FABM

Subdecks (2)

Cards (664)

  • Accounting
    The language of business to communicate accounting information to help many types of users
  • User's need for financial information
    Depend upon the type of decisions to be made
  • External Users
    • Individuals or organizations outside the company who are not involved in operating the business
  • External Users of Accounting
    • Investors
    • Suppliers and Creditors
    • Customers
    • Government and their agencies
  • Investors
    • Need accounting information to evaluate and examine the feasibility of investing in a company
    • Need accounting information to assess the ability of the enterprise to pay dividends
  • Suppliers and Creditors
    • Need accounting information to determine the credit integrity, worthiness of the organization and credit terms
  • Customers
    • Have the interest in information about the continuance of enterprise especially when they have a long-term involvement with or are dependent on the enterprise
  • Government and their agencies
    • Require information to regulate the activities of the enterprise, determine taxation policies and as a basis for national income and similar statistics
  • Internal Users
    Also called as "primary users" of accounting information, persons who are actually involved in the daily operation of the business, inside the organization who plan, organize and run the business
  • Internal Users of Accounting
    • Management
    • Employees
    • Owners
  • Management
    • Need information to know the income/earnings for the period, sales, cash available and production cost
    • Need information to analyze the organization's performance and take appropriate measures to improve the company
  • Employees
    • Use information as factor to consider in staying employment, interested about the stability and profitability of the company that enable them to assess the ability of the enterprise to provide remuneration, retirement benefits and employment opportunities
  • Owners
    • Need information to know the profit or income, asset and liabilities of the business
    • Need information in consideration regarding additional investment, expand the business, borrow funds to support any expansion plans
  • Accounting Concepts and Principles
    Fundamentals of Accountancy, Business & Management
  • At the end of this lesson, learners will be able to:
    • Explain the varied accounting concepts and principles
    • Solve exercises on accounting principles as applied in various cases
  • Financial Statements
    • Statement of Financial Position (Balance Sheet)
    • Statement of Comprehensive Income
    • Statement of Changes in Equity
    • Cash Flow Statement
  • Financial Accounting Standards Board (FASB)

    Developed and established accounting standards to provide basic framework for financial reporting
  • Generally Accepted Accounting Principles (GAAP)

    • Forms a theoretical basis for determining how transactions are measured and reported, how they are presented and communicated to users
    • Ensure the users of financial information are not misled when taking decisions
  • Preparation of financial statements
    • Governed and guided by GAAP
    • GAAP are uniform set of accounting rules, procedures, practices and standards that are followed in preparing the financial statements
    • Serves as "ground rules" that guide the accounting practitioners in recording and reporting financial information of a business entity
  • Basic Assumptions
    • Economic Entity Assumption
    • Money Measurement Assumption
    • Accounting Period Assumption
    • Going Concern Assumption
  • Economic Entity Assumption
    The business is considered as "an entity that is separate and distinct from the owner or management"
  • Money Measurement Assumption
    • Only business transactions and events which are financial in nature are recorded and reported in the financial statements
    • All transactions and events must be reduced to a unit of monetary currency (e.g. Peso)
    • Memorandum is used for non-financial/non monetary information
  • Five Major Accounts
    • Assets
    • Liabilities
    • Capital
    • Income
    • Expenses
  • Asset
    Resources controlled by the enterprise as a result of past transactions and events and from which economic benefits flow to the enterprise
  • Accounting Period Assumption
    • The accounting measures activity for a specified interval of time, usually, a period of 365 days or 52 weeks
    • Calendar Year - Jan 1-Dec 31 of the same year (most common annual accounting period)
    • Fiscal Year - begin 1st day of any month except January and will end on the last day of the 12th month completing the one year period (interim financial statement)
  • Assets
    • Tangible Assets - physical existence (ex: cash, building…)
    • Intangible Assets – no physical existence (A/R, patents, trademarks…)
  • Assets by life span or liquidity

    • Current Assets – assets that are expected to be realized, consumed or converted into cash in 12 months time or less (ex. Cash, receivables, inventories)
    • Non-Current Assets (Fixed Assets) – assets with a life span of at least one year and usually longer (ex. Buildings, vehicle, machinery)
  • Going Concern Assumption
    That the business will continue for a long period of time and transactions are recorded from this point of view
  • Liabilities
    Present obligation of the entity arising from past events, the resulted of which is expected to result in an outflow from the entity of resources embodying economic benefits
  • Liabilities
    • Current - are debts that are paid in 12 months or less
    • Non-current – long-term debts that are paid off in years rather than months
  • Capital or Equity
    The residual assets of the entity after deducting all of its liabilities
  • Equity affected by
    • Initial and additional contributions of owner/s (investment)
    • Income
    • Withdrawals made by owner/s (dividends for corporation)
    • Expenses
  • On the basis of the 4 Assumptions, Basic Concepts and Principles have been developed to guide how business transactions are reported
  • Equity types
    • Sole Proprietorship - Owner's Equity
    • Partnership - Partner's Equity
    • Corporations - Stockholder's Equity
  • Statement of Comprehensive Income or Income Statement
    Shows the "result of operation" of the business for a given period of time, Contains nominal accounts or temporary accounts (Income and Expenses)
  • Income
    Increase in the economic benefits of the entity that may be a result of enhancement or inflow of asset or such decrease in the liability that cause equity to increase. However, this does not include additional investments made by shareholders.
  • Duality Concept
    • Fundamental convention of accounting that necessitates the recognition of all aspects of an accounting transaction
    • Basis for double entry accounting system
    • Transactions are classified in two main types: Debit (portion that accounts for increase in assets/expenses, decrease in liabilities/equity/income) and Credit (portion that accounts for increase in income/liabilities/equity, decrease in assets/expenses)
  • Types of Income
    • Revenues – income earned in the course of ordinary activities of business (ex. service income, professional fees, sales)
    • Gains – income earned from the activities other than the normal activities of the business (ex. gain on sale of equipment, gain on sale of short-term investment)
  • Objectivity
    • All accounting record must be based on objective evidence
    • Should have supporting evidence or documentation
    • Documentary evidence of transactions should be free from any bias and are capable of verification
  • Expenses
    Decrease in the economic benefits of the entity during the accounting period which are the result of depletions or outflow of assets or incurrences of liabilities that cause equity to decrease. However, this does not include distributions of dividends to shareholders