h e N a t u r e &

T rpose
P u o f
c c o u n t i n g
A
Group 1
 T o p i c 0 1
The Need for Information

GROUP 1
 The Need for Information
It refers to the necessity of relevant and timely data. As it
also includes general essential information to day-to-day
business operations. This need for information emphasizes
the role of accounting in providing and assisting information.

 Key Characteristics

Rel evance: The i nf ormati on provi ded by accounti ng

shoul d be rel evant to the needs of users.

Rel i abi l i ty: The i nf ormati on i n accounti ng shoul d be

rel i abl e and trustworthy.
 Key Characteristics

Comparabi l i ty: Accounti ng i nf ormati on shoul d al l ow f or

si gni f i cant compari sons over ti me.

Consi stency: Accounti ng i nf ormati on shoul d be

prepared and presented consi stentl y over ti me.
 Importance of The Need
for Information
It is essential for making informed decisions.
It allows for effective financial analysis.
It aids in evaluating the performance and position of a
business.
It promotes transparency and accountability.

 T o p i c 0 2
Operating Information

GROUP 1
 What is Operating
Information?
It refers to the specific data and details that are crucial for
daily business operations. It includes information related
to management accounting systems, as well as the use of
management accounting techniques and methods.
 Key Characteristics
Ti mel i ness, Rel evance, and Accuracy: Operati ng
i nf ormati on al so must be ti mel y, rel evant, and accurate
to ensure that data are rel i abl e f or operati ons.

Detai l -ori ented: Operati ng i nf ormati on i s detai l ed,

capturi ng granul ar data about the vari ous aspects of
operati ons.
 Key Characteristics
I ntegrati on: Operati ng i nf ormati on i s i ntegrated wi th
f i nanci al data to al l ow a hol i sti c vi ew of the
organi zati on.

Accessi bi l i ty and Usef ul ness: Operati ng i nf ormati on

provi des accessi bi l i ty, conveni ence, and usef ul ness f or
management accounti ng purposes.
 Importance of
Operating Information
It is a foundation for various aspects of management
accounting systems and practices.
It provides the necessary data and insights to design and
implement effective systems.

 Importance of
Operating Information
It allows to analyze cost behavior and evaluate the financial
implications of different decisions.
It additionally provides the context to interpret financial
ratios, trends, and indicators.

 T o p i c 0 3
Management Accounting
Information

GROUP 1
 What is Management
Accounting Information?
It refers to financial and non-financial data that is
specifically gathered, analyzed, and presented to
support managerial decision-making within an
organization.
 Key Characteristics
I nternal Focus: Management accounti ng i nf ormati on i s
desi gned f or i nternal use wi thi n an organi zati on.

Future Ori entati on: Unl i ke f i nanci al accounti ng, whi ch

pri mari l y f ocuses on hi stori cal data, management
accounti ng i nf ormati on emphasi zes the f uture.
 Key Characteristics
Rel evance and Ti mel i ness: The i nf ormati on provi ded by
management accounti ng shoul d be rel evant to the
deci si ons at hand.

Fl exi bi l i ty and Customi zati on: Management accounti ng

i nf ormati on can be customi zed to sui t the speci f i c
needs of di f f erent l evel s of management and vari ous
departments wi thi n an organi zati on.
 Key Characteristics
Both Fi nanci al and Non-f i nanci al I nf ormati on: Whi l e
f i nanci al data i s a cruci al component of management
accounti ng, non-f i nanci al i nf ormati on i s al so i ncl uded.

Deci si on Support: The pri mary purpose of management

accounti ng i nf ormati on i s to assi st managers i n maki ng
i nf ormed deci si ons.
 o w d o e s i t w o r k ?
H

Data Analysis:
Data Collection:
The collected data is analyzed to
Relevant data from various sources
derive meaningful insights and
within the organization, such as
sales, production, costs, and budgets,
provide relevant information to

are collected. managers.

 o w d o e s i t w o r k ?
H
Costing:
Performance Measurement:
Management accountants assign
Management accounting
costs to various products, services,
information is used to assess the
or activities within the organization
performance of different
using techniques like activity-
departments, teams, or individuals
based costing (ABC).
within the organization.
.

 o w d o e s i t w o r k ?
H

Budgeting and Planning: Decision Making:

Management accounting Management accounting
information plays a crucial information assists managers in
role in the budgeting and making informed decisions.
planning process.

 o w d o e s i t w o r k ?
H
Reporting:
Performance Evaluation:
Management accountants
Management accounting
prepare reports and present
information is used to compare
information in a format that is
actual performance against
easily understandable by
predetermined goals and
managers.
standards.

 The importance of management accounting

information cannot be overstated. It provides
valuable insights and assists managers in making
informed decisions.
T o p i c 0 4
Financial Accounting

GROUP 1
 What is Financial Accounting?
It is a branch of accounting that focuses on
the recording, summarizing, and reporting
of an organization's financial transactions
and information to external parties.

 Key Aspects of Financial

Accounting
Financial Statements: Financial accounting produces
financial statements, which are formal reports summarizing
the financial activities and results of a business.
Generally Accepted Accounting Principles (GAAP): Financial
accounting follows a set of accounting principles and
guidelines known as Generally Accepted Accounting
Principles (GAAP).

 Key Aspects of Financial

Accounting
Accrual Basis Accounting: Financial accounting is based
on the accrual basis of accounting.
External Users: Financial accounting focuses on providing
information to external users, including shareholders,
investors, lenders, creditors, analysts, regulators, and the
general public.
Historical Perspective: Financial accounting primarily
deals with historical financial data.

 Key Aspects of Financial

Accounting
Compliance and Disclosure: Financial accounting ensures
compliance with applicable accounting standards and
regulations, such as the International Financial Reporting
Standards (IFRS) or the Generally Accepted Accounting
Principles (GAAP) in a specific jurisdiction.
Auditing: Financial accounting is subject to external
auditing by independent certified public accountants
(CPAs) or auditing firms.

 HOW DOES IT WORK?

Here's a general overview of how financial accounting operates:

Recording Transactions

General Ledger

Trial Balance

Adjusting Entries

Financial Statements

External Reporting

Auditing
The importance of financial accounting lies in its
ability to provide accurate, reliable, and
transparent information about an organization's
financial performance, position, and cash flows.
 T o p i c 0 5
Definition of Accounting

GROUP 1
 n i t i o n o f A c c o u n t
e f i i n g
D
Accounting is usually regarded as
Accounting is the the process of monitoring a
process of tracking business’ finances by recording its

and recording accounts payable, accounts

receivable and other monetary
financial activity. transactions.
T o p i c 0 6
Accounting as a
Language

GROUP 1
Accounting as a Language
Accounting can be considered a
language in the sense that it
uses a specific set of rules and
conventions to communicate
financial information.
 1 . V o c a b u l a r y
Accounting has its own specialized
vocabulary, including terms such as assets,
liabilities, revenues, expenses, and equity.
 2. Rules and Conventions:
Accounting operates based on a set of rules
and conventions that dictate how
transactions and events should be
recorded, classified, and reported.
 F i n a n c i a l S t a t e m e n t
3 . s:
Financial statements, such as the balance sheet,
income statement, and cash flow statement, are the
primary means of communication in accounting.
 4. Interpretation
and Analysis:
accounting information requires analysis
and interpretation to derive meaningful
insights
 5 . C o m m u n i c a t i o n:
Accounting serves as a means of communication
between various stakeholders, including shareholders,
management, lenders, regulators, and the public.
 T o p i c 0 7
Accounting Principles
and Concepts

GROUP 1
 Accounting
Principles & Concepts
These are the rules that an organization
follows when recording, reporting, and
interpreting financial information or
transactions. They guide how financial
information is recorded, reported, and
understood. Their goal is to ensure financial
statements are accurate, consistent, and
transparent.
 GAAP & AIA
Generally Accepted Accounting Principles (GAAP)
are a s et of r ul es, g uid elines, and pr inc ipl es t h at
U . S. c om pani es o f all sizes and ac r oss indust r ies
adh er e t o .

The American Institute of Accountants (AIA)

i n i ti al l y r ec om mend ed 5 basic pr inc ipl es, b ut
addi t i o nal ones were ad d ed to the l ist over t h e
years .
 #01 Economic Entity
Principle
The entity concept states that a business
should be treated as a separate entity from
its owners or stakeholders.
 2. Monetary Unit
Also known as the monetary unit
assumption. Under this principle, all financial
information is expressed in a common unit
of measure, such as dollars, euros, or yen.
3. Time Period Principle
The business activities may be reported in
short, distinct time intervals which may be
weeks, months, quarters, a calendar year, or
a fiscal year.
 4. Cost Principle
This principle mentions the historical cost of an
item. This refers to cash or cash equivalent that
was paid to purchase an item in the past. While the
value of an asset might rise or fall with inflation, the
historical cost is reported on the financial
statements.
5. Full Disclosure Principle
All information that is relative to the business and is
important to a lender or investor must be disclosed in
the content of the company’s financial statements or
in the notes to the statements.
6. Going Concern Principle
This accounting principle refers to the intent
of a business to carry on its operations and
commitments into the foreseeable future
and not to liquidate the business.
 7. Matching Principle
The matching principle requires that businesses
use the accrual basis of accounting and match
business income to business expenses in a given
time period.
 8. Revenue Recognition
Under the accrual basis of accounting,
revenue must be reported on the
income statement in the period in
which it is earned.
 9. Materiality Principle
The materiality principle refers to the
misstatement in accounting records when
the amount is insignificant or immaterial.
 10. Conservatism Principle
If accountants are unsure about how to
report an item, the conservatism
principle calls for potential expenses and
liabilities to be recognized immediately.
 11. Accrual Principle
This is the concept that accounting transactions
should be recorded in the accounting periods when
they actually occur, rather than in the periods
when there are cash flows associated with them.
 12. Reliability Principle
This is the concept that only those
transactions that can be proven should be
recorded. This concept is of prime interest to
auditors, who are constantly in search of the
evidence supporting transactions.
 13. Consistency Principle
requires a company to use the same accounting
methods, principles, and practices from one accounting
period to another. It promotes comparability and allows
for meaningful analysis and interpretation of financial
statements over time.
T o p i c 0 8
Understanding
Financial Statements

GROUP 1
 Understanding
Financial Statements
A financial statement is a formal record of the financial activities
and position of a business, organization, or individual.
summary of financial transactions, revenues, expenses, assets,
liabilities, and equity over a specific period of time.
typically prepared in accordance with accounting standards and
regulations.
it should have a fair representation
THE FIVE CATEGORIES OF FINANCIAL
STATEMENTS ARE AS FOLLOWS:

Statement of Financial Position

Statement of Comprehensive Income

Statement of Changes in Equity

Statement of Cash Flow

Notes to the Financial Statements

1. Statement of Financial Position

known as a balance sheet

offers an overview of a company's financial
status at a certain point in time
fundamental accounting equation: Assets =
Liabilities + Shareholders' Equity.
2. Statement of Comprehensive Income

known as the income statement

summarizes a company's revenues, expenses, gains, and
losses during a certain time period, usually a fiscal year or
quarter
It computes the period's net income or loss by deducting
total expenses and losses from total revenues and gains.
3. Statement of Changes in Equity

known as a statement of shareholders' equity

or a statement of retained earnings
It demonstrates the number of transactions
and events that have affected the company's
equity.
4. Statement of Cash Flow

A statement of cash flows is an accounting record that shows

a company's cash inflows and outflows over an agreed-upon
period. It demonstrates how changes in the balance sheet
accounts have influenced the company's cash and its
equivalents, such changes being classified as operating
activities, investing activities, and financing activities.
5. Notes to the Financial Statements

known as financial statement footnotes or disclosures

They supplement the major financial statements
(such as the balance sheet, income statement, and
cash flow statement) by providing additional
information, explanations, and details about
individual items
these five kinds of financial statements,
when combined, provide a full insight
into a company's financial performance,
position, and cash flows
 Thank you
for listening!

BSBA-MM 2-3N Group 1

Business Management Accouting The Nature and Purpose of Accounting