CHAPTER 1

• Accounting

  • is the system that measures business activities, processes that information into reports and communicates the results to decision-makers.
• 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.
• Accounting

  • quantifies business communication. For this reason, accounting is called the language of business.
• GLOBALIZATION

  • is the acceleration and intensification of economic interaction among the people, companies, and governments of different nations.
• TECHNOLOGICAL DEVELOPMENT

  • Advances in information and communications technology, in particular, have dramatically transformed economic life.
• Ethics

  • is concerned with right and wrong and how conduct should be judged to be good of bad. It is about how we should live our lives and, in particular, how we should behave towards other people. It is therefore relevant to all forms of human activity.
• Business

  • ethics tells what is right or wrong in the business situation, while professional ethics tells the same thing regarding a profession. Ethical conflicts can arise, however, when what might be best for the company is wrong morally or professionally
• Ethical Dilemma

  • Business is a good source of ethical dilemmas' because its primary purpose is to make profit. It is constant search for potential advantage over others such that business persons are under pressure to do whatever yields such advantages.
• Ethical Dilemma EXAMPLES:

  • White collar crime
  • Whistle-blowing
  • Conflicts of interest
  • Fiduciary responsibilities
  • Sexual harassment
  • Discrimination
• Ethical Financial Reporting

  • Ethics is especially important in preparing financial reports because users of these reports must depend on the good faith of the people involved in their preparation. Users have no other assurance that the reports are accurate and fully disclose all relevant facts.
• Fraudulent Financial Reporting

  • The international preparation of misleading financial statement
• Sarbanes-Oxley Act (SOX)

  • Signed into law by George W. Bush (July 30, 2002)
  • The law applies to all companies that are required to file periodic reports with the US SEC.
• Sarbanes-Oxley Act (SOX) was signed into law by George W. Bush (July 30, 2002)
• Code of Corporate Governance

  • On April 5, 2002 the Securities and Exchange Commission of the Philippines issued Memorandum Circular No.2 otherwise known as the code of Corporate Governance. The Code of Ethics for Professional Accountants in the Philippines was recently adopted from the revised Code of Ethics for Professional Accountants developed by International Federation of Accountants (IFAC) and will be effective June 30, 2008. These events usher in a new era in the relationship among business, government, the investing public and other users of financial information.
• Sole Proprietorship

  • This business organizations has a single owner called the proprietor who generally is also the manager
• Partnership

  • Is a business owned and operated by two or more persons who bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.
• Corporation

  • Is a business owned by it’s stockholders.
• Service

  • Companies perform services for a fee. (law firms, accounting and audit firms, stock brokerage, beauty salons, and recruitment agencies)
• Merchandising

  • Companies purchase goods that are ready for sale and then sell these to customers (car, dealers, clothing stores and supermarkets).
• Manufacturing

  • Companies buy raw materials, convert them into products and then sell the products to other companies or to final consumers (paper mills, steel mills, car manufacturers and drug manufacturers)
• Financing Activities

  • Organizations require financial resources to obtain other resources used to produce goods and services.
• Investing Activities

  • Managers use capital from financing activities to acquire other resources used in the transformation process.
• Operating Activities

  • Involve the use of resources to design, produce, distribute, and market goods and services.
• Accounting

  • is an information system that measures, processes and communicates financial information about an identifiable economic enti
• Activities in Business Organization

  • Financing Activities
  • Investing Activities
  • Operating Activities
• Forms of Business Organizations

  • Sole Proprietorship
  • Sole Proprietorship
  • Corporation
• Purpose of Business Organizations

  • Service
  • Merchandising
  • Manufacturing
• TWO SPECIALIZATION OF ACCOUNTING

  • Financial Accounting
  • Management Accounting
• Financial Accounting

  • concerned with the supply of information to the owners of an entity
• Management Accounting

  • concerned with the supply of information to the managers of an entity.
• Fundamental Concepts

  • Entity Concept
  • Periodicity Concept
  • Stable Monetary Unit Concept
• General Acceptance of an Accounting Principle

  • relevance
  • objectivity
  • feasibility
• Entity Concept

  • An accounting entity is an organization or a section of an organization that stands apart from other organizations and individuals as a separate economic unit.
• Periodicity Concept

  • It will be aimless to wait for the actual last day of operations to perfectly measure the entity’s net income. This concept allows the users to obtain timely information to serve as a basis on making decisions about future activities.
• Stable Monetary Unit Concept

  • It allows accountants to add and subtract peso amounts as though each peso has the same purchasing power as any other peso at any time
• A principle has relevance to the extent that it results in information that is meaningful and useful to those who need to know something about a certain organization
• Principle has objectivity to the extent that the resulting information is not influenced by the personal bias or judgement of those who furnish it.
• A principle has feasibility to the extent that it can be implemented without undue complexity or cost. These criteria often conflict with one another. In some cases, the most relevant solution may be the least objective and the least feasible.
• Generally Accepted Accounting Principles (GAAP)
• Objectivity Principle - Accounting records and statements are based on the most reliable data available so that they will be as accurate and as useful as possible. Ideally, accounting records are based on information that flows from activities documented by objective evidence.