Introduction
of Accounting
Define Accounting based
on the definitions given by the following accounting authorities:
a)
Accounting
Standard Council (ASC)
“A
service activity. Its function is to provide quantitative information,
primarily financial in nature, about economic entities, that is intended to be
useful in making economic decision.”
b)
American
Institute of Certified Public Accountants (AICPA)
“
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
financial character and interpreting the results thereof.”
c)
American
Accounting Association (AAA)
“The
process of identifying, measuring, and communicating economic information to permit
informed judgments and decisions by users of the information.”
Functions
of Accounting
The
Primary Function then is to prepare financial reports and provide them into economic decision
makers in accountants.
The Basic Function of accounting is
described in these definitions of accounting provided by the American
Accounting Associations (AAA).
The
Advanced or Critical Function of
accounting is its audit function
n To test the reliability of the
financial reports, trace fraudulent transactions and locate and rectify
accounting errors in a sheet.
Purpose
of Accounting
The purpose of accounting is to help people
or financial users see clearly the true picture of the business firm in terms
of financial aspects that should be reliable, relevant and in complete manner.
In our generation today business minded people
should always consider informative management for vital survival of a business
firm. The management must knew the word “Right”
; Right time, Right information in the
Right way in order to control business
affairs with the economic decisions that might result in minimal uncertainty.
Objectives
of Accounting
The
overall objective of financial accounting is
to provide useful information for economic decision making.
The
output of the financial accounting process serves as useful input for making
rational investment, and other similar economic decisions.
Specifically,
the objectives of accounting are the ff.
1) To ascertain the result of the firm
operations;
2) To ascertain the financial position of
the firm; and
3) To assist financial users in predicting
the enterprise’s financial capacity regarding future cash flows, financial
conditions and results of operations.
Accounting Terms
Q: What is an Asset?
Assets defined
as resources or things of value owned by an enterprise .It may classified as
physical form (such as cash and inventory), but also
may classified as not physical form (such as patents and copyrights).
The assets are classified into Current Assets
and Noncurrent
Assets.
Q: Defined Current Assets?
Current Assets may classify in following criteria are
met:
o
Cash or
Cash equivalent
o
Expected
to realized, or consumption in operating cycle.
o
Primarily
trading purposes or short-term.
Currents
Assets
· Cash
– any item on hand with monetary value
that a bank will accept for the deposit and all amount currently on deposit
with the bank in the name of the business.
Including:
- Coins and Currencies
-- Personal checks
-- Money orders
-Travelers checks
-Bank drafts
· Accounts
Receivable – the amounts
collectible on open accounts of the customers. These represent debtor’s oral
promise to pay on certain amount to the business and the right of the business
to collect in peso.
Example:
Receivables from sales of goods or services.
· Note
Receivable - a
promissory note receive by the firm from its debtors and customer a written
promise to pay.
· Accrued
Interest Receivable – The
interest earned on the note receivable but not yet received in cash.
· Inventories
– assets for sale in the normal
operation in the business, production for sale, or in the form of supplies or
materials or even rendering of services.
Example:
Merchandise
Inventory
Work-in-process
inventory
Raw
material inventory
· Prepaid Supplies -
diff. supplies which have been bought for use in the office but are not still
unused.
Example: Unused Coupon Bond, ink, ball pen,
notebook etc.
Q: What is Non-Current Assets?
Non-Current Assets are
tangible, intangible, operating and financial assets of a long-term nature or
simply defined as an asset that does not meet the criteria of current assets.
Q: What
are Non-
Current Assets?
Non-Current
Assets
· Land – the site owned by the
firm on which the business building is constructed.
· Building –
the structure owned by the firm used in
the operation of the firm.
· Furniture and Fixture – long-lived items used by the
business. Such as showcases, counters, containers, display racks, as well as furniture
used for office like desks, chair and cabinets.
· Equipment –
defined as machinery that used in the business; like for example computers,
delivery equipment, machinery used in conveying packing, sorting and altering
commodities.
Contra-
Valuation Accounts
· Allowance for Doubtful Accounts –
refers to an amount estimated uncollectible on receivable in compliance with
the principle conservatism. May also known as “allowance for uncollectible
accounts “and “allowance for bad
debts”.
· Accumulated Depreciation – a
periodic cost of using depreciable plant assets. In accordance with the
systematic cost allocation principle, the acquisition cost depreciable plant
asset should be allocated as expense over its useful life.
Example
o
Accumulated depreciation of Building
o
Accumulated depreciation of Office Equipment
Liability
Accounts
Q: What is a liability?
A liability refers to the
present obligation to pay cash or cash equivalent by an entity, represent
claims against the assets of the firm.
Liability accounts have normally belonged to
credit balance. It is classified into two parts also; Current
and Non- Current liabilities.
Q: What is Current
Liabilities?
Current Liabilities meet the following criteria:
ü Expected to be settled in the firms operating cycle.
ü Due to be settled within twelve months of the statements or
Financial Position Date.
Q: What are Current Liabilities?
Current Liabilities
·
Accounts Payable – an obligation to pay or debt to
creditors for money borrowed or merchandise.
Example:
Obligation arising from the purchases account
·
Notes Payable – refers to a
promissory note issued by the firm to its creditors for money borrowed or
merchandise and other assets bought to credit.
·
Accrued Interest – the interest
incurred in the current period but not yet paid.
·
SSS Premium Payable –refers to the representative
of the amount of the employee and the employer contribution to SSS which are
not yet remitted.
·
Withholding Tax Payable – refers to the
amount of income tax withheld from the salary of the employee on behalf of BIR
Q: What is Non-Current Liability?
Non-Current
Liability – comprises the portion payable beyond on year of a long term
liability or may refers to the one does not meet the criteria of current
liability.
Ø All other liabilities should be classified as Non-Current Liabilities.
