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Accounting

Oct 23, 2014

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ACCOUNTING FUNDAMENTALBY: Bayani D. Edlagan Ma. Cecilia S. Mercado

INTRODUCTIONThis presentation covers the concepts and practice of accounting fundamental. From the concepts and information about accounting up to the accounting cycle, which includes journalizing, reversing and closing entries. Accounting is a profession similar to medicine and law. Such profession continually evolve and change as society and the needs of society change. The objective of this presentation is to make people aware of how accounting works in relation to business and also how can it be helpful even in a simple way of living. This also emphasized the importance of accounting in any types of business. Little by little, you will be able to understand how accounting works and you will realize its significance to our daily living. This presentation is based on the book of Bayani D. Edlagan and Ma. Cecilia S. Mercado, Accounting Fundamental.

CHAPTER 1Introduction to Accounting Concepts and Practice

CHARACTERISTICS OF ACCOUNTING INFORMATION Accounting information is composed principally of financial data about business transactions, expressed in terms of money. The mere records of transactions are of little use in making informed judgments and decisions. The recorded data must be sorted and summarized before significant reports and analyses can be prepared. The basic raw materials of accounting are composed of business transaction data. Its primary end products are composed of various summaries, analyses, and reports.

USERS OF ACCOUNTING INFORMATION

Accounting provides the techniques for accumulating and the language for communicating economic data to various categories of individuals and institutions. Investors in a business enterprise need information about its financial status and its future prospects. The government agencies are concerned with the financial activities of business organizations for purposes of taxation and regulation. The individuals most dependent upon and most involved with the end products of accounting are those charged with the responsibility for directing the operations of enterprises.

USERS OF ACCOUNTING INFORMATION

For example, in the conduct of day-to-day operations, management relies upon accounting to provide the amount owed to each creditor and by each customer and the date each payment is due. The relevant information for one category of users may differ markedly from that needed by other users. Once the user groups are identified, however, and the nature of the relevant data determined, the accountant is able to establish an information network to assist each group in forming judgments and making decisions regarding future actions.

RELATIONSHIP OF ACCOUNTING TO OTHER FIELDS

Everyone engaged in business activities, from the youngest employee to the manager and owner, comes into contact with accounting. The higher the level of authority and responsibility, the greater is the need for an understanding of accounting concepts and terminology. The importance of understanding accounting is not limited to the business world. Many employees with specialized training in non-business areas also make use of accounting data and should understand accounting principles and terminology.

PROFESSION OF ACCOUNTANCY

Accountancy is a profession with stature comparable to that of engineering or law. The rapid development of accounting theory and technique during the current century has been accompanied by an expansion of the career opportunities in accounting and an increasing number of professionally trained accountants. Accountants who render accounting services on a fee basis, and staff accountants employed by them, are said to be engaged in public accounting. Accountants employed by a particular business enterprise or not-for-profit organization, as chief accountant, controller, or financial vice-president, are said to be engaged in private accounting.

PUBLIC ACCOUNTING

The practice of public accounting is generally restricted to licensed CPAs. Recognizing the need for reliable professional accounting service, the Philippine Legislature passed the Accountancy Act in March 1923. This act created the Board of Accountancy which was given the power among other, to issue the certificate of Certified Public Accountant, abbreviated as CPA. In May 1975, The revised Accountancy Law was released which define the practice of accountancy to include not only CPAs in public practice, but also those in private accounting, in government services and in education, and increased the contents and coverage of subjects in the CPA examinations.

PUBLIC ACCOUNTING

In Section 10 of the Law, it is provided that: an applicant for the CPA certificate must be a Filipino citizen (or a citizen of foreign country granting reciprocal privileges, by law, to Filipino with respect to the practice of accountancy), of good moral character and at least twenty one year of age. He/she must be a holder of a degree of Bachelor of Science in Commerce or its equivalent from any college or university recognized by the government. The CPA candidate is required to successfully pass a written examination, given by the Board of Accountancy, covering theory of accounts, business law, taxation, management advisory services, auditing theory, auditing theory, auditing problems, practical accounting problem1, problem 2. To practice public accountancy, CPAs and firms or partnerships, including partners and staff members must register with the Professional Regulation Commission, such registration to be made annually.

PRIVATE ACCOUNTING

The scope of activities and duties of private accountants varies widely. Private accountants are frequently called management accountants. If they are employed by a manufacturing concern, they may be call industrial or cost accountants. The chief accountant in a business may be call controller. Various governmental units and other not-for-profit organizations also employ accountants. Internal auditors are accountants who review the accounting and operating procedures prescribed by their companies. Accountants who specialize in internal auditing may be granted the Certified Internal Auditor (CIA) certificate.

RELATIONSHIP OF ACCOUNTING TO OTHER FIELDS

For example, an engineer responsible for selecting the most desirable solution to a technical manufacturing problem may consider cost accounting data to be the decisive factor. Lawyers use accounting data in tax cases and in lawsuits involving property ownership and damages from breach of contract. Governmental agencies rely on accounting data in evaluating the efficiency of government operations and for appraising the feasibility of proposed taxation and spending programs. Accounting plays an important role in modern society and, broadly speaking, all citizens are affected by accounting in some way.

SPECIALIZED ACCOUNTING FIELD

FINANCIAL ACCOUNTING It is concerned with the recording of transactions for a business enterprise or other economic unit and the periodic preparation of various reports from such records. Corporate enterprise must employ such principles in preparing their annual reports on profitability and financial status for their stockholders and the investing public.

SPECIALIZED ACCOUNTING FIELD

AUDITING It is a field of activity involving an independent review of the accounting records. In conducting an audit, public accountants examine the records supporting financial reports of an enterprise and express an opinion regarding their fairness and reliability. COST ACCOUNTING It emphasizes the determination and control of costs. It is concerned primarily with the costs of manufacturing processes and of manufactured products, but increasing attention is being given to distribution costs. In addition, one of the principal functions of cost accountants is to assemble and interpret cost data, both actual and prospective for the use of management in controlling current operations and in planning for the future.

SPECIALIZED ACCOUNTING FIELD

MANAGEMENT ACCOUNTING It employs both historical and estimated data in assisting management in daily operations and in planning future operations. It deals with the specific problems that confront enterprise managers at various organizational levels. The management accountant is frequently concerned with identifying alternative courses of action and in helping to select the best one. TAX ACCOUNTING It encompasses the preparation of tax returns and the consideration of the tax consequences of proposed business transactions or administrative courses of action. Accountants specializing in this field, particularly in the area of tax planning, must be familiar with tax statutes affecting their employer or clients and also must keep up to date on administrative regulations and court decisions on tax cases.

SPECIALIZED ACCOUNTING FIELD

ACCOUNTING SYSTEM It is the special field concerned with the design and implementation of procedures for the accumulation and reporting of financial data. The systems accountant must devise appropriate checks and balances to safeguard business assets and provide for information flow that will be efficient and helpful to management. BUDGETARY ACCOUNTING It presents the plan of financial operations for a period and, through records and summaries provides comparisons of actual operations with the predetermined plans. A combination of planning and controlling future operations, it is sometimes concerned to be a part of management accounting.

SPECIALIZED ACCOUNTING FIELD

INTERNATIONAL ACCOUNTING It is concerned with the special problems associated with the international trade of multinational business organizations. Accountants specialized in this area must be familiar with the influences of customs law, a