ROLE OF ACCOUNTING IN BUSINESS

Learning Objectives:
1. Explain how accounting serves as the language
of business
2. Be familiar with the origin of accounting
3. Discuss how accounting information influences
the economic decisions of the various users.
4. Identify the types of accounting information
that are used widely in the business community
5. Describe the various careers opportunities in
accounting.
 INTRODUCTION
 DOES ANYONE USE AND NEED ACCOUNTING?

 IS ACCOUNTING IMPORTANT TO YOU?

 ACCOUNTING AS THE
LANGUAGE OF BUSINESS
 Accounting is the process of gathering financial information
about a business and reporting this information to users.
 Accounting is also called the language of business. It is
important to understand this language in order to work
effectively in the business world.
 Accounting clerks, bookkeepers, and accountants must
understand accounting to perform their jobs.
 Accounting skills provide additional job opportunities for sales
clerk, customer service representatives and office workers.
 Small business owners need accounting knowledge to run their
business effectively.
 ACCOUNTING AS THE
LANGUAGE OF BUSINESS
 An understanding of the principles of accounting is
of paramount importance to a modern business
executive. Without it, the executive lacks of
fundamental tool needed for problem-solving.
 The primary objective in this text is to illustrate basic
financial accounting concepts that will help you to
make good not only personal but also business
decisions.
BRIEF HISTORY/ ORIGIN OF
ACCOUNTING
 Assignment. To be pass
next meeting. Short bond
paper. Include references.
 Minimum of 2 pages and
maximum of 5 pages.
 USERS OF ACCOUNTING
INFORMATION
 In the world of business, accounting plays an
important role to aid in making critical decisions. The
more complex the decision, the more detailed the
information must be. Individual and companies need
different kinds of information to make their business
decisions.
 The basic function of accountants is to provide
useful economic information to external and internal
decision makers (users):
 USERS OF ACCOUNTING
INFORMATION
1. External decision makers

2. Internal decision makers-are the managers of a

business entity, responsible for managing
efficiently, and effectively, and who have the power
and authority to obtain whatever economic
information they need. The process of providing
accounting information to internal decision makers
is called management accounting.
 USERS OF ACCOUNTING
INFORMATION
 External decision makers- include present and
potential owners, investors, creditors, suppliers,
customers, legislators, trade associations and others
who lack direct access to the information generated
by the internal operations of the business and must
rely on general-purpose financial statements to
make their investment, credit and public policy
decisions. The process of developing general-
purpose financial statements and reporting general-
purpose accounting information to external decision
makers is called financial accounting.
 USERS OF ACCOUNTING
INFORMATION
 External users:

1. Investors

2. Lenders

3. Suppliers and other trade creditors

4. Governments and their agencies

5. Employees

6. Customers

7. Public
 USERS OF ACCOUNTING
INFORMATION
 Investors. The providers of risk capital and their advisers are
concerned with the risk inherent in, and return provided by,
their investments. They need information to help them
determine whether they should buy hold or sell.
(shareholders)
 Lenders. Lenders are interested in information that enables
them to determine whether their loans, and the interest
attaching to them will be paid when due.
 Customers. Customers have interest in information about the
continuance of an enterprise, especially when they have a
long-term involvement with, or are dependent on, the
enterprise.
 USERS OF ACCOUNTING
INFORMATION
 Supplier and other trade creditors. Are interested in
information that enables them to determine whether
amounts owing to them will be paid when due. Trade
creditors are likely to be interested in an enterprise over a
shorter period than lenders unless they are dependent upon
the continuation of the enterprise as a major customers.
 Government and their agencies. Are interested in the
allocation of resources and therefore, the activities of
enterprises. They also require information in order to
regulate the activities of enterprises, determine taxation
policies and as the basis for national income and similar
statistics.
 USERS OF ACCOUNTING
INFORMATION
 Employees. Employees and their representative
group are interested in information about the
stability and profitability of their employers. They are
also interested in information which enables them to
assess the ability of the enterprises to provide
remuneration retirement benefits and employment
opportunities.
 Public. Enterprises affect members of the public in a
variety of ways.
 TYPES OF ACCOUNTING
INFORMATION
A. Financial Accounting

B. Managerial Accounting

C. Tax Accounting

D. Not-for-profit Accounting

E. Governmental Accounting

F. Cost Accounting
 TYPES OF ACCOUNTING
INFORMATION
 Financial Accounting- is used by business managers to
record transactions of the business, prepare reports
based on those transactions, and thus communicate
to owners’ and creditors the current condition of the
company and its success or lack of success.
 These reports are the general(all) purpose financial
statements such as :
1. Statement of Financial Position or the Balance Sheet
Statement
2. Statement of Profit or Loss (Income Statement) and
Other Comprehensive Income
TYPES OF ACCOUNTING
INFORMATION
 3. Statement of Changes of Owner’s Equity
 4. Statement of Cash Flows
 5. Notes to the Financial Statements

Managerial Accounting- is used to aid business managers in

planning and controlling business operations and in decision
making. Ex. The decision to open a branch restaurant
requires the use of managerial accounting.

Tax Accounting- is used to prepare returns and to examine

tax consequences of proposed business transactions.
 TYPES OF ACCOUNTING
INFORMATION
 Not-for-profit Accounting- is used by nonprofit
organizations (such as NGOs, civic and charitable
institutions) to measure the success of their activities
and to ensure strict compliance with all requirements
imposed by law, by donors, or by entity’s purposes.
 Governmental Accounting- is used by all branches of
government and by those who received government
funds to oversee the complicated business of
providing government services or to report to the
government on the use of government funding in
compliance with the imposed regulations.
 TYPES OF ACCOUNTING
INFORMATION
 Cost Accounting- Cost accounting analyzes a
business costs to help managers control expenses.
Good cost accounting records guide managers in
pricing their products and services to achieve
greater profits. Also, cost accounting information
shows management when a product is not profitable
and should be dropped.
 CAREERS IN ACCOUNTING
 Initial Employment
1. Accounting clerk
2. Bookkeeper
3. Accountant

 Professional level
1. Public Accounting
2. Private Accounting
3. Government and Nonprofit Accounting
4. Practice in Education/ Academe
 CAREER IN ACCOUNTING
 Accounting clerk- business with large quantities of
accounting task to perform daily often employ
accounting clerk to record, sort, and file accounting
information. Accounting clerk may specialize in cash,
payroll, accounts receivable, accounts payable,
inventory, or purchases. As a result, they are
involved with only a small portion of the total
accounting responsibilities for the firm.
 Must have at least one year of accounting education
 CAREER IN ACCOUNTING
 Bookkeepers- generally supervise the work of
accounting clerks, help with daily accounting work,
and summarize accounting information. In small to
medium-sized businesses, the bookkeeper may also
help managers and owners interpret the accounting
information.
 Must have one to two years accounting education
and experience as an accounting clerk.
 CAREER IN ACCOUNTING
 Accountant- the difference between accountants and
bookkeepers is not always clear, particularly in
smaller firms where bookkeepers also help analyze
the accounting information.
 In large firm, the distinction is clearer. Bookkeepers
focus on the processing of accounting data.
Accountants design the accounting information
system and focus on analyzing and interpreting
information. They also look for important trends in
the data and study the impact o alternative decisions.
 CAREER IN ACCOUNTING
 Most accountants enter the field with a college
degree in accounting. Accountants are employed in
public accounting, private accounting, and
governmental accounting and educational institution.
• Public Accounting- public accountants offer services
in much the same way as doctors and lawyers. The
public accountant can achieve professional
recognition as Certified Public Accountant (CPA) by
meeting education and experience requirements, and
passing an examination prepared by the Professional
Regulatory Board of Accountancy.
 CAREER IN ACCOUNTING
 Many CPAs work alone while others work for major
accounting firms that vary in scope and size. Public
accountants perform many services, which are listed
in the following sections:
 Auditing
 Taxation
 Management consulting
Auditing. Involves reviewing and testing to be certain that
proper accounting policies and practices have been
followed. The purpose of the audit is to provide an
independent opinion that the financial information about a
business is fairly presented.
 CAREER IN ACCOUNTING
 Taxation. Tax specialists advise on tax planning, prepare
tax returns, and present clients before governmental
agencies such as the BIR
 Management Consulting. Given the financial training and
business experience of public accountants, many
business seek their advice on a wide variety of managerial
issues.
 Private Accounting. Many accountants are employees of
private business firms. The controller oversees the entire
accounting process and is considered the principal
accounting officer of the company.
 CAREER IN ACCOUNTING
 Private or managerial accountants performs the
following:
 Accounting information
 General accounting
 Cost Accounting
 Budgeting
 Tax Accounting
 Internal Auditing
 CAREER IN ACCOUNTING
 Accounting information. Accountants in this area
design and implement manual and computerized
accounting systems
 General Accounting- based on the accounting data
period prepared by the bookkeepers and accounting
clerks, the accountant prepares various reports and
financial statements.
 Cost Accounting. The cost of producing specific
products or providing services must be determined.
 CAREER IN ACCOUNTING
 Budgeting. In the budgeting process, accountants
help managers develop a financial plan for the future.
 Tax Accounting. Instead of hiring public accountant, a
firm may have its own accountants to focus on tax
planning, preparing tax returns, and dealing with the
BIR and other governmental agencies.
 Internal Auditing. The main functions of an internal
auditor are to review the operating and accounting
control procedures adopted by management and to
see that accurate and timely information is provided.
 CAREER IN ACCOUNTING
 A Managerial Accountant can achieve professional
status as a Certified Management Accountant (CMA)
by passing a uniform examination offered by the
Institute of Management Accountants.
 An Internal Auditor can achieve recognition as
Certified Internal Auditor (CIA) by passing the
uniform examination offered by the Institute of
Internal Auditors.
 CAREER IN ACCOUNTING
 Government and Nonprofit Accounting. Thousands
of governmental and nonprofit organizations such as
states, municipalities, educational institutions,
churches, and hospitals accumulated and report
information. While rules are somewhat different for
governmental and nonprofit organizatons, many
accounting procedures are similar to those found in
profit-seeking organization.
 CAREER IN ACCOUNTING
 Practice in Education/Academe. A CPA may be
employed in an educational institution to teach
accounting, auditing, management advisory service,
finance, business law, taxation, or other technically
related subjects.
 Notice in newspapers advertisement that
accountants and accounting clerks are expected to
have computer skills. Computer skills definitely
increase your opportunities in your career.