FABM Introduction to Accounting

• 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 Institute of Certified Public Accountants(AICPA)
• Accounting

  -is a “system that measures business activities, processes given information into reports, and communicates findings to decision makers.”- Philippine Institute of Certified Public Accountants(PICPA)
• Accounting

  -is the process of identifying, measuring, and communicating economic information to permit informed judgment and decisions by users of the information. - American Accounting Association
• Accounting

  -is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision. -Accounting Standards Council(ASC)
• Nature of Accounting

  • Art
  • System/Process
  • "Language of Business"
• Functions of Accounting

  • To fulfill the stewardship function of the management (or owners);
  • To support daily operations of the business; and
  • To help interested users come up with informed decisions. (Financial Statements)
• Objective of Financial Statements

  -To provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.
• 1494

  -Luca Pacioli, an Italian mathematician, published the Summa de Arithmetica, Geometria, Proportioni et Proportionalita (The Collected Knowledge of Arithmetic, Geometry, Proportion, and Proportionality) which introduced the double-entry bookkeeping.
• 1923

  -The first Accountancy Law, Republic Act (RA) 3105 in the Philippines was passed. This law created the Board of Accountancy (BoA).
• 1975

  -In the Philippines, the Accountancy Law was revised and passed under Presidential Decree No. 692.
• 1981

  -Philippine Institute of Certified Public Accountant (PICPA) created the Accounting Standards Council (ASC) to establish and improve the generally accepted accounting principles (GAAP) in the Philippines.
• 1997

  -The Philippines started transitioning from applying American-based accounting standards (SFAS or Statements of Financial Accounting Standards) to applying International Accounting Standards (IAS).
• 2004

  -The Professional Regulation Commission (PRC) created the Financial Reporting Standard Council (FRSC).

  -The RA 9298, Philippine Accountancy Act of 2004 was passed into law by former Pres. Gloria Arroyo.
• 2005 to Present

  -The Philippines become fully compliant with International Financial Reporting Standards (IFRS).
• The Accounting Process

  -Analyzing the Business Documents or Transactions, Journalizing, Posting, Preparing the Unadjusted Trial Balance, Preparing the Adjusting Entries, Preparing the Financial Statements, Preparing the Closing Entries, Preparing a Post Closing Trial Balance, Preparing the Reversing Entries
• Three Important Activities in Accounting Process

  1. Identifying
  2. Measuring
  3. Communicating
• Identifying

  -Identifying means the recognition or nonrecognition of “accountable” events (only economic events or transactions).

  -An event is accountable or quantifiable when it has an effect on assets, liabilities and equity.
• Measuring

  -Measuring is the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the balance sheet and income statement.
• Communicating

  -Communicating is the process of preparing and distributing the accounting reports to potential users of accounting information; hence, accounting has been called the “universal language of business.”
• 3 Types of Communicating

  1. Recording
  2. Classifying
  3. Summarizing
• Recording

  -Popularly called journalization.

  -Involves the routine and mechanical process of committing to writing business transactions and events on the books accounts in a chronological sequence in accordance with established accounting rules and procedures.
• Classifying

  -Sorting or grouping of similar and interrelated transactions and events into their respective classes through posting to the ledger.
• Summarizing

  -Refers to the preparation of financial statements.