BUSINESS DEFINED economic decision”

An economic unit that engages in (American Accounting

buying and selling of goods and Association)
services.

Habitual engagement Advanced or Critical

in a commercial activity Function
involving the sale of Audit function- to test the
goods or services for reliability of the financial
profit. reports, trace fraudulent
transactions, and locate
Any economic and rectify accounting
activity conducted errors.
primarily for profit.
PURPOSE OF ACCOUNTING
NATURE OF ACCOUNTING Generally
Accepted
A Discipline Accounting
Observes professional standards and Principles
professional ethics
To help end-users see the true picture of
A Service Activity the
Providing professional services particularly business in financial terms
in performing tasks by making financial
reports Financial reports prepared
by accountants must be:
An Art and Science  understandable
Designed to perform service activity with  relevant
utmost efficiency and in the best possible reliable
manner  for general-purpose

The Language of Business Must contain information

Serves as a means of communication that is:
 Complete
Eyes of the Business  Neutral
Enable the owner of a business to check on  Free from error
his financial progress
Accounting enables a business to maintain
FUNCTIONS OF ACCOUNTING complete and orderly prepared
records of economic events by way of
Primary Function preparing books while facilitating
“to provide financial reports to the information for various purposes.
various end-users for
economic decision-making” - In a highly competitive world of business, a
PAS 1 well-informed management
Achieved through: is vital for the survival of a business
Recording organization.
Classifying
Summarizing OVERALL OBJECTIVE OF ACCOUNTING
Analyzing and Interpreting
Communicating The overall objective of financial reporting is
Protecting the property of to provide general-
business purpose financial statements about the
Preparing legal requirement reporting entity that is useful to
present potential user groups, especially
Basic Function stockholders and creditors to
“process of identifying, assist them in making sound economic
measuring, and decisions as capital providers.
communicating economic
information to permit General-purpose financial reporting
informed judgment for an
Helps users who lack the ability to demand
all the financial information they need MANAGEMENT GROUP
from an entity and therefore, must rely, at Sole proprietors
least partly, on the information provided in Partners
the financial statements. Board of Directors
Officers
Managers
Supervisors
SPECIFIC OBJECTIVES
1. To ascertain Internal Financial Reports
the financial
position. EXTERNAL USERS

2. To aid FINANCING GROUP

management in Investors
planning and Potential Investors
performance Trade Creditors
evaluation. Potential Creditors
Banks and other financing
3. To maintain institutions
control over
assets. PUBLIC GROUP
Government
4. To ascertain Regulatory Agencies
the results of Taxing Authorities
operations Labor Unions
during a Employees
period Retirees
Economic Planners
5. To provide Customers
information to
government External Financial Reports
agencies and
other legal
purposes.

SCOPE OF ACCOUNTING

Accounting in some way touches all aspects

of economic activities (profit or nonprofit
businesses) including government and
personal finances.

Knowledge of accounting is essential to all

who wish to understand our modern
economic system.

All types of businesses (from sole

proprietorship, and partnership to all types
of corporation) need financial information
before a sound and more reliable
economic decision can be made.

All types of businessmen are required to

prepare government reports such
as income taxes, business taxes, and social
security returns.

USERS OF ACCOUNTING INFORMATION

INTERNAL USERS