FUNDAMENTALS OF ACCOUNTING PRELIMINARY.pptx

Lesson

1. FUNDAMENTALS OF ACCOUNTING BSBA 11

2. Course Introduction Course Code: Actg 101 Credit Units: 3 Units Class Schedule: 3 hours per week Thursday 5:30 – 8:30 Room 101 Professor: Reynald M. Antaso

3. Course Introduction Calenda r – Topics (Preliminary) Lesson 1: Introduction to Accounting Lesson 2: Branches of Accounting Lesson 3: Users of Accounting Information Preliminary Examination

4. Course Introduction Calenda r – Topics (Semi Midterm) Lesson 4: Forms of Business Organizations Lesson 5: Types of Business According to Activities Lesson 6: Accounting Concepts and Principles Semi Midterm Examination

5. Course Introduction Calenda r – Topics (Midterm) Lesson 7: The Accounting Equation Lesson 8: Types of Major Accounts Midterm Examination

6. Course Introduction Calenda r – Topics (Semi Finals) Lesson 9: Books of Accounts Lesson 10: Business Transactions and Their Analysis as Applied to the Accounting Cycle of a Service Business Pt.1 Semi Final Examination

7. Course Introduction Calenda r – Topics (Finals) Lesson 11: Business Transactions and Their Analysis as Applied to the Accounting Cycle of a Service Business Pt.2 Lesson 12: Accounting Cycle of a Merchandising Business Project Final Examination

8. Lesson 1: Introduction to Accounting

9. Introduction to Accounting When deciding between buying a bottle of soft drinks or fruit juice, what is the basis of your decision? Do you compare the prices of both and then decide? Do you keep track of your expenses? Do your parents ask how you spend your allowance every day?

10. Introduction to Accounting “Accounting is the process of IDENTIFYING , RECORDING , and COMMUNICATING economic events of an organization to interested users.”

11. Accounting Process IDENTIFYING – this involves selecting economic events that are relevant to a particular business transaction The economic events of an organization are referred to as transactions. Examples of economic events or transactions - In a bakery business: sales of bread and other bakery products purchases of flour that will be used for baking purchases of trucks needed to deliver the products

12. Accounting Process 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.

13. Nature of Accounting Accounting is a process: A process refers to the method of performing any specific job step by step according to the objectives or targets . Accounting is identified as a process, as it performs the specific task of collecting, processing and communicating financial information . In doing so, it follows some definite steps like the collection , recording , classification , summarization , finalization , and reporting of financial data.

14. Nature of Accounting Accounting is both an art and a discipline. Accounting is the art of recording, classifying, summarizing and finalizing financial data. The word ‘art’ refers to the way something is performed . It is behavioral knowledge involving a certain creativity and skill to help us attain some specific objectives. Accounting is a systematic method consisting of definite techniques and its proper application requires skill and expertise . So by nature, accounting is an art. And because it follows certain standards and professional ethics, it is also a discipline .

15. Nature of Accounting Accounting deals with financial information and transactions: Accounting records financial transactions and data, classifies these and finalizes their results given for a specified period of time, as needed by their users. At every stage, from start to finish, accounting deals with financial information and financial information only . It does not deal with non-monetary or non-financial aspects of such information.

16. Functions of Accounting Accounting is an information system: Accounting is recognized and characterized as a storehouse of information . As a service function, it collects processes and communicates financial information of any entity . This discipline of knowledge has evolved to meet the need for financial information as required by various interested groups.

17. History of Accounting Ancient Civilization Accounting arguably began before the use of abstract counting. Around 7,500 BC, the Mesopotamians were using small clay objects as counters for keeping account of goods . Each object represented particular quantities of different types of commodities, such as food, clothing, and even labor.

18. History of Accounting Ancient Civilization More than 5,000 years ago, Egyptian bookkeepers were keeping detailed records of the royal inventory , using bone labels attached to goods like oil and linen to keep track of things such as owners, suppliers, and amounts .

19. History of Accounting 15 th Century T he double entry bookkeeping system we’re familiar with today was first properly described by Luca Pacioli in 1494 . Referred to as ‘the father of bookkeeping and accounting’ , he defined much modern day thinking about debits, credits, journals, and ledgers.

20. History of Accounting Industrial Revolution As industries expanded and global trade flourished, the need for technically proficient accountants capable of sophisticated calculations became apparent. They embraced emerging technologies like the telegraph to facilitate communication and the exchange of financial information over long distances. .

21. History of Accounting 19 th Century The Beginnings of Modern Accounting in Europe and America. The modern, formal accounting profession emerged in Scotland in 1854 when Queen Victoria granted a royal charter to the Institute of Accountants in Glasgow, creating the profession of chartered accountant (CA).

22. History of Accounting 20 th Century Electronic calculators were designed in the 1960s, and they drastically reduced the need for manual calculations. This made arithmetic tasks faster and much more accurate, helping accountants to perform complex operations with ease. The introduction of computers in the late 1980s enabled the development of sophisticated accounting software.

23. QUIZ: TRUE OR FALSE Accounting is the process of identifying, recording, and communicating economic events. The double-entry bookkeeping system was first introduced in the 20th century. Mesopotamians were using small paper objects as counters for keeping account of goods. Accounting only deals with financial transactions. Lucas Pacioli is considered the ‘Father of Accounting.’

24. QUIZ: TRUE OR FALSE Egyptian bookkeepers were keeping detailed records of the royal inventory. Accounting is both an art and a discipline. The double entry bookkeeping system was introduced in the 14 th century. The Mesopotamians were the first civilization known to use accounting practices. All businesses follow the same accounting cycle regardless of their industry.

25. QUIZ: Identification This involves selecting economic events that are relevant to a particular business transaction. The year when electronic calculators were designed. Object that Mesopotamians used as counters for keeping account of goods This involves keeping a chronological diary of events that are measured in pesos. The book where all journal entries are posted and classified into accounts.

26. QUIZ: Identification The formal accounting profession was first recognized in this country in 1854. The historical period when accounting became more advanced due to the expansion of industries. Refers to the way something is performed. The one who created the profession of chartered accountant. The materials used by the Egyptians for recording.

27. QUIZ: Explain the processes of accounting. Enumerate the 4 nature of Accounting and explain.

28. BRANCHES OF ACCOUNTING

29. Financial accounting is the process of recording, summarizing, and reporting a company's business transactions through financial statements . These statements are: the income statement, the balance sheet, the cash flow statement, and the statement of retained earnings.

30. Financial accounting Provides financial information about a business to external users Used for both public and private purposes

31. MANAGEMENT ACCOUNTING A branch of accounting which focuses on the preparation of financial reports used by managers in their day-to-day decision-making. Reports generated using management accounting are for internal users only . They can be done daily, weekly, or whenever managers require a specific report.

32. Management reports, typically contain information regarding the amount of cash on hand, the level of sales revenue for a particular period, costs incurred , or even the comparison of actual results with budgeted amounts.

33. Managerial accounting Provides financial information and analysis to internal stakeholders , such as managers and executives Supports decision-making, planning, and control

34. Managerial Accounting vs. Financial Accounting The key difference between managerial accounting and financial accounting relates to the intended users of the information . Managerial accounting information is aimed at helping managers within the organization make well-informed business decisions, while financial accounting is aimed at providing financial information to parties outside the organization .

35. Managerial Accounting vs. Financial Accounting Financial accounting is used for external reporting purposes and managerial accounting is used for management internally . Financial accounting focuses on providing an overview of a company's financial health and managerial accounting provides more detailed insights into how a company is run on a day-to-day basis .

36. Cost accounting: Types of Costs Fixed costs are costs that don't vary depending on the level of production . These are usually things like the mortgage or lease payment on a building (or a piece of equipment) that's depreciated at a fixed monthly rate. An increase or decrease in production levels would cause no change in these costs.

37. Cost accounting: Types of Costs Variable costs are costs tied to a company's level of production . For example, a floral shop ramping up its floral arrangement inventory for Valentine's Day will incur higher costs when it purchases an increased number of flowers from a local nursery.

38. Cost accounting: Types of Costs Operating costs are costs associated with the day-to-day operations of a business . These costs can be either fixed or variable, depending on the unique situation of the business. Direct costs are costs related to producing a specific product .

39. 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 accounting will also help the owner set the selling price of his products. For example, if the cost accounting records shows that the total cost to produce one can of sardines is PHP50, then the owner can set the selling price at PHP60.

40. 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.

41. What are the sources of income of the government? Where do these taxes go? Government accounting deals with these transactions, the recording of inflow and outflow of funds of the government.

42. 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.

43. Tax Accounting subsector of accounting that deals with the preparations of tax returns and tax payments . used by individuals, businesses, corporations and other entities.

44. 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.

45. 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.

46. USERS OF ACCOUNTING INFORMATION

47. USERS OF ACCOUNTING INFORMATION Internal users – those who belong to the business organization itself and whose decision directly affect the operations of the business. Shareholders Partners Owners or Sole Proprietors Management Company employees

48. USERS OF ACCOUNTING INFORMATION SHAREHOLDERS a person or entity that owns a share of a corporation and has a financial interest in its success. Shareholders are also known as stockholders. Corporate investors Who hold a certificate of stock Registered in the corporation’s Stock and Transfer book

49. USERS OF ACCOUNTING INFORMATION SHAREHOLDERS Use accounting information for assurance of the safety and continued profitability of their investment, which they may increase, maintain, or discontinue.

50. USERS OF ACCOUNTING INFORMATION PARTNERS are people or entities that share ownership and responsibility for a business. contribute capital, labor, skills, and experience to the business. Owners or investors in a business formed by two or more individuals.

51. USERS OF ACCOUNTING INFORMATION PARTNERS Capitalist partners – contribute money or property Industrial partners – contribute expertise or services Partners agree to share profits or losses according to their agreement. Use accounting information to ascertain that profits have been correctly computed and shared according to agreement.

52. USERS OF ACCOUNTING INFORMATION OWNERS or SOLE PROPRIETORS The decision-maker of the business entity Accounting information helps the sole proprietor make appropriate economic decisions and assures that his profit objective has been achieved.

53. USERS OF ACCOUNTING INFORMATION OWNERS or SOLE PROPRIETORS The decision-maker of the business entity Accounting information helps the sole proprietor make appropriate economic decisions and assures that his profit objective has been achieved.

54. USERS OF ACCOUNTING INFORMATION MANAGEMENT These are the members of the board, corporate officers, committee chairman, and department heads who work for the achievement of the organization’s goal.

55. USERS OF ACCOUNTING INFORMATION MANAGEMENT They use accounting information: planning and allocating company resources choose among alternatives in making decisions monitoring past performances it helps them decide whether to buy or lease machinery needed to approximate whether the sales volume will increase if selling price is decrease

56. USERS OF ACCOUNTING INFORMATION COMPANY EMPLOYEES Personnel and staff employed by the company Accounting information help them decide their own future personal careers. Help them assess their employer has the ability to provide them retirement benefits and other opportunities.

57. USERS OF ACCOUNTING INFORMATION External users – users and decision makers who are not shareholders and do not belong to the management, personnel or staff of the business. Creditors and suppliers Potential investors Taxing authorities Government agencies Labor unions General public

58. USERS OF ACCOUNTING INFORMATION CREDITOR AND SUPPLIERS Use accounting information as bases of decisions on whether to extend or allow credit to the entity, and the amount, terms and security or collateral required. Decide whether their loans are safe and that they will receive the interest when due.

59. USERS OF ACCOUNTING INFORMATION POTENTIAL INVESTORS, CREDITORS, SUPPLIERS Use accounting information to make decisions on possible commitment with the company. GOVERNMENT AGENCIES Such as Securities and Exchange Commission and Stock exchange Use the information to make assessments and regulate activities, formulate policies or recommend practices to the business

60. USERS OF ACCOUNTING INFORMATION TAXING AUTHORITIES Use accounting information for taxation policies Bureau of Internal Revenue (BIR) use the information as basis of their evaluation, investigation, and assessment of tax returns, and the taxes or penalties due.

61. USERS OF ACCOUNTING INFORMATION LABOR UNIONS Use accounting information to assess the business’ strengths, and evaluate its prospects in the industry; Use the evaluation to prepare wage and contract demand with their negotiation with the company

62. USERS OF ACCOUNTING INFORMATION GENERAL PUBLIC This includes the customer of the company, applicants for employment, financial analysts and advisors, lawyers and legal counsels, financial press, reporting agencies, and trade associations.

63. USERS OF ACCOUNTING INFORMATION GENERAL PUBLIC Customers – basis for additional orders or search for alternative source of supply Applicants – guide for choosing possible employer Lawyers and legal counsels – use for determining legality of certain matters Financial analysts and advisor – evaluation of investment prospects

64. USERS WITH DIRECT OR INDIRECT INTERESTS Internal (Direct) External (Direct) External (Indirect) Creditors Creditors and suppliers Government agencies Stockholders or owner Potential Investors Regulatory authorities Management Taxing authorities Financial analysts and advisors Company employees Customers Stock exchange Lawyers and Legal counsels Financial press Labor unions

65. Quiz: Identification This branch of accounting focuses on preparing financial reports for managers to aid in decision-making. A type of accounting that involves recording, summarizing, and reporting a company’s financial transactions for external users. This branch of accounting is primarily concerned with tracking costs related to production and helps in determining product pricing. The branch of accounting that deals with the financial transactions and fund management of the government. A type of accounting that ensures compliance with tax regulations and helps in tax planning.

66. Quiz: Identification This branch of accounting contributes to the development of future accountants by creating relevant curricula and conducting research. The branch of accounting that involves researching financial processes to improve practices and standards in the field. These individuals or entities own shares of a corporation and use accounting information to assess their investment’s profitability. Business owners who make decisions based on accounting information and ensure their profit objectives are met. This group of users includes the board members, corporate officers, and department heads who use accounting information for decision-making.

67. Quiz: Identification These are external users such as banks or suppliers who use accounting information to determine whether to grant credit or loans. These individuals or entities evaluate a company’s financial standing to decide whether to invest in the business. This government agency uses accounting information to evaluate and regulate taxation policies. A group of workers who use accounting information to negotiate wages and benefits with their employers. Customers, financial analysts, and legal professionals who use accounting information for various purposes belong to this group.

68. Quiz: Identification This branch of accounting provides financial information and analysis to internal stakeholders such as managers and executives. These individuals contribute capital, labor, skills, and experience in a business partnership and use accounting information to ensure fair profit-sharing. These external users, such as the Securities and Exchange Commission (SEC) and Stock Exchange, use accounting information to regulate businesses and formulate policies. These reports are generated in financial accounting and include the income statement, balance sheet, and cash flow statement. This type of cost remains unchanged regardless of production levels, such as rent or salaries of permanent staff.

69. Quiz: True or False Financial accounting is primarily used for internal decision-making. Managerial accounting reports are meant for external users such as investors and creditors. Cost accounting helps businesses determine the cost of production and set selling prices. Government accounting involves tracking the financial transactions of private corporations. Tax accounting assists businesses and individuals in complying with tax laws and regulations.