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FABM - Reviewer Q1

Accounting is the language of business and involves recording, classifying, and summarizing financial transactions and events in terms of money. There are internal and external users of accounting information, with internal users like business owners and managers directly involved in managing the business, and external users like investors, creditors, and government agencies interested in a company's financial position. The basic elements of accounting are assets, liabilities, capital or owners' equity, income, and expenses.

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43 views

FABM - Reviewer Q1

Accounting is the language of business and involves recording, classifying, and summarizing financial transactions and events in terms of money. There are internal and external users of accounting information, with internal users like business owners and managers directly involved in managing the business, and external users like investors, creditors, and government agencies interested in a company's financial position. The basic elements of accounting are assets, liabilities, capital or owners' equity, income, and expenses.

Uploaded by

Ahlfea Jugalbot
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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What is Accounting?

-it is the language of business.


-a art of recording, classifying and summarizing in the significant manner and in terms if money,
transactions and events which are in part at least of a financial character and interpreting the results
thereof.

USERS OF ACCOUNTING INFORMATION


• Internal Users(Primary Users)- those are individuals inside the company who plan, organize, and run
the business. These users are directly involved in managing and opening the business.
1. Business Owners- the investors/owners needs to know the condition of his business.
2. Business Managers- these people use accounting information in setting the goals of business, in
evaluating the progress towards their objectives, and in correcting lapses or errors committed, if
any.
• External Users(Secondary Users)- are individuals organization outside the company who want,
financial information about the company. These users are not directly involved in managing and
operating the business.
1. Prospective Investors- they provide the needed capital of the business to operate. Analysis of
financial information helps them in deciding whether to invest or not in a company.
2. Creditors- lenders like banks and other financing institution determine the ability of a company
to pay their obligations as they become due.
3. Government Agencies- Security and Exchange Commission(SEC) and Bureau of Internal
Revenue(BIR) are examples of government agencies that we consider major users of accounting
information. SEC mandates that business entities should disclose certain financial accounting
information to the prospective investor. BIR, on the other hand, is very much interested in the
financial statements that will support the business payment of taxes.
4. Consumers- assessing the financial position of its suppliers which is necessary for them to
maintain a stable source of supply in the long term.

FORMS OF BUSINESS ORGANIZATIONS


• Accrual Accounting Principle- this is the concept that requires income and expense recognition in the
accounting period when they are actually earned and incurred, rather than when cash are received (for
revenues) and disbursed (for expenses). Financial statements are prepared using the accrual basis
accounting.

BASIC ELEMENTS OF ACCOUNTING


• Assets • Liabilities • Capital of Owners Equity • Income • Expenses

*Current Assets refers to cash and other assets that are easily converted into cash or consumed during
the accounting period usually one year. Ex. Cash, Accounts Receivables, Interest Receivables, Prepaid
Expenses, Merchandise Inventory, Office Supplies, Advances to Employees.
*Liabilities refers to the obligations of the company or organizations. Amount owed to lenders and
suppliers. Liabilities often have the word “payable” in the account title. Ex. Accounts Payable, Notes
Payable, Salaries Payable, Insurance Premium Payable, Unearned Income or Unearned Revenue.
*Capital or Owners Equity is a term that refers to the vested interest of the owner in the business.
*Owners Drawings is a term that shows the withdrawal of cash or other items from the business by the
owner. This is deducted from the income earned by the business.
*Income is a general term to mean any earnings made by the business. Ex. Sales, Service Income,
Interest Income, Commission Income, Rent Income.
*Expenses is the money spent or cost incurred in an entity’s effort to generate revenue. Ex. Salaries
Expense, Bad Debt Expense, Advertising Expense, Rent Expense, Depreciation Expense, Supplies
Expense, Repairs Expense, Taxes and License.

THE ACCOUNT EQUATION


Assets = Liabilities + Owners Equity

*Chart of Accounts is a list of accounts titles used as a guide in recording business transactions. Assets,
Liabilities, Owners Equity, Income, and Expenses are listed down to help in recording a particular
transactions.
ACCOUNTING PERIOD
• Calendar Year or Period a part of 12 months starting January 1 and ending December 31.
• Fiscal Year any succession of 12 months starting with any month except December 31.

THE THEORY OF DEBIT AND CREDIT

Assets (debit to increase, credit to decrease)


Liabilities (debit to decrease, credit to increase)
Owners Equity (debit to decrease, credit to increase)
Income (debit to decrease, create to increase)
Expenses (debit to increase, credit to decrease)

Debit- value received


Credit- value given

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