what is accounting?

providing information to users

accounting is the art of recording, classifying provides accounting information to users to analyse
and summarizing in a significant manner in terms of information as per their needs
money.
internal users
characteristics of accounting owners
identification of financial transactions contribute capital in the business & bear the risk
records only monetary transactions. e.g. purchase interested in knowing profit earned or loss incurred
of raw materials, sale of goods by a firm. by the business
events which cannot be measured in money terms management
are not recoded in books of account. needs information in decision making
recording such as fixing selling price, cost control, investment
process of entering business transactions in journal. into new projects
also called as book of original entry. employees & workers
classifying interested in financial statements to ensure
process of grouping transactions of one nature at availability of salary and bonus
one place. transactions recorded in journal are
posted to main book of account called ledger external users
summarising banks
presenting the classified data in an understandable to ensure safety & recovery of the loan advanced by
manner. preparing financial statements viz. them to the
trading & profit & loss a/c (ii) balance sheet investors
analysis & interpretation to assess earning capacity of the enterprise and
analysing financial data so that users can make ensure safety of their investment
judgement about profitability & financial position of government
the business. to collect information about earnings of the
communicating enterprise for collection of taxes
communicating financial information to its users. further it enables government to take policy
to internal as well as external users. decisions
creditors
objectives of accounting those who supply goods or services on credit
maintaining accounting records interested in assessing credit- worthiness of
to record financial transactions & events in the business
books of account in a systematic manner researchers
determining profit or loss to use accounting information for their research
to determine the net results of transactions over a work
period of time through trading and profit & loss a/c
also called as income statement what is bookkeeping?
determining financial position "book keeping is the art of recording business
to determine financial position through balance trnsactions in a systematic manner"
sheet also called as position statement
facilitating management qualitative characteristics of accounting
provides financial information to management. reliability
assists management in decision making, effective means users must be able to depend on
control & forecasting. information information must be reliable
 verifiable, free from bias & material error - deals with how the funds of the government are
relevance recorded and reported
to be relevant, information must be available in
time must help in prediction and feedback, and auditing
must influence the decisions of users a) internal - see to it that established accounting
unnecessary & irrelevant information should procedures are being followed
not be given b) external - examination of the books of accounts to
comparability see if established criteria are followed
to be useful information must be comparable
to be comparable, accounting reports must tax accounting
belong to a common period and - involves the preparation of income tax returns and he
use common unit of measurement determination of correct amount of taxes due and
it should facilitate inter-firm & intra –firm payable to the government
comparisons
understandability cost accounting
information should be presented in simple - concerns primarily on cost collectio, allocation and
manner control of producing goods and services and helps set
should be easily understood by different users selling price of products
relevant on into nonscan beemen to explain the
accounting education
advantages of accounting - deals with developing future accountants by creating
evidence in legal matters relevant accounting curriculum
provides complete & systematic record accounting research
provides information about profit or loss - helps standard setting bodies around the world to
enables comparative study develop a new standards that will address recent issues
facilitates raising loans or trend in global business
helpful in decision making
facilitates sale of business USERS OF ACCOUNTING INFORMATION

1 financial accounting external users

- the broadest branch is focused on the needs of extenal lenders
users. information is communicated in a complete set of investors
financial statements. governments
- primarily concerend with preocessing historical date consumer groups
and uses information for decision-making needs. external auditors
customers
management accounting - financial accounting provides external users with
- provide timely and relevant information for those financial statements
internal users of accounting information, such as the
managers and employees in their decision-making internal users
needs. managers
- involves financial analysis, budgeting and forcasting, officers
cost analysis, evaluation of business decisions, and auditors
similar areas. sales staff
employees
government accounting owners
- managerial accounting provides information needs for Management Accounting:
internal decision makers Management accounting provides valuable information
to internal management for decision-making and
employees strategic planning. This branch helps in cost control,
- are entitled to bonus at the end of the year, which is budgeting, performance evaluation, and resource
linked to the profit earned by an enterprise therefore, allocation.
the employees are interested in financial state,emt.
thus, the financial statement also reflect wether the Government Accounting:
enterprise has deposited its dues into the provident Government accounting is vital for accountability and
funds and employees state insurance etc... transparency in the public sector. It helps government
entities track and report their financial activities,
owners ensuring that public funds are used efficiently and
- contribute capital in the business and are exposed to effectively.
maximum risk. thus, they are interested in knowing the
profit or loss by the business besides the safety of their Tax Accounting:
capital. Tax accounting ensures compliance with tax laws and
regulations while optimizing a company's tax position.
lenders Accurate and timely tax reporting is essential for
- banks and loans stockholders who lend money to a fulfilling legal obligations and minimizing tax liabilities.
business require information that helps them
determined wether loans and interest will be paid when Cost Accounting:
due Cost accounting is crucial for managing and controlling
costs within a business. It provides detailed insights into
investors the costs associated with production, helping
- are concerned about rrisk and return in relation to management make decisions about pricing, product
their investments. they require information to decide mix, and resource allocation.
wether they should continue invest in a business. they
also nee to be able to assess wether a business will be 2. Compare and contrast managerial accounting and
able to pay dividends, and to measure the performance financial accounting. How do they differ in terms of
of the business management overall. their objectives, audience, and methods?

creditors Managerial Accounting vs. Financial Accounting:

- suppliers and trade creditors requirement information
1. Objectives:
public at large
You sent Managerial Accounting:
1.Discuss the fundamental principles of accounting and Objective: The primary objective of managerial
their significance in financial reporting. accounting is to provide relevant and timely information
to internal management for decision-making, planning,
Financial Accounting: and control. It focuses on helping managers make
Financial accounting provides a standardized and informed choices that contribute to the organization's
transparent view of a company's financial performance efficiency, effectiveness, and overall success.
and position. The financial statements prepared serve
as a basis for external stakeholders, including investors, Financial Accounting:
creditors, regulators, and the general public Objective: The main objective of financial accounting is
to provide a standardized and transparent view of a
company's financial performance and position to Level of Detail: Financial accounting tends to be more
external stakeholders. The emphasis is on reporting aggregated and standardized. It focuses on presenting a
historical financial data in the form of financial summary of financial information that is relevant and
statements, such as income statements, balance sheets, understandable to external stakeholders. The emphasis
and cash flow statements. is on providing a big-picture view rather than detailed
internal analyses.
2. Audience:
5. Reporting Standards:
Managerial Accounting:
Audience: Internal management, including executives, Managerial Accounting:
department heads, and other decision-makers within Reporting Standards: There are no specific standardized
the organization, are the primary audience for reporting rules for managerial accounting. Reports are
managerial accounting information. customized to meet the internal needs of management,
and formats may vary across organizations.
Financial Accounting:
Audience: External stakeholders, such as investors, Financial Accounting:
creditors, regulatory authorities, and the general public, Reporting Standards: Financial accounting follows
are the primary audience for financial accounting generally accepted accounting principles (GAAP) or
information. International Financial Reporting Standards (IFRS),
depending on the jurisdiction. These standards provide
3. Time Dimension: a uniform basis for preparing and presenting financial
statements, ensuring consistency and comparability.
Managerial Accounting:
Time Dimension: Managerial accounting focuses on 6. Regulatory Requirements:
both historical and forward-looking information. It often
includes budgets, forecasts, and performance reports Managerial Accounting:
that help in planning and decision-making. Regulatory Requirements: Managerial accounting is not
subject to external regulatory requirements. The focus
Financial Accounting: is on meeting the internal informational needs of the
Time Dimension: Financial accounting primarily deals organization.
with historical financial data. The financial statements
represent past transactions and events, providing a Financial Accounting:
snapshot of the company's financial position at a Regulatory Requirements: Financial accounting is
specific point in time and its performance over a subject to strict regulatory requirements to ensure
particular period. transparency and consistency in reporting. Compliance
with GAAP or IFRS is often mandatory for publicly
4. Level of Detail: traded companies.

Managerial Accounting: 3. Discuss the role of auditing in ensuring the accuracy

Level of Detail: Managerial accounting can be highly and reliability of financial statements.
detailed and granular, providing information tailored to Auditing plays a crucial role in ensuring the accuracy
the specific needs of internal management. It may and reliability of financial statements by providing an
involve cost breakdowns, budget variances, and other independent and objective examination of a company's
detailed analyses. financial information. The main purpose of auditing is to
enhance the credibility of financial statements, instill
Financial Accounting:
confidence among stakeholders, and contribute to the accordance with accounting standards and that
overall integrity of financial reporting. estimates are based on reasonable assumptions.
Independence and Objectivity:
What are the key responsibilities of auditors, and how
do they fulfill them? Auditors must maintain independence and objectivity
throughout the audit process. This independence is
Key Responsibilities of Auditors: crucial to ensure that the audit is conducted without
bias and that the auditor can provide an impartial
Examine Financial Statements: assessment of the financial statements.
Communicate Findings:
Auditors review the financial statements, including the
balance sheet, income statement, and cash flow Auditors communicate their findings to the company's
statement. They verify that the information presented is management and, if applicable, to the board of
accurate, complete, and in compliance with accounting directors and shareholders. This includes any identified
standards. weaknesses in internal controls, instances of non-
Assess Internal Controls: compliance, and significant audit adjustments.
Provide Assurance:
Auditors evaluate the effectiveness of internal controls
within the organization. Strong internal controls reduce The ultimate goal of auditing is to provide reasonable
the risk of errors, fraud, and misstatements in financial assurance that the financial statements are free from
reporting. Auditors may provide recommendations for material misstatements. This assurance enhances the
improving internal control processes. credibility of financial information, supporting the
Verify Transactions and Balances: decision-making process for investors, creditors, and
other stakeholders.
Auditors test a sample of transactions to ensure that
they have been accurately recorded and classified. They forms of business organizations
verify the existence and valuation of assets, liabilities, organization - a collection of people working
revenues, and expenses. together to achieve a common purpose.
Check Compliance with Laws and Regulations: business organization - a collection of people
working together to achieve a common purpose in
Auditors assess whether the company is in compliance relation to their organization's mission, vision,
with relevant laws and regulations. This includes tax goals, and objectives, sharing a common
regulations, industry-specific regulations, and organizational culture.
accounting standards. single proprietorship
Confirm Existence of Assets and Liabilities: a form of business that is owned, managed and
controlled by an individual. it is the simplest and the
Auditors confirm the existence and ownership of assets most numerous form of business organization.
and liabilities by obtaining third-party confirmations,
conducting physical inspections, and reviewing self-employed business owner
documentation. a self-employed business owner is someone who
Evaluate Accounting Policies and Estimates: conducts a trade or business with the intent of
making a profit. the self-employed individual may
Auditors assess the appropriateness of accounting conduct the business on a full-time basis or as a
policies and the reasonableness of management's part-time venture.
estimates. They ensure that accounting policies are in
Different types of sole proprietorship
franchise limited partnership
a franchise may also take on the form of a sole a limited partnership is formed by two or more
proprietorship. in a franchise, the sole proprietor, persons, having one or more general partners and
also referred to as a franchisee, pays a fee to a one or more limited partners. a limited partner has
franchisor in exchange for the right to use the no voice in the active management of the limited
company brand. partnership, which is conducted by the general
the franchisee is obligated to follow a partners). every limited partner's liability is limited
predetermined business model that controls such to the capital he has contributed to the partnership.
areas as operations, marketing, pricing and the different types of partnership
ability to expand. the franchisee must also pay the limited liability partnership
franchisor royalties, which are typically a with an llp, partners will receive the same beneficial
percentage of the franchise unit's gross sales. a taxation provided by a general partnership, and will
franchise can be a good choice for the sole also be shielded from the debts, and liabilities of
proprietor who has little business experience, as the the business. in addition, every partner in an llp will
franchisor provides a successful business model as be protected from the actions of other partners.
well as marketing and operational
corporation
partnership is an articial being created by operation of law,
by the contract of partnership, two or more persons having the right of succession and powers,
bind themselves to contribute money, property, or attributes and properties expressly
industry to a common fund with the intention of authorized by law or incident to its existence.
dividing the profits among themselves. sec. 2 of b.p. blg. 68 (corporation code of the
two or more persons may also form a partnership philippines)
for the exercise of profession. generally erase depending at spectir acto ts, which
art. 1767, civil code include:
different types of partners: the business purpose of the corporation
general partners, who invest in the partnership, the manner in which the corporation's income is
participate in the day-to-day operations and are taxed
liable for debts and lawsuits of the partnership the number of shareholders and amount of stock to
limited partners, who invest in the partnership but be issued
who have no participation in day-to-day operations whether the corporation is incorporated to make a
and who are not usually considered to have liability. profit
business corporation
general partnership a corporation formed to engage in commercial
an association of two or more persons that carry on activity for a profit. another name for this type is a
as the co-owners of a business in order to generate "for-profit" corporation.
a profit. the default rule is equality between all
members and the only way to change this is c corporation
through a formal written agreement. each partner a corporation whose income is taxed through the
possesses an equal voice in management and the corporation rather than its shareholders.
authority to act as agent for the partnership. any corporation that does not choose s corporation
each partner can be held liable for all debts of the tax status (see below) under the internal revenue
partnership, and for torts committed by other code is a c corporation
partners within the course of the partnership's different types of corporation
business. close corporation
 any corporation whose stock is freely traded and is
held by only a few shareholders who are often
within the same family. the requirements and
privileges of close corporations vary by jurisdiction.
controlled corporation
a corporation in which the majority of stock is held
by one individual or firm.
cooperative corporation
a corporation primarily organized for the purpose of
providing members rather than for a common kind
is. the formed to purchase real apartments.
foreign corporation
a corporation that is registered in one state, but is
also "authorized to do business" in one or more
different states. usually created to take advantage
of tax breaks and state incorporation laws. may also
refer to overseas corporations doing business in the
philippines.
non-profit corporation
aurpose atner oran making some granted spectar
tax treatment.