FABM Flashcards
the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part of at least, of financial character and interpreting the results thereof.”
Accounting
Involves selecting economic events that are relevant to a particular business transaction.
× Example:
Sales of bread
* Purchase of materials
identifying
Involves keeping a chronological diary of events that are measured in pesos.
* The diary referred to in the definition are the:
* Journals
* Ledgers
Recording
- Occurs through the preparation and distribution of financial and other accounting reports
Communicating
Accounting is a ___________
x is a service activity
x is a process
× deals with financial information and transactions
× is an information system
× is both an art and a discipline
- Around 3600 BC, record-keeping was already common from
Mesopotamia, China and India to Central and South America. - The oldest evidence of this practice was the “clay tablet” of
Mesopotamia which dealt with commercial transactions at the time such as listing of accounts receivable and accounts payable
Cradle of Civilization (1)
The most important event in accounting history is generally considered to be the dissemination of double-entry bookkeeping system by Luca Pacioli in 14th century
Italy.
14TH CENTURY - DOUBLE-ENTRY
BOOKKEEPING (2)
was an Italian mathematician, Franciscan friar, collaborator with Leonardo da Vinci, and an early contributor to the field known as accounting.
FRA LUCA BARTOLOMEO
DE PACIOLI
“The Father of Accounting and Bookkeeping”* in Europe and he was the second person to publish a work on the double-entry system of bookkeeping on the continent.
FRA LUCA BARTOLOMEO
DE PACIOLI
He wrote Summa de Arithmetica, Geometria, Proportioni et
Proportionalita (Everything about
Arithmetic, Geometry, Proportion and Proportionality)
FRA LUCA BARTOLOMEO
DE PACIOLI
The thorough study of accounting and development of accounting theory began during this period. Social upheavals affecting government, finances, laws, customs and business had greatly influenced the development of accounting
FRENCH REVOLUTION (1700s) (3)
Mass production and the great importance of fixed assets were given attention during this period
THE INDUSTRIAL REVOLUTION (1760 - 1830 ) (4)
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 the Chartered Accountant (CA).
In the late 1800s, chartered accountants from Scotland and Britain came to the U.S. to audit British investments. Some of these accountants stayed in the U.S., setting up accounting practices and becoming the origins of several U.S.
accounting firms.
19TH CENTURY - THE BEGINNINGS OF MODERN ACCOUNTING IN EUROPE AND AMERICA (5)
x The accounting profession in the 20th century developed around state requirements for financial statement audits. Beyond the industry’s self-regulation, the government also sets accounting standards, through laws and agencies such as the Securities and Exchange Commission (SEC).
THE PRESENT - THE DEVELOPMENT OF MODERN ACCOUNTING STANDARDS AND COMMERCE (6)
an association of Certified Public Accountants engaged in the various fields of accounting. _______ classifies these fields or branches of accounting into four main sectors, namely: Public Accounting (public practice), Private Accounting (commerce and industry), Government Accounting and Accounting Education.
(PICPA) Philippine Institute of Certified Public Accountants`
the accountant performs or offers to perform any activity that will result to the issuance of an attest report that is in accordance with professional standards. Such activities include consulting services, personal financial planning services, the preparation of tax returns, and advice on tax matters for a fee.
Public accounting
What is CPA
Certified Public Accountants
Examples of public accounting services:
- External Auditing
- Tax Preparation and Planning Service
- Management Advisory Services
public accountants examine the financial statements in order to express an opinion on whether statements have been fairly presented or not .The auditor critically examines the accounting records of the client to check if business transactions have been properly recorded. The auditor then issues an independent audit report of his or her findings.
External Auditing
Some CPAs also offer tax services wherein they advise and help their clients in tax planning and preparing tax returns. In this branch of public accounting, the accountant is a tax specialist. He or she is expected to be knowledgeable about revenue regulations and tax laws. He or she also represents the client in any tax-related case filed by the Bureau of Internal Revenue (BIR).
TAX PREPARATION AND PLANNING SERVICE
an area in public accounting that involves financial planning and control, and the development of accounting and computer systems. The accountant advises management on matters such as the installation of an accounting system, finance, budgeting, business processes, introduction of new products, and other business activities.
MANAGEMENT ADVISORY SERVICES
involves setting up systems of recording business transactions that are aggregated into financial statements.
It includes the development and interpretation of accounting information intended to assist management in operating business.
PRIVATE ACCOUNTING
This branch of private accounting provides economic and financial information for investors, creditors, and other external users. It uses a system of reporting designed to meet the information needs of external users. Financial accounting is governed by an established body of standards and principles. It focuses on the recording and classifying of business transactions while applying Generally Accepted Accounting Principles (GAAP).
FINANCIAL ACCOUNTING
accounting under private accounting are as follows:
- Financial Accounting
2.Cost Accounting
3.Budgeting
4.Accounting Information System
5.Tax Accounting
6.Internal Auditing
focuses on accumulating manufacturing costs for financial reporting and decision-making purposes. It covers the reporting of financial information relevant to manufacturing operations. It provides management with the necessary tools and information for planning and controlling activities.
COST ACCOUNTING
provides a detailed collection and reporting of the expenditures and revenues involved in a business or company operations. This branch of private accounting tracks the financial details of the firm, including the money taken in and the money spent by the company and the staff. It also assists the management in quantifying goals concerning revenue, cost of sales or services, and operating expenses
BUDGETING
collects and processes transaction data. It also disseminates information to interested parties. It involves the designing of both manual and computerized data processing systems.
ACCOUNTING INFORMATION SYSTEM
It deals with the preparation of various tax returns and doing tax planning for the business. This is similar to the tax services done in public accounting.
TAX ACCOUNTING
This branch of private accounting reviews the business operations to check if they are complying to management policies. It also evaluates the efficiency of business operations. Normally, an internal auditor is a hired employee of a company.
INTERNAL AUDITING
is a system used in government offices to record and report financial transactions. It is the systematic process of collecting, recording, classifying, summarizing and interpreting the financial transactions relating to the revenues and expenditures of government offices. Government accounting reveals how public funds have been generated and utilized. It is employed in both national and local governments.
GOVERNMENT ACCOUNTING
what is (COA)
Commission on Audit
This branch of accounting is responsible for training future accountants. It engages in teaching accounting, financial management, taxation and other related business course. As per Commission on Higher Education (CHED) Memorandum Order (CMO) No. 3, Series 2007, a CPA in accounting education should possess the educational qualifications, professional experience, classroom teaching ability, computer literacy, scholarly research productivity, and other attributes that are essential for the successful conduct of a professional accounting program.
ACCOUNTING EDUCATION
CPAs in Specialized Areas
- Forensic Accounting
- Information Technology Services
- Environmental Accounting
- International Accounting
provide the detective work needed to investigate and examine evidence of white-collar financial crimes such as stealing and fraud. They often act as expert witnesses in legal proceedings are prepare evidence to be presented in court.
Forensic Accounting
Businesses often seek individuals who can design and implement customized software systems. CPAs who possess strong skills in information technology can work with e-commerce ventures and consult with others to determine which decisions are the most financially and technologically sound for a company.
Information Technology Services
CPAs involved in ______________ determine how companies can be both profitable and environmentally-responsible. They do environmental compliance and set up preventative systems to ensure compliance and avoid future environmental-related claims or disputes.
Environmental Accounting
are knowledgeable in international trade rules and regulations, international mergers, government regulations, tax laws, and overseas transactions. CPAs who work in this area often travel abroad and can speak and understand different languages.
International Accounting
It is important to keep in mind that the primary objective of accounting is to provide information that is useful to parties (persons and groups) inside and outside the business or corporation.
These parties are called ______.
users
Users of financial information in a company can be categorized into two: ________________
external users and internal users.
are people outside the company. This means that they do not work in the company and are not directly involved in its operations. They are only interested in the information generated by financial records in the accounting procedures of the company.
External users
The external users of financial reports are those who make their decisions based on the company’s financial information. They are the following:
- Potential and existing investors
- Creditors and potential creditors
- Customers and consumers
- Suppliers
- Tax authorities
- Regulatory bodies
- Public
They need information to help them decide whether they should invest or not in the business. Through past performances or operating results of the company, they would want to know potential returns on their investment.
POTENTIAL AND EXISTING INVESTORS
Their goal is to make more money or earn a profit out of the investments they have provided. As such, investors are also called ___________. ___________ of a company provide shares. The shares they provide are used by the company to buy resources and pay fees to continue its business operations.
Shareholder
They assess the creditworthiness and the capability of the business to pay its obligation including the related interest on maturity date. One example of a creditor is a bank. A bank can be a possible financier of a business. Take note that creditors decide and determine whether they should loan money or deliver supplies to a company.
CREDITORS AND POTENTIAL CREDITORS
They may obtain financial information to acquire a picture of the longevity and continuity of a business, especially when there is a potential long-term engagement and interaction between them and the business enterprise.
CUSTOMERS and CONSUMERS
They use the financial statements of their customers to determine whether the debts owed to them will be paid when due or whether the customer has enough funds or resources to pay the goods to be delivered or the services to be rendered.
SUPPLIERS
Government and ___________ must determine how much a business earns in order to assess its tax liabilities. Thus, they use financial information to calculate how much tax a company should be paying and if it is paying the correct amount of tax.
TAX AUTHORITIES
They want to ensure that the company’s disclosure of accounting information is in accordance with the rules and regulations set in order to protect the interest of the stakeholders who rely on such information.
REGULATORY BODIES
They use the financial information to know how the business affects the economy possible prospects for employment, and/or for educational and research purposes.
PUBLIC
This presents the entity’s assets, liabilities, and capital as of a given date. The data in this statement provide information about the entity’s financial condition.
Statement of Financial Position
- This shows the financial performance of a business for a certain period. It tells how much a business has earned or lost. This statement shows the results of operations of the enterprise for a given period of time.
Statement of Comprehensive Income
This tells how much of the company’s net income, which is shown on the Statement of Financial Position, is reinvested in the business. Drawing/withdrawal is also a deduction to equity account.
Statement of Changes in Equity
This statement shows the sources or inflows and uses or outflows of cash for a specific period of time.
Statement of Cash Flows
are those who make decisions on behalf of the organization.
INTERNAL USERS
Internal users include:
.
- Owners
- Managers / Management
- Employees / Labor Unions
A business can be considered as one of the primary sources of income of the business _________. An ________ depends on financial information to determine the profitability and longevity of his or her business. Ultimately, he or she is the one who decides whether to pursue and maintain the business or not.
OWNERS
use financial information in carefully planning the improvement of the business. This allows them to identify the areas that require more attention and the procedures that need to be checked. They also use the information to assess the performance of the business under their guidance.
MANAGERS / MANAGEMENT
They plan, organize and run a business.
MANAGERS
