2. Restaurants -
3. Shoe factory -
4. Textile mills -
5. Barber shop -
6. Furniture store -
7. Poultry supply store -
8. Grocery store
9. Newsstand
10. Automobile repair shop
11. Dress shop
12. Department store
13. Schools
14. Medical clinic
15. Appliance store
Thank You!

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