Accounting and Its Environment

Accounting

 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 decision.

- Accounting Standards Council

 Is the art of recording, classifying and 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.-

-American Institute of Certified Public Accountants

Accounting

 is the process of identifying, measuring and communicating economic information to permit

informed judgment and decision by users of the information.

-American Accounting Association

“Accounting is about QUANTITATIVE INFORMATION”

“Information is likely to be FINANCIAL IN NATURE”

“Information should be USEFUL IN DECISION MAKING”

3 Components of Accounting

IDENTIFYING: Analytical Component

-recognition or non-recognition of business activities as accountable events.

MEASURING: Technical Component

-assigning of peso amounts to the accountable economic transactions and events.

COMMUNICATING: Formal Component

-process of preparing and distributing accounting reports to potential users of accounting
information.

Implicit in the Communication Process are:

1. Recording-or JOURNALIZING is the process of systematically maintaining a record of all

economic business transactions after they have been identified and measured.
2. Classifying-is the sorting or grouping of similar and interrelated economic transactions into
their respective classes.
3. Summarizing-is the preparation of financial statements which include the statement of
financial position, statement of comprehensive income, statement of changes in equity and statement
of cash flows.

Objective of Accounting : to provide quantitative financial information about a business that is useful to
statement users particularly owners and creditors, in making economic decisions.
Forms of Business Organizations
1. SOLE PROPRIETORSHIP-also known as the sole trader or simply a proprietorship, is a type of business
entity that is owned and run by one individual or one legal person.

2. PARTNERSHIP-owned by two or more persons who bind themselves together to contribute money,
property or industry to a common fund, with the intention of dividing the profit among themselves.

3. CORPORATION-An artificial being created by operation of law, having the right of succession and the
powers, attributes ad properties expressly authorized by law or incident to its existence.

Types of Business Operations ACTIVITY

1. SERVICE Selling people’s time
2. MERCHANDISING/TRADE Buying and selling products
3. MANUFACTURING Conversion of raw materials into finished products
The Profession-Career Opportunities
1.Public Accounting - Public accountants render independent and expert financial services to the public.
Accountants collect professional fees for their services. They offer three kinds of services, namely
auditing, taxation and management advisory services.
2. Private Accounting (Commerce and Industry) - CPAs are employed in business entities in various
capacity as accounting staff, chief accountant, internal auditor and controller.
3. Government Accounting - The focus of government accounting is the custody and administration of
funds. Accountants are employed in many branches of government, more particularly the BIR,
Commission on Audit, Department of Budget and Management, Securities and exchange Commission
and the local government units.
4. Education/Academe - This guarantees the continued development of the profession. By this,
accountants are considered modern day heroes as they make others understand the body of accounting
knowledge and prepare the candidates for the tough CPA exams.
BRANCHES OF ACCOUNTING
~AUDITING-Primary service offered by most public practitioners. It is the examination of financial
statements by independent certified public accountant for the purpose of expressing an opinion
as to the fairness with which the financial statements are prepared.

~BOOKKEEPING-Mechanical task involving the collection of basic financial data. It is procedural and
largely concerned with development and maintenance of accounting records. It is the how of
accounting.

~COST ACCOUNTING- provides economic and financial information to decision makers within a
company. It is limited predominantly to use within the company to aid management in the process of
making choices that will benefit the stockholders/owners by maximizing company profits that translate
into maximizing stockholder wealth.

~FINANCIAL ACCOUNTING- Primarily concerned with the recording of business transactions and the
eventual preparation of financial statements.

~FINANCIAL MANAGEMENT-refers to the efficient and effective management of money (funds) in such
a manner as to accomplish the objectives of the organization. It includes how to raise the capital, how to
allocate it i.e. capital budgeting. Not only about long term budgeting but also how to allocate the short
term resources like current assets.
~MANAGEMENT ACCOUNTING-It incorporates cost accounting data and adapts them for specific
decisions which management may be called upon to make. It is needed by management in planning,
controlling an evaluating the entity’s operations.

~TAXATION-Tax accounting includes the preparation of tax returns and the determination of the tax
consequences of certain proposed business endeavors or transactions.

~GOVERNMENT ACCOUNTING-concerned with systematic and scientific recording of government

revenues and expenditures. It reveals how public funds have been generated and utilized for the welfare
of the general public.

CODE OF ETHICS
Professional Competence and Due Care-Integrity-Confidentiality-Objectivity-Professional Behavior

 ACCOUNTANCY ACT OF 2004 - Also known as the Republic Act No. 9298 is the law regulating
the practice of accountancy in the Philippines

 Signed by President Gloria Macapagal-Arroyo on May 13, 2004.

USERS OF ACCOUNTING INFORMATION

-Primary: Investors,Lenders, Suppliers and other trade creditors
-Secondary: Employees, Government and their agencies, Public, Customers
 Accounting vs. Auditing

 Accounting embraces auditing. Auditing is one of the areas of accounting specialization.

 Accounting is essentially constructive in nature. It ceases when financial statements are

prepared.

Auditing is analytical. The work of an auditor begins when the work of an accountant ends.

• Accounting vs. Bookkeeping

 Bookkeeping is procedural and largely concerned with development and maintenance of

accounting records. The “how” of accounting.

 Accounting is conceptual and is concerned with the “why”, reason or justification for any action
adopted.