Professional Documents
Culture Documents
27/08/2021 2:37 am
Accounting standards council
Accounting is a service activity.
The accounting function is to provide quantitative information, primarily financial in nature, about economic
entities, that is intended to be useful in making economic decisions.
committee on accounting terminology of the American institute of
certified public accountant
Accounting 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 accounting association in its statement of basic accounting
theory
Accounting is the process of identifying, measuring and communicating economic information to permit informed
judgement and decision by users of the information.
Components of accounting according to American Accounting Association
a. Analytical component (Identifying)
b. Technical component (Measuring)
c. Formal component (Communicating)
Identifying measuring
The recognition or nonrecognition of business activities as "accountable" events.
Not all business activities are accountable.
An event is accountable or qualified when it has effects on assets, liabilities, and equity.
Only economic activities are emphasized and recognized in accounting.
Sociological and psychological matters are beyond the province of accounting.
The assigning of peso amounts.
Useful accounting information must be expressed in terms of a common financial denominator.
Financial statements without momentary amounts is impossible to understand.
Unit used in measuring accountable economic transactions is Philippine peso.
Measurement bases
Historical Cost
Original acquisition
Most common measure of financial transactions
Current Value
Fair value
Value in use
Fulfillment value
Current cost
Communicating
Process of preparing and distributing accounting reports to potential users of accounting information.
Information contained in the accounting records must be communicated.
Accounting is called "universal language of business" because of the communicating process.
Implicit in the communicating process:
Recording
Also called journalizing
The process of systematically maintaining a record of all economic business transactions.
Classifying
The sorting or grouping of similar and interrelated economic transactions into their
respective classes.
It is accomplished by posting to the ledger (group of accounts that are systematically
categorized into assets, liability, equity, revenue, and expense accounts).
Summarizing
Preparation of financial statements which includes:
o Statement of Financial Position
o Income Statement
o Statements of Comprehensive Income
o Statement of Changes in Equity
o Statement of Cash Flows
External and internal transaction
Economic activities are referred transaction that is classified into:
External Transaction
Economic events involving one entity and another entity.
Internal Transaction
Economic activities that take place entirely within the entity.
Accounting as an information system
It measures business activities, processes information into reports and communicates the report to decision
makers.
Key product; a set of financial statements (document that reports financial information about an entity to
decision makers).
Financial reports tell us how well an entity is performing in terms of profit and loss and where it stands in
financial terms
Overall objective of Accounting
To provide financial information about a business that is useful to statement users particularly owners and
creditors in making economic decisions.
Accountant's primary task is to supply financial information so that the statement users could make
informed judgment and better decisions.
The essence of accounting is decision-usefulness.