accounting

• Accounting policies can be changed if it is required by a standard or the change would result in more relevant and more reliable information.
• Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.
• Identifying in accounting is the recognition or non-recognition of business activities as “accountable events”.
• Business transactions are transactions which are recorded in the financial books, an example is investment of the owner.
• Personal transactions are transactions which are not recorded in the financial books, an example is purchase of house and lot of a business owner using his personal money.
• Neither business nor personal transactions are business events that are not recorded in the financial books, examples are hiring of employees, death of the owner, entering into a contract, and others.
• Measuring in accounting is the assigning of Peso amounts to the accountable economic transactions and events.
• Communicating in accounting is the process of preparing financial statements and interpreting the results thereof.
• Financial Accounting is primarily concerned with the recording of business transactions and the eventual preparation of financial statements.
• Cost Accounting is primarily concerned with the proper accumulation of costs such as materials, labor, and overhead, the proper costing of inventories, and the study of different costing methods.
• Management Accounting is the preparation of financial reports and management research intended for management use and the interpretation of these reports and researches.
• Taxation deals with the study of provisions of the law with regard to Philippine taxation system and proper computation of taxes such as income tax, value-added tax, withholding tax, and other taxes.
• Auditing deals with the examination of the financial statements by an independent party (called the auditor) to ascertain whether such financial statements are in conformity with accounting standards.
• Sole or Single Proprietorship is a business that is owned by only one individual called a “sole proprietor”, it is the most common and simplest form of a business organization, the owner receives any profits, suffers any losses, and is personally liable for all debts.
• Partnership is a business that is owned by two or more individuals, who are called “partners”, who entered into a contract to carry in the business and divide among themselves the earnings therefrom, generally unlimited personal liability.
• Full disclosure principle states that information communicated to users reflect a series of judgmental trade-offs that strive for sufficient detail to disclose matters that make a difference to users, yet sufficient condensation to make the information understandable, keeping in mind the costs of preparing and using it.
• Consistency concept states that applying accounting policies consistently, and presenting information consistently, from one period to another.
• Time period (Periodicity, Accounting Period or Reporting Period) states that the life of the business is divided into series of equal short periods called reporting period (or accounting periods) and a reporting period is usually 12 months, although it can be longer or shorter.
• Cost-benefit (Cost constraint) principle states that the cost of processing and communicating information should not exceed the benefits to be derived from the information’s use.
• Matching (or Association of cause and effect) concept states that some costs are initially recognized as assets and charged as expense only when the related revenue is recognized.
• Historical cost concept states that assets are initially recorded at their acquisition cost and measuring assets at historical cost is appropriate only when the business is a going concern.
• Going concern assumption states that the business is assumed to continue to exist for an indefinite period of time.
• Liquidating concern is the opposite of going concern where the business intends to end its operation or if it has no other choice but to do so.
• Accrual Basis of Accounting records economic events in the period in which they occur rather than at the point in time when they affect cash.
• Assets are measured at net selling price in a liquidating concern.
• Stable Monetary Unit states that assets, liabilities, equity, income and expenses are stated in terms of a common unit of measure, which is peso in the Philippines.
• Materiality Concept states that an item is material if its omission or misstatement could influence economic decisions.
• Prudence (or Conservatism) concept states that accountants observe some degree of caution when exercising judgments needed in making accounting estimates under condition of uncertainty.
• Only the transactions of the business are recorded in the books of accounts to measure the financial position and financial performance properly.
• Corporation is owned by more than one individual, however, unlike partnership, a corporation is created by operation of law rather than a contract, ownership is represented by shares of stocks, owners are called “stockholders or shareholders” and have limited liability.
• Government is concerned with the obligations of the business in paying taxes.
• Suppliers are interested in the liquidity and in the business model of the company, which may present the needs of the business in supplying demandable products and services.
• Investors want to examine the information to make decisions about whether the business will continue to grow and perform well enough to justify their investment decision, or whether they should sell off their investment to a third party.
• Merchandising is a business that buys and sells goods without changing their physical form.
• The Statement of Cash Flows presents the cash inflows and outflows of the business through its operating, investing and financing activities.
• Notes to the Financial Statements present the details of the line items in the Statement of Financial Position and Statement of Profit and Loss.
• The Statement of Financial Position (also known as the Balance Sheet) presents the financial condition of the business through its assets, liabilities, and capital or owner’s equity.
• Creditors require the information as part of their decisions about whether to extend credit to the business, and in what amounts.
• Unlike a merchandising business, a manufacturing business changes the physical form of the goods it has purchased in a production process.
• Management needs financial information in order to make operational and financial decisions about how to enhance the financial results, financial position, and cash flows of the organization.