Introduction to Accounting

Accounting is the language of business

-Process of gathering financial information about a business and reporting this
information to users
-Important to understand in order to work effectively in the business worlds
-Knowing the language helps one understand the impact of economic events of a
specific company
-It is the medium of communication between the business and the various parties
interested in its financial activities

4 Basic Financial Statements

1. The Income Statement
Revenues-Expenses = Net Income/Net Loss
-Operation is favorable if revenues is greater than expenses

2. The statement of Changes in Owner’s Equity

Capital (Beginning) + Additional Investment - Withdrawals (+ Net Income or -
Net Loss)= End Balance of Owner’s Equity

3. The Statement of Financial Position

Assets = Liabilities + Owners Equity

4. Statement of Cash Flows

Business Transaction
-An economic event which involves two (2) parties of more, with one giving up a
value and one receiving a value

In order to operate a business should have the following

1. Assets
-Anything owned by the business to be used in their operation
2. Liabilities
-Debts and obligations of a business
3. Owner’s Equity
-Share of owner on the business, which include his or her investment

Ethics in Financial Reporting

-Ethics: a standards of conduct by which one’s action are judged
1. Code of morals practiced by individuals
2. A guide use in distinguishing right from wrong, good and bad
3. In accounting, the effective financial reporting depends on the sound ethical
behaviors
 I. Objectivity
-a professional accountant should be fair and should not allow prejudice or
bias, conflict of interest or influence of others to override objectivity
II. Integrity
-a professional accountant should be straightforward and honest in
performing professional services
III. Competence
-A professional accountant should perform professional services with due care,
competence and diligence and has a continuing duty to maintain professional
knowledge and skill at a level required to ensure that a client or employer
receives the advantage of competent professional service based on -up to
date developments in practice legislation and techniques
IV. Confidentiality
-A professional accountant should respect the confidentiality of information
acquired during the course of performing professional services and should not
use or disclose any such information without proper and specific authority or
unless there is a legal obligation
V. Professional Behavior
-A professional accountant should act in a manner consistent with the good
reputation of the profession and refrain from any conduct which bring
discredit to the profession