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Lesson 1 Introduction To Accounting

Accounting involves identifying, recording, and communicating economic events. It deals with financial information and transactions. The main branches of accounting are financial accounting, management accounting, government accounting, auditing, tax accounting, cost accounting, accounting education, and accounting research. Financial accounting focuses on external reporting while management accounting focuses on internal reporting to aid in decision making.

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Kelvin Jay Sebastian Sapla
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64 views13 pages

Lesson 1 Introduction To Accounting

Accounting involves identifying, recording, and communicating economic events. It deals with financial information and transactions. The main branches of accounting are financial accounting, management accounting, government accounting, auditing, tax accounting, cost accounting, accounting education, and accounting research. Financial accounting focuses on external reporting while management accounting focuses on internal reporting to aid in decision making.

Uploaded by

Kelvin Jay Sebastian Sapla
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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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INTRODUCTION TO

ACCOUNTING
KELVIN JAY S. SAPLA
ACCOUNTING DEFINED

• “Accounting is the process of


IDENTIFYING,
RECORDING, and COMMUNICATING
economic events of an organization to
interested users.”
ACCOUNTING DEFINED

• IDENTIFYING – this involves selecting economic events that are relevant to


a particular business transaction
• RECORDING – this involves keeping a chronological diary of events that are
measured in pesos. The diary referred to in the definition are the journals
and ledgers which will be discussed in future chapters.
• COMMUNICATING – occurs through the preparation and distribution of
financial and other accounting reports.
NATURE OF ACCOUNTING

• Accounting is a service activity


• Accounting is a process
• Accounting is both an art and a discipline
• Accounting deals with financial information and transactions
• Accounting is an information system
FUNCTIONS OF ACCOUNTING IN BUSINESS

• Accounting is the means by which business information is communicated to


business owners and stakeholders
• Accounting helps the users of these financial reports to see the true picture
of the business in financial terms
BRANCHES OF ACCOUNTING

• Financial Accounting
Financial accounting is the broadest branch and is focused on the needs of external users.
Financial accounting is primarily concerned with the recognition, measurement and
communication of economic activities. This information is communicated in a complete set of
financial statements. It is assumed under this branch that the users have one common
information need. Financial accounting conforms with accounting standards developed by
standard-setting bodies. In the Philippines, there is a Council created to set these standards.
Examples of these financial reports include:
• the balance sheet (statement of financial condition)
• income statement (the profit and loss statement, or P&L)
• statement of cash flows
Management (or Managerial) Accounting

Management accounting emphasizes the preparation and analysis of


accounting information within the organization. The objective of managerial
accounting is to provide timely and relevant information for those internal
users of accounting information, such as the managers and employees in their
decision-making needs. Oftentimes, these are sensitive information and is not
distributed to those outside the business - for example, prices, plans to open
up branches, customer list, etc. Managerial accounting involves financial
analysis, budgeting and forecasting, cost analysis, evaluation of business
decisions, and similar areas.
Government Accounting

Government accounting is the process of recording, analyzing, classifying,


summarizing, communicating and interpreting financial information about the
government in aggregate and in detail reflecting transactions and other
economic events involving the receipt, spending, transfer, usability and
disposition of assets and liabilities. This branch of accounting deals with how
the funds of the government are recorded and reported.
Auditing

There are two types of auditing: external and internal auditing. External auditing
refers to the examination of financial statements by an independent CPA (Certified
Public Accountant) with the purpose of expressing an opinion as to fairness of
presentation and compliance with the generally accepted accounting principles
(GAAP). The audit does not cover 100% of the accounting records but the CPA
reviews a selected sample of these records and issues an audit report.

Internal auditing deals with determining the operational efficiency of the company
regarding the protection of the company’s assets, accuracy and reliability of the
accounting data, and adherence to certain management policies. It focuses on
evaluating the adequacy of a company's internal control structure by testing
segregation of duties, policies and procedures, degrees of authorization, and other
controls implemented by management.
Tax Accounting

Tax accounting helps clients follow rules set by tax authorities. It includes tax
planning and preparation of tax returns. It also involves determination of
income tax and other taxes, tax advisory services such as ways to minimize
taxes legally, evaluation of the consequences of tax decisions, and other tax-
related matters.
Cost Accounting

Sometimes considered as a subset of management accounting, cost


accounting refers to the recording, presentation, and analysis of
manufacturing costs. Cost accounting is very useful in manufacturing
businesses since they have the most complicated costing process.
Cost accountants also analyze actual and standard costs to help managers
determine future courses of action regarding the company's operations.
Accounting Education

This branch of accounting deals with developing future accountants by


creating relevant accounting curriculum. Accounting professionals can
become faculty members of educational institutions. Accounting educators
contribute to the development of the profession through their effective
teaching, publications of their research and influencing students to pursue
careers in accounting. Accounting teachers share their knowledge on
accounting so that students are informed of the importance of accounting and
its use in our daily lives.
Accounting Research

Accounting research focuses on the search for new knowledge on the effects of
economic events on the process of summarizing, analyzing, verifying, and reporting
standardized financial information, and on the effects of reported information on
economic events. Researchers typically choose a subject area and a methodology on
which to focus their efforts. The subject matter of accounting research may include
information systems, auditing and assurance, corporate governance, financials,
managerial, and tax. Accounting research plays an essential part in creating new
knowledge. Academic accounting research "addresses all aspects of the accounting
profession" using a scientific method. Practicing accountants also conduct
accounting research that focuses on solving problems for a client or group of clients.
The Accounting research helps standard-setting bodies around the world to develop
new standards that will address recent issues or trend in global business.

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