Lecture Notes, ActBas1 Accounting - the art of recording, classifying and summarizing in a significant manner and in terms of money,

transactions and events that are, in part at least, of a financial character, and interpreting the results thereof. - A system that measures business activities, processes given information into reports, and communicates those findings to decision-makers. Bookkeeping - A part of accounting that involves only the recording of economic events. Financial Accounting - The field of accounting that provides economic and financial information for investors, creditors and other external users. Management Accounting - The field of accounting that provides economic and financial information for managers and other Corporate Governance can be defined as the system in which entities are directed or controlled, managed and administered. It influences how the objectives of a company are set and achieved, how risk is monitored and assessed, and how performance of the entity is optimized
Corporate Governance Best Practice Guidelines and Principles: 1. Lay solid foundations for management and oversight 2. Structure the board to add value. 3. Promote ethical and responsible decision making. 4. Safeguard integrity in financial reporting. 5. Make timely and balanced disclosures 6. Respect the rights of shareholders. 7. Recognize and manage risk 8. Remunerate fairly and responsibly

Corporate Social Responsibility Accounting - The reporting and management of non-financial performance. Also referred to as sustainability reporting. Ethics - The standards of conduct by which a person's actions are judged as right or wrong, honest or dishonest, fair or not fair. Generally Accepted Accounting Principles (GAAP) - Accounting rules that indicate how to report economic events Global Reporting Initiative (GRI) - A large multi-stakeholder network that has pioneered the development of the world's most widely used sustainability reporting framework. International Financial Reporting Standards - Accounting rules issued by the International Accounting Standards Board Users of accounting information: 1. Internal Users - Those who are directly involved in the business enterprise such as:
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Lecture Notes, ActBas1 Owners - provides the money/capital that the business needs to begin operations. Management. - Managers of business use accounting information to set goals for the organization, to evaluate the progress made toward those goals, and to take corrective action if necessary 2. External Users - Those who are not directly involved in the operation of the business such as: Potential Investors. Investors use financial reports in evaluating what income they can reasonably expect from their investment Creditors. Potential lenders or current creditors determine the borrowers ability to meet scheduled payments. Taxing Authorities. Local and national government levy taxes on individuals and businesses. Government Regulation Agencies BIR, SEC, local and municipal government units Nonprofit Organizations. Nonprofit organizations, e.g., churches, most hospitals, government agencies, and colleges, which operates for purposes other than to earn a profit use accounting information in much the same way that profit-oriented businesses do. Other Users. Employees and labor unions may make wage demands based on the accounting information that shows their employers reported income. Consumer groups and the general public may also be interested in the amount of income that the businesses earned. Three major fields of the accounting profession: 1. Public Accounting - offer expert service to the general public in much the same way that a doctor serves patients and a lawyer serves clients. Auditing - public accountants, such as a certified practicing accountant (CPA) or a chartered accountant (CA) examine the financial statements of entities and express an opinion as to the fairness of presentation. When the presentation is fair, users consider the statements to be reliable. Taxation - work performed by tax specialists includes tax advice and planning, preparing tax returns and representing clients before government agencies Management Consulting - ranges from the installing of basic accounting systems to helping entities determine whether they should use the space shuttle for high-tech research and development projects. 2. Private Accounting (Management Accounting) - being an employee of a business entity. General Accounting recording daily transactions and preparing financial statements and related information Cost Accounting determining the cost of producing specific products Budgeting assisting management in quantifying goals concerning revenue, costs of goods sold and operating expenses
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Lecture Notes, ActBas1 Accounting Information Systems designing both manual and computerized data processing systems Tax Accounting preparing tax returns and doing tax planning for the business Internal Auditing reviewing the business operations to see if they comply with management policies and evaluating the efficiency of operations. 3. Not-for-profit accounting - Like businesses that exist to make a profit, not-for-profit entities also need sound financial reporting and control. Donors to such entities as the Red Cross, World Vision and Oxfam want information about how well the entity has met its financial objectives and whether continued support is justified. Hospitals, schools and universities must also make decisions about allocating funds. Another area of not-for-profit accounting is government accounting. The Accounting Equation The basic features of the accounting model in use today trace roots back over 500 years. Luca Pacioli, a Renaissance era monk, developed a method for tracking the success or failure of trading ventures. The foundation of that system continues to serve the modern business world well, and is the entrenched cornerstone of even the most elaborate computerized systems. The nucleus of that system is the notion that a business entity can be described as a collection of assets and the corresponding claims against those assets. The claims can be divided into the claims of creditors and owners (i.e., liabilities and owners equity). This gives rise to the fundamental accounting equation: ASSETS = LIABILITIES + OWNERS EQUITY Assets - Resources owned or controlled by a business. Assets are the economic resources of the entity, and include such items as cash, accounts receivable (amounts owed to a firm by its customers), inventories, land, buildings, equipment, and even intangible assets like patents and other legal rights and claims. Assets are presumed to entail probable future economic benefits to the owner. Liabilities - Liabilities are amounts owed to others relating to loans, extensions of credit, and other obligations arising in the course of business. Implicit to the notion of a liability is the idea of an existing obligation to pay or perform some duty. Owners Equity - Owners equity is the owner interest in the business. It is sometimes called net assets, because it is equivalent to assets minus liabilities for a particular business. INCREASES IN OWNER'S EQUITY: investments by owner - The assets contributed to the business by the owner revenue - Income earned in the course of the ordinary activities of a business Gains - Result in an increase in assets. Gains arise from events that are not part of a businesss ordinary course of activities. Examples include gain on sale of non-current assets. DECREASES IN OWNER'S EQUITY Drawings - Withdrawal of cash or other assets from an unincorporated business for the
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Lecture Notes, ActBas1 personal use of the owner(s). expenses - The cost of assets consumed or services used in the process of earning incomes PROFIT - The amount by which income exceeds expenses. LOSS - The amount by which expenses exceed income INCOME - The gross increase in owner's equity resulting from business activities entered into for the purpose of earning profit. NET INCOME - The excess of revenues over expenses for a designated period of time NET LOSS - The excess of expenses over revenues for a designated period of time

TRANSACTIONS - The economic events of an entity that are recorded by accountants

Financial Statements - Core financial reports that are prepared to represent the financial
position and results of operations of a company 1. Statement of comprehensive income - A financial statement that presents the income and expenses and resulting profit or loss for a specific period of time A separate Income statement - displays income and expenses, resulting in a profit or los A statement of comprehensive income - displays components of other comprehensive income. Other comprehensive income comprises income and expenses that are not recognized in profit or loss as required or permitted by the accounting standard 2. Statement of changes in equity - A financial statement that summarizes the changes in owner's equity for a specific period of time 3. Statement of financial position - A financial statement that presents a firm's assets, liabilities, and owners' equity at a particular point in time 4. Statement of cash flows - A financial statement that summarizes information about the cash inflows (receipts) and cash outflows (payments) for a specific period of time.

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