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What Is Accounting?: Philippines Reporting Standards (PFRS)

This document defines accounting and discusses its nature and functions. It begins by defining accounting as "the art of recording, classifying and summarizing in a significant manner in terms of money, transactions and events which are, in part at least, of financial character and interpreting the results thereof." It then discusses how accounting started as a science but is now considered an art, discipline, and information system. The functions of accounting include identifying source documents, recording transactions, preparing financial reports, and analyzing and interpreting results. The document also outlines the various branches of accounting and lists internal and external users of accounting information.

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35 views

What Is Accounting?: Philippines Reporting Standards (PFRS)

This document defines accounting and discusses its nature and functions. It begins by defining accounting as "the art of recording, classifying and summarizing in a significant manner in terms of money, transactions and events which are, in part at least, of financial character and interpreting the results thereof." It then discusses how accounting started as a science but is now considered an art, discipline, and information system. The functions of accounting include identifying source documents, recording transactions, preparing financial reports, and analyzing and interpreting results. The document also outlines the various branches of accounting and lists internal and external users of accounting information.

Uploaded by

Anonymous yvHbTK4Xo
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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What is accounting?

It had been defined as "the art of recording, classifying and summarizing in a significant manner in
terms of money, transactions and events which are, in part atleast, of financial character and
interpreting the results there of "

The content of the above meaning and why it was such defined that way:
a."Art" is a part of our knowledge that help us attain our objectives, design processes and policies,
design appropriate forms and improved controls.
b."Recording" of transaction in various ways.
c."The art of classifying" grouping of transaction s of the same nature at one account.
d."The art of summarizing" business transactions.
e."Summarizing in a significant manner" means that summarizing must be done in a good way.
f."In terms of money" money is the measure and basis in recording the transactions.
g."Transactions and events" The financial character is being measured in terms of money.
h."Interpreting the result" The financial results must be interpreted in such a way that the result can be
understood and appreciated by atleast non accounting users.

These accounting standard are contained in the Philippines Accounting Standard (PAS) and
Philippines Reporting Standards (PFRS)

Nature Of Accounting
• It started as a "science".
•It was defined as an "art".
• It became a "discipline"
•Accounting has become an "information system".

The Function of Accounting Include:


I.Identifying and analyzing source documents which enter into the information system.
II. Recording the source documents which are economic activities into the books of accounts of the
organization.
III. Preparing the financial and management results.
The financial reports are:
• Balance sheet
• Statement of Financial Position
• Statement of Income
• Statement of Cashflow
• Statement of Changes in Equity
IV. Analyzing and interpreting the financial reports for different users who have interest in the business
and who will use these in their decision making.

Accounting reports that are helpful in making business decisions are as follows:
1.The use of Ageing Report of Accounts Receivable.
2.The use of Ageing Report of Accounts Payable.
3.The use of trend reports and analysis of sales performance.
4.The use of expense report and analysis.
5.The use ot accounting in monitoring inventories.

BRANCHES OF ACCOUNTING

1. Financial Accounting - focuses primarily on the preparation of the financial statements. This particular
area of accounting is mostly practiced by a CPA, who is licensed by the Professional Regulations
Commision (PRC)
2. Management Accounting - vert dependent on the accountant in all level of activities such as, cost and
quality control, budget preparation, planning, sales, and financial forecast, etc.
3. Government Accounting - this is prscticed by all government agaencies and it's employees using their
set of policies, accounts and processes normally different from private business enterprises.
4. Auditing - is defined as a "systematic, indepemdent and documented processfor obtaining audit
evidence.
Two Types of Auditing
a. External Audit - carried out by CPA that arr acredited by the Board Of Accountancy (BOA).
b. Internal Audit - function is done by employee of the business organization.
5. Tax Accounting - this is focuses on the preparation of tax returns requires by BIR.
6. Cost Accounting - this branch deals on collecting cost information that is useful to set price of goods
and service for sale.
7. Accounting Education - molding futurr accountants are educators in the accounting practice
8. Accounting Research - it involves a borad range of researcg areas like financial and management
accounting, auditing and taxation.

USERS OF ACCOUNTING INFORMATION

The users of the accounting information are generally classified into:


• External Users - are business enterprises who have interests in the business but do not directly
involved themselves in daily activities of the organization.
• Internal Users - are the persons working within the organization.

The internal users of the financial information are:

• Management for analyzing the organization performance and taking appropriate measures to improve
the company results. They are the decision makers.
• Eployees - for assesing business organization profitability and its conseque on their future
remuneration and job security.
• Owners for analyzing the viability and profitability and their invested capital and determininh any
future course of action.

The external users are:

• Creditor - determining the credit worthiness of the organization.


• Tax Authorities - determining the correct tax payments and tax returns which will be filed by business
organization.
• Investors - analyzing the feasibility of investing in the business organization.
• Customers - assesing he financial position of its suppliers which is necessary for them to maintain a
stable source of long term supply.
• Regulatory Authorities - ensuring that the business organization disclosure of aacounting information
is in accordance with the rules and regulations to be complied with.

List of some users of financial information that are categorized as internal or external users.

INTERNAL USERS External Users


- Accounting Assistant - Banks
- Chief Accountant - Insurance Agencies
- Treasury Manager - Vendors
- President - Franchisors
- Warehouseman - Contractors

THE FORMS OF BUSINESS ORGANIZATION

There are three basic forms of business organization: Sole


Proprietorship, Partnership and Corporation.

1. SOLE PROPRIETORSHIP - also called as Single Proprietorship. Some of these businesses grow big and
become big corporations.

This form of business organization has the following advantages:


a. It is owned by a single person
b. It is easy to organize
c. It requires very low capital
d. The owner has complete control of the businesses and may make decision as he sees ot fit.
e. It has no special legal requirements upon information.
f. The profits go a hundred percent directly to the personal account of the owner.
g. The business is easy to dissolve or liquidate if desired.

It has also following disadvantages which a prospective entrepreneur will consider:


a. The owner is personally liable for the obligation of the business because the owner and the business
itself are not regarded as separate entities.
b. There may be difficulty in

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