This document introduces accounting as a tool for decision making and distinguishes between financial and managerial accounting. It discusses the objectives and roles of accounting in business organizations. The document also defines the Generally Accepted Accounting Principles and some key accounting concepts and assumptions used in preparing financial records and statements.
This document introduces accounting as a tool for decision making and distinguishes between financial and managerial accounting. It discusses the objectives and roles of accounting in business organizations. The document also defines the Generally Accepted Accounting Principles and some key accounting concepts and assumptions used in preparing financial records and statements.
This document introduces accounting as a tool for decision making and distinguishes between financial and managerial accounting. It discusses the objectives and roles of accounting in business organizations. The document also defines the Generally Accepted Accounting Principles and some key accounting concepts and assumptions used in preparing financial records and statements.
This document introduces accounting as a tool for decision making and distinguishes between financial and managerial accounting. It discusses the objectives and roles of accounting in business organizations. The document also defines the Generally Accepted Accounting Principles and some key accounting concepts and assumptions used in preparing financial records and statements.
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Accounting 1: Introduction to Financial Accounting
Module No 1 – Introduction to Accounting
Study Guide
Introduction This module presents the primary definition and uses of accounting as a tool for decision-making, will familiarize you with the different branches of accounting and will acquaint you with the basic principles used in the preparation of financial records.
Objectives After working on this module, you should be able to: 1. Understand the basic accounting processes and its relevance to decision- making processes. 2. Distinguish financial accounting from management accounting. 3. Have an overview of financial accounting processes that provide a basis for the preparation of financial statements. 4. Understand the Generally-Accepted Accounting Principles . 5. Define double-entry bookkeeping and use it as a basis for recording transactions.
1. Accounting and its role in business organizations
Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions. The documents which communicate these information about the performance of an accounting entity in monetary terms, are called financial statements. Often, accounting is aptly referred to as the language of business. This is because plans and programs are often expressed in financial reports. Their results are measured in terms of financial performance as well. Hence, a picture of an entity’s wellness often mostly consists of accounting information. But beyond business, many aspects of our lives are based on accounting: personal financial planning, investments, income taxes, loans, etc. Throughout different roles we take on in our lives, the knowledge of accounting is an added advantage in performing such roles. However, we shall limit our scope of discussion to a business entity and its various financial aspects.
2. Branches of Accounting Different financial literature classify accounting into categories. But primarily, there are two general categories under which all other categories may be classified under. We shall focus our discussions on these two general categories: 2.1 Financial accounting refers to the accumulation and processing of accounting information primarily aimed towards informing external users or those outside the organization. These reports contain historical information and are presented in the Financial Statements which must comply with Generally Accepted Accounting Principles and the Philippine Financial Reporting Standards to ensure uniformity and reliability. Tax accounting falls under financial accounting but incorporates tax laws and limits into the process. 2.2 Managerial accounting pertains to information generated for use by an organization’s management necessary for making timely decisions that will affect the performance of the organization. Unlike financial accounting information that follows stringent principles and standards, managerial Accounting 1: Introduction to Financial Accounting
accounting reports are more varied and not subject to external regulations. These pieces of accounting information also stem from historical data but are more focused towards projecting future performance resulting from management strategies and plans in an expedient and timely manner. Cost accounting is a more detailed branch under management accounting that focuses on manufacturing activities and costs.
Activity 1 (10mins) Watch this concise video explaining how financial accounting varies from managerial accounting from Accounting Stuff: https://www.youtube.com/watch?v=qISkyoiGHcI
3. Generally Accepted Accounting Principles
The Philippine Financial Reporting Standards (PFRS)/Philippine Accounting Standards (PAS) make up the country’s Generally Accepted Accounting Principles (GAAP) governing the preparation of financial statements. These standards are patterned after the revised International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) which are centered on the following basic assumptions/principles: a. Economic Entity Assumption. The business is separate from its owner/s and therefore, records must also be kept separate from the latter’s personal accounts. Accounting 1: Introduction to Financial Accounting
b. Monetary Unit assumption. Accounting information pertain to economic
information which should be quantifiable and therefore, expressed in terms of accepted currencies (Php in the Philippines). c. Cost Principle. All resources should be recorded at the cash amount (or equivalent) at the time the same was acquired. d. Ful Disclosure Principle. All pertinent information, good or bad, are fully reported. e. Going-concern Assumption. A business is expected to continue to operate and fulfill its obligations in the succeeding periods f. Materiality Principle. All significant occurrences are disclosed while events/amounts which will hardly impact any decision of the users of the financial statements may be ignored. g. Conservatism Principle. Expenses and losses are reported as soon as the possibility of such has been established while revenues and gains are reported only when realized. h. Time Period Principle. Reports are prepared corresponding to specific time periods to give context to information. i. Matching Principle. Expenses are recorded at the same time period as corresponding revenues are recognized. j. Principle of Good Faith. All parties are presumed to be acting honestly. i Charles T. Horngren, et al., , Cost Accounting, A Managerial Emphasis, 15th ed. (New Jersey: Pearson Education, Inc., 2015), 4
"The Language of Business: How Accounting Tells Your Story" "A Comprehensive Guide to Understanding, Interpreting, and Leveraging Financial Statements for Personal and Professional Success"
"The Language of Business: How Accounting Tells Your Story" "A Comprehensive Guide to Understanding, Interpreting, and Leveraging Financial Statements for Personal and Professional Success"
