ACCOUNTING

WILMA G. OSTAN
ACCOUNTING

– Is the process of identifying , measuring and

communicating economic information to permit
informed judgments and decisions by users of the
information
THREE (3) IMPORTANT ACTIVITIES OF ACCOUNTING:
1. IDENTIFYING
is the process of analysing events and transactions to determine
whether or not they will be recognized.
Recognition refers to the process of including the effects of an
accountable event in the statement of financial position or the
statement of comprehensive income through a journal entry.
IDENTIFYING
Types of events or transactions
1. External events – are events that involve an entity and another
external party.
types of external events
a. Exchange (reciprocal transfer) – an event wherein there is a
reciprocal giving and receiving of economic resources or discharging of
economic obligations between an entity and an external party
b. Non-reciprocal transfer – is a “one way” transaction in that the
party giving something does not receive anything in return while the
party receiving does not give anything in exchange.
Types of events or transactions
1. External events – are events that involve an entity and another
external party.
types of external events
c. External event other than transfer– an event that involves
changes in the economic resources or obligations of an entity caused
by an external party or external source but does not involve transfers
of resources or obligation
Types of events or transactions
2. Internal events – are events that do not involve an external party.
types of internal events
a. Production – the process by which resources are transformed
into finished goods.
b. Casualty – an unanticipated loss from disasters or other
similar events
THREE (3) IMPORTANT ACTIVITIES OF ACCOUNTING:
2. MEASURING
involves assigning numbers, normally in monetary terms, to the
economic transactions and events.
Several measurement bases are used in accounting which include,
but not limited to, historical cost, fair value, present value, realizable
value, current cost, and sometimes inflation adjusted costs. However,
the most common used is historical cost. This is usually combined with
the other measurement bases. Accordingly, financial statements are said to
be prepared using a mixture of costs and values. Costs include historical cost
and current cost while values include the other measurement bases.
THREE (3) IMPORTANT ACTIVITIES OF ACCOUNTING:
2. MEASURING
Valuation by fact or opinion
The use of estimates is essential in providing relevant information. Thus, financial
statements are said to be a mixture of fact and opinion. If affected by estimates, the
items measured are said to be valued by opinion.
a. Uncollectible amount of receivables
b. Depreciation and amortization expenses, which are affected by estimates of useful
like and residual value.
c. Estimated liabilities, such as provisions,
d. Retained earnings, which is affected by various estimates of income and expenses.
THREE (3) IMPORTANT ACTIVITIES OF ACCOUNTING:
2. MEASURING
When measurement is unaffected by estimates, the items measured
are said to be valued by fact.
a) Ordinary share capital valued at par value
b) Land stated at acquisition cost
c) Cash measured at face amount.
THREE (3) IMPORTANT ACTIVITIES OF ACCOUNTING:
3. COMMUNICATING
is the process of transforming economic data into useful
accounting information, such as financial statements and
other accounting reports, for dissemination to users. It also
involves interpreting the significance of the processed
information.
THREE (3) IMPORTANT ACTIVITIES OF ACCOUNTING:
3. COMMUNICATING
The communicating process of accounting involves 3 aspects:
1) Recording – refers to the process of systematically committing into writing the identified
and measured accountable events in the journal through journal entries.
2) Classifying – involves the grouping of similar and interrelated items into their respective
classes through postings in the ledger.
3) Summarizing – putting together or expressing in condensed form the recorded and
classified transactions and events. This includes the preparation of financial statements and
other accounting reports.
Interpreting the processed information involves the computation of financial statement
ratios. Some regulatory bodies, such as the Bangko Sentral ng Pilipinas (BSP), require certain
financial ratios to be disclosed in the notes to financial statements.