FABM 1 NOTES

• What is the definition of accounting?

  Service activity providing financial information
• What is the primary function of accounting?

  To provide quantitative financial information
• What are the three main processes of accounting?

  Identifying, recording, and communicating
• What does identifying in accounting involve?

  Selecting relevant economic events for transactions
• What are economic events referred to in accounting?

  Transactions
• When do business transactions take place?

  Once a business venture starts operation
• What does recording in accounting entail?

  Listing accountable events in the accounting journal
• What is the accounting journal often called?

  Book of original entry
• What is the purpose of communicating in accounting?

  Reporting results to users of financial information
• What is a balance sheet also known as?

  Statement of financial position
• What does an income statement show?

  Income, expenses, and net result over time
• What does a cash flow statement show?

  Changes in cash position; inflows and outflows
• What is included in the notes on financial statements?

  Additional disclosures useful for understanding
• What are the functions of accounting?

  • Identifying: Selecting relevant transactions
  • Recording: Writing down transactions in journals
  • Classifying: Grouping similar transactions
  • Summarizing: Grouping accounts into categories
  • Reporting: Preparing financial statements
  • Interpreting: Using data for future planning
• What is the nature of accounting as a service activity?

  Providing professional services in financial reporting
• How is accounting described as a process?

  Method of performing tasks step by step
• Why is accounting considered both an art and a discipline?

  It follows standards and professional ethics
• What does accounting deal with?

  Financial information and transactions
• How is accounting characterized as an information system?

  It serves as a storehouse of information
• What is the brief history of accounting?

  • Early Development in Mesopotamia: Writing and counting money
  • Roman Empire: Detailed financial records by Augustus
  • 14th Century Italy: Double entry bookkeeping by Luca Pacioli
  • 19th Century: Chartered accountant profession in Scotland
  • Clay tablet: Oldest evidence of recording transactions
• What are the Philippine Accounting Standards (PAS)?

  Corresponding to International Accounting Standards
• Who are the internal users of accounting information?

  Management, employees, and owners
• What do managers use accounting information for?

  Planning, organizing, and decision making
• Why do employees need accounting information?

  To assess company stability and profitability
• What do potential investors use accounting information for?

  To decide on buying shares of a company
• How do creditors use accounting information?

  To assess business credibility and payment capability
• What do government regulatory agencies use accounting information for?

  To ensure compliance with financial regulations