actbas1 - lesson 1 2tay1112

7/30/2019 Actbas1 - Lesson 1 2tay1112

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ACTBAS1Introductory Accounting for

Service Business

Presented by:Mr. Francis H. Villamin

DLSUSeptember 8, 2011


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Definition of Accounting Financial Reporting Standards Council

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 economicdecision.


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Definition of Accounting

As a service, accounting intends to supply

financial reports to be used by economicdecision makers.

Economic decision making is the main

reason why accounting records and reportsare prepared.


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American Institute of Certified PublicAccountants (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 theresults thereof.


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As an art, accounting demands critical

thinking and creative skills. Accountantsgather data and convert them intoorganized financial reports then drawcertain economic meanings from them.


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Definition of AccountingAmerican Accounting Association

The process of identifying, measuring andcommunicating economic information topermit informed judgments and decisions

by users of the information.


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As a process, accounting goes through

an accounting cycle to summarize thevoluminous and repetitive businesstransactions into organized andunderstandable financial reports.


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Definition of Accounting Philippine Institute of Certified PublicAccountants (PICPA)

A system that measures businessactivities, processes given information intoreports, and communicates those findings

to decision-makers.


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Nature of Accounting

A service activity

A process, an art and a discipline The language of business

a. Profitability f. Financial Flexibility

b. Liquidityc. Solvency

d. Stability

e. Capital Structure


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Bookkeeping and Accounting Bookkeeping deals primarily with the

systematic method of recording and

classifying financial transaction of business.It is considered the procedural element ofaccounting.


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Objectives of Accounting1. To ascertain the result of the business

operations.

2. To ascertain the financial position of thebusiness.

3. To assist financial users in predicting the

enterprises financial capacity regardingfuture cash flows, financial conditionsand results of operations.


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Fields of Accounting

Financial accounting

Management accounting Cost accounting

Tax accounting

Government accounting


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Sectors of Accounting Practice

Public Practice

Commerce and Industry Education and Academe

Government


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Users of Accounting Information Internal users those who are directly

involved in the business enterprise

a. Owners

b. Management

c. Employees


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Users of Accounting Information External users those who are not directly

involved in the business enterprisea. Potential investorsb. Creditors (which includes money lenders,

suppliers and other trade creditors)c. Customersd. Taxing authoritiese. Government regulation agenciesf. Non profit organizationsg. Other users


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Forms of Business Organization

Based on ownership

a. Sole or single proprietorship

b. Partnership

c. Corporation


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Proprietorship

Business owned by a single person whohas complete control over businessdecisions. This individual owns all thefirms assets and is responsible for all itsliabilities.


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Advantages of SoleProprietorship

Ease of entry and exit

Full ownership and control

Tax savings

Few government regulations


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Disadvantages of SoleProprietorship

Unlimited liability

Limitations in raising capital

Lack of continuity


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Partnership

Legal arrangement in which two ormore persons agree to contribute

capital or services to the business anddivide the profits or losses that may bederived therefrom.


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Advantages of Partnership

Ease of formation

Additional sources of capital

Management base

Tax implication


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Disadvantages of Partnership

Unlimited liability

Lack of continuity

Difficulty in transferring ownership

Limitations in raising capital


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Corporation

An artificial being created by law and alegal entity separate from its owners.

The legal entity may own assets,borrow money and engage in otherbusinesses without directly involving the

owners.


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Advantages of Corporation

Limited liability

Unlimited life

Ease in transforming ownership

Ability to raise capital


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Disadvantages of Corporation

Time and cost formation

Regulation

Taxes


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Based on operations or activity

a. Service concern

b. Merchandising or trading concern

c. Manufacturing concern


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1. Service performs an activity for a fee

2. Merchandising involved in selling offinished goods produced by otherbusinesses.

3. Manufacturing involved in theconversion of raw materials into sometangible, physical product.


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Basic Accounting Concepts

These are the ground rules that govern howthe accountants measure, process andcommunicate financial information.


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Purpose of basic accountingconcepts

1. They help increase the confidence offinancial statement users that the

financial statements arerepresentationally faithful.

2. They provide companies and accountants

who prepare the financial statementswith guidance on how to account for andreport economic activities.


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Purpose of basic accountingconcepts

3. They provide independent auditors offinancial statements with basis for

evaluating the fairness and completenessof those statements.


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Entity Concept

The business is regarded as having a separateand distinct personality from that of the owner/s

generating its own revenue, incurring its ownexpenses, owning its own assets and owing itsown liabilities.

Personal transactions of owners must not becombines with transactions of the business.


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Monetary Concept

Money is used as the unit of measure in

preparing the various financial reports ofthe company.


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Time Period Concept orPeriodicity

It divides the life of the business into regularintervals (usually one year) at the end of which

financial statements are prepared. The economic activities undertaken during the

life of an accounting entity are assumed to be

divisible into various artificial time periods forfinancial reporting purposes.


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Time Period Concept orPeriodicity

Calendar Year A twelve-month periodbeginning January 1 and endingDecember 31.

Fiscal Year The length of the fiscalperiod is determined by the nature of thebusiness and the frequency of the need ofdata regarding the financial condition andprogress of the business.


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Revenue Realization Concept

It provides that income is recognized whenearned regardless whether cash is

received.a. Income is considered earned when

services are fully rendered.

b. Income is considered earned whengoods or merchandise are fullydelivered.


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Accrual Concept

It requires that income be recorded when

earned regardless of whether cash isreceived and expense be recognized whenincurred regardless whether payment ismade.


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Matching Concept

This concept states that all expensesincurred to generate revenues must berecorded in the same period that theincome are recorded to properly determinenet income or net loss of the period.


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Objectivity or Reliability Concept

This principles requires that all

transactions must be evidenced bybusiness documents free from personalbiases and independent experts canverify reports.


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Cost Concept

It assumes that the assets are acquired inbusiness transactions conducted at arms

length transactions (transactions betweena buyers and a seller at the fair valueprevailing at the time of transaction).


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Going Concern Concept

It assumes that the business is tocontinue its operations indefinitely.

The business will stay in operation for aperiod of time sufficient to carry outcontemplated operations, contracts and

commitments.


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Conservatism Concept

It assumes that when uncertainty

exists, the users of financial statementsare better served by understatementthan overstatement of net income andassets.


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Disclosure Concept

All relevant and material events affectingthe financial condition/position of a

business and the results of its operationsmust be communicated to users offinancial statements.


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Materiality Concept

An item/event is considered material ifknowledge of it would influence the

decision of prudent users of financialstatements.


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Consistency Concept

It states that once a method is adopted, itmust not be changed from year to year toallow comparability of financial statementsbetween years and between businesses.


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Organizations that affectaccounting profession

Philippine Institute of Certified PublicAccountants

Financial Reporting Standards Council Auditing and Assurance Standards Council Professional Regulations Commission Board of Accountancy Securities and Exchange Commission Bangko Sentral ng Pilipinas Commission on Audit


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Basic professional values andbusiness ethics

Ethical values provide the foundation onwhich a civilized society exists.

The purpose of ethics is to directbusinessmen and women to abide by thecode of conduct that facilitates, if not

encourages, public confidence in theirproducts and services.


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Fundamental Ethical Principles

Professional behavior

Professional competence and due care

Objectivity

Integrity

Confidentiality

Independence


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Thank you.

Thats all for today!!!

actbas1 - lesson 1 2tay1112

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