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    Chapter 1

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    Mikaela Lacaba
    Accounting is the systematic process of measuring and reporting relevant financial information about economic activities. It involves recording, classifying, summarizing, and interpreting financial transactions and events. The four aspects of accounting are recording, classifying, summarizing, and interpreting information to meet the needs of users such as investors, government, creditors, and management. Accounting principles like the entity concept, periodicity, going concern assumption, and fundamental principles like objectivity and consistency guide accounting practice and financial reporting.

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    Chapter 1

    Uploaded by

    Mikaela Lacaba
    27 views4 pages
    Accounting is the systematic process of measuring and reporting relevant financial information about economic activities. It involves recording, classifying, summarizing, and interpreting financial transactions and events. The four aspects of accounting are recording, classifying, summarizing, and interpreting information to meet the needs of users such as investors, government, creditors, and management. Accounting principles like the entity concept, periodicity, going concern assumption, and fundamental principles like objectivity and consistency guide accounting practice and financial reporting.

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    CHAPTER 1

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    Accounting is the systematic process of measuring and reporting relevant financial information about economic activities. It involves recording, classifying, summarizing, and interpreting financial transactions and events. The four aspects of accounting are recording, classifying, summarizing, and interpreting information to meet the needs of users such as investors, government, creditors, and management. Accounting principles like the entity concept, periodicity, going concern assumption, and fundamental principles like objectivity and consistency guide accounting practice and financial reporting.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    27 views4 pages

    Chapter 1

    Uploaded by

    Mikaela Lacaba
    Accounting is the systematic process of measuring and reporting relevant financial information about economic activities. It involves recording, classifying, summarizing, and interpreting financial transactions and events. The four aspects of accounting are recording, classifying, summarizing, and interpreting information to meet the needs of users such as investors, government, creditors, and management. Accounting principles like the entity concept, periodicity, going concern assumption, and fundamental principles like objectivity and consistency guide accounting practice and financial reporting.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 4

    fundamentals of

    accounting [FUNDAMENTAL CONCEPTS AND PRINCIPLES]

    DEFINITION OF ACCOUNTING needs of the users


    4) INTERPRETING
    •Accounting is the systematic
    -to speak/act/define/represent
    process of measuring and reporting
    the qualitative and quantitative
    relevant financial information about
    information about the business
    the activities of an economic
    transactions in a language
    organization or unit.
    comprehensible to the users of
    •(AICPA) The art of recording, the FS
    classifying, and summarizing in a -through this, users are able to
    significant manner under terms of determine the financial standing
    money, transactions and events, of the company, its stability, and
    which are in part at least of a growth potential
    financial character, and interpreting -they use this for specific
    the results thereof. business decisions
    -this aspect of accounting shows
    •(PICPA) Accounting is a service us that accounting is the
    activity. Its function is to provide language of business
    quantitative information, primarily
    financial in nature, about economic
    entities, that is intended to be useful
    in making economic decisions. USERS OF FINANCIAL
    INFORMATION/PARTIES
    FOUR ASPECTS OF ACCOUNTING
    INTERESTED IN FINANCIAL
    1) RECORDING INFORMATION
    -writing down of business
    transactions chronologically in 1) INVESTORS/OWNERS/STOCKHOLDERS
    the books of account as they -They provide the financial
    transpire/happen resources to keep the business
    2) CLASSIFYING running. They need the financial
    -sorting similar and related information to decide whether to
    business transactions into three invest or not. This all depends on
    categories: ASSETS, LIABILITIES, the estimated amount of income on
    OWNER’S EQUITY their investment.
    3) SUMMARIZING
    -preparing financial statements 2) GOVERNMENT
    based in the previously recorded -For tax purposes and Securities
    transactions in the books of and Exchange Commission (SEC)
    account to meet the information requirements.
    fundamentals of
    accounting [FUNDAMENTAL CONCEPTS AND PRINCIPLES]

    One Person Corporation is


    a corporation with a
    3) FINANCIAL INSTITUTIONS/ single stockholder, who must be a
    CREDITORS natural person, trust, or an estate.
    -To determine the capacity of the It must not be confused with
    organization to pay its obligations a corporation sole. The creation of a
    on time. One Person Corporation or OPC is
    provided in Title XIII (Special
    4) MANAGEMENT Corporations) of Republic Act No.
    -To set goals for the organization, 11232, also known as the “Revised
    evaluate the progress, and use it as Corporation Code”. The guidelines,
    a guide for future management as provided in SEC Memorandum
    actions or decisions. Circular No. 7, series of 2019.

    5) EMPLOYEES THREE TYPES OF BUSINESS


    -For employees to determine if they OPERATIONS
    have a future in the company
    (company stability). 1) SERVICE – a business operation
    engaged in the rendering of services
    Examples: dental clinic, barber shop,
    THREE TYPES OF BUSINESS laundry services, business services,
    ORGANIZATION fitness facilities, hospitals, hotel &
    1) SOLE PROPRIETORSHIP lodging
    -Owned and managed by only one 2) TRADING/MERCHANDISING
    person - a business operation engaged in
    2) PARTNERSHIP buying and selling goods
    -Owned and managed by two or -involved in the purchasing and
    more people who agree to contribute converting of raw materials to
    money, property or industry to a finished goods
    common fund for the purpose of Examples: grocery, sari-sari store
    earning a profit 3) MANUFACTURING – business
    3) CORPORATION operation engaged in the production
    -Managed by an elected board of of items to be sold
    directors -involved in the purchasing and
    -Unit of ownership is called “share converting of raw materials to
    of stock”; investors are stockholders finished goods
    •One Person Corporation Examples: shoe factory, food
    processing
    fundamentals of
    accounting [FUNDAMENTAL CONCEPTS AND PRINCIPLES]

    1. ENTITY CONCEPT
    •Many companies engage in more •the business enterprise is separate
    than one type of bus. ops. They run and distinct from its owners
    different departments or divisions 2. PERIODICITY
    for different purposes. •the concept behind providing
    EXAMPLES financial accounting information
    about the economic activities of an
    -TECH COMPANY produces phones enterprise for specified time periods
    (MANUFACTURING) and then sells •one year is usually considered as
    them through distribution centers one accounting period
    (MERCHANDISING) then also Types of Accounting Periods
    provides repairs & maintenance a) CALENDAR YEAR
    (SERVICE) -starts on January 1 and
    ends on December 31
    -RESTAURANT combines
    b) FISCAL YEAR
    ingredients in making a meal
    -starts on any month and
    (MANUFACTURING) and also
    ends twelve months after
    provides a dining venue (SERVICE)
    •NATURAL BUSINESS YEAR
    and sell bottles of beverage
    -any twelve-month period that
    (MERCHANDISING)
    ends when business activities
    are at their lowest point

    GENERALLY ACCEPTED 3. GOING CONCERN


    ACCOUNTING PRINCIPLES (GAAP) •assumes that the enterprise will
    continue to operate indefinitely
    •broad, general statements or
    “rules” and “procedures” that serve
    as guides in the accounting practice BASIC PRINCIPLES
    1) OBJECTIVITY PRINCIPLE
    •standards, assumptions, and
    •all business transactions
    concepts with general acceptability
    must be duly supported by
    •measurement techniques and verifiable evidence
    standards used in the presentation •official receipts, deposit slips
    and preparation of financial 2) HISTORICAL COST
    statements •all properties and services
    acquired by the business
    must be recorded at its
    original acquisition cost
    FUNDAMENTAL CONCEPTS
    fundamentals of
    accounting [FUNDAMENTAL CONCEPTS AND PRINCIPLES]

    3) ACCRUAL PRINCIPLE
    •income is recognized at the
    time it is earned, expenses are
    recognized at the time they
    are incurred (when they are
    actually used and not when
    they are payed)
    4) ADEQUATE DISCLOSURE
    •all material facts that will
    significantly affect the
    financial statements must be
    indicated
    •for example, if something was
    purchased, it should be
    recorded at its historical cost
    but the current market value
    may be included/indicated on
    the FS (footnote/parenthetical)
    5) MATERIALITY
    •financial reporting must only
    be concerned with information
    significant enough to affect
    decisions
    6) CONSISTENCY
    •approaches used in reporting
    must be uniformly employed
    or used from period to period
    to allow comparison of results
    between time periods (changes
    must be clearly explained)

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