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FUNDAMENTALS OF

ACCOUNTING 1

KENROSE S. LAGUYO, CPA, MBA


INTRODUCTION
Definition of Accounting
1. Accounting Standard Council (ASC) in its old Statement of
Financial Accounting Standards (SFAS) no. 1:
It 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.
2. American Accounting Association (AAA) which comprises primarily
of accounting educators:
It is the process of identifying, measuring and communicating
economic information to permit informed judgments and decisions
by users of the information.
INTRODUCTION
Definition of Accounting
3. American Institute of Certified Public Accountants (AICPA) which is
the largest organization of practicing accountant:
It is an art of recording, classifying, 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

Purpose of Accounting
The purpose of accounting is to accumulate and report on
financial information about the performance, financial position, and
cash flows of a business.
INTRODUCTION
Nature of Accounting
We know Accounting is the systematic recording of financial
transactions and presentation of the related information of the
appropriate persons. The basic features of accounting are as follows:

Purpose of Accounting
The purpose of accounting is to accumulate and report on
financial information about the performance, financial position, and
cash flows of a business.
INTRODUCTION
Nature of Accounting
We know Accounting is the systematic recording of financial
transactions and presentation of the related information of the
appropriate persons. The basic features of accounting are as follows:
1. Accounting is a process
2. Accounting is an Art
3. Accounting is a means and not an end
4. Accounting deals with financial information and transactions
5. Accounting is an information system
INTRODUCTION
Functions of Accounting
Accounting is basically concerned with:
- recording of the business transactions
- designing the types of records to be maintained
- preparing the reports on the basis of those recorded data and
transactions and interpreting those reports
- Accounting is concerned with Communication of the results of
the recorded transactions in the form of Final Accounts
consisting of the Profit and Loss Account with different sections
and the Balance Sheet with a number of reports and
statements affixed at the end. Thus, the following are the main
functions of Accounting:

INTRODUCTION
Functions of Accounting
Accounting is basically concerned with:
1. Record Keeping
2. Protecting of Properties
3. Communication of Results
4. Meeting Legal Requirement

2 Distinct Departments of Accounting Functions


1. Historical or Stewardship Function
2. Managerial Function
INTRODUCTION
Objectives of Accounting
Is to provide information about the financial position, financial
performance and cash flows of an entity that is useful in making
economic decisions.
Information about:
Assets
Liabilities
Equity
Income and expenses, including gains and losses
Contributions by and distributions to owners in their capacity as
owners
Cash flows
INTRODUCTION
Branches of Accounting
1. Financial Accounting
2. Management Accounting
3. Tax Accounting
4. Not-for-profit Accounting
Classical Notion of Stewardship
Accountancy is the art of communicating financial information about
a business entity to users such as shareholders and managers. The
art lies in selecting the information that is relevant to the user and is
reliable
Financial statements show the results of the stewardship of
management: that is, the accountability of management for the
resources entrusted to it.
INTRODUCTION
Shareholders require periodic information that the managers are
accounting properly the resources under their control (performance
evaluation).
Shareholders also require information to predict future
performance.
Managers require information in order to control the business and
make investment decisions.

Users of Accounting Information


a. External Decision Makers. The process of developing general-
purpose financial statements and reporting general-purpose
accounting information to external decision makers is called
financial accounting.
INTRODUCTION
1. Investors
2. Employees
3. Lenders
4. Suppliers and other trade creditors
5. Customers
6. Government and their agencies
7. Public
8. Internal Decision Makers are the managers of a business
entity, responsible for managing efficiently and effectively, and
who have the power and authority to obtain whatever economic
information they need. The process of providing accounting
information to internal decision makers is called management
accounting.
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