‭ HARIZ ABIGAIL C.

BAJA
C ACCOUNTING‬
‭ABM 11 Y1-3P MS. RENALYN LUNGOD‬

‭What is Accounting?‬

‭ ccounting is the process of recording and categorizing a company’s transactions, and then‬
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‭summarizing, analyzing and reporting on these activities. The resulting information—in the form‬
‭of the balance sheet, income and cash flow statement, forecasts and other reports—is used to‬
‭inform business leaders as they:‬

●‬ ‭Evaluate staffing and payroll‬

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●‬ ‭Balance or assess inventory levels‬
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●‬ ‭Investigate new business opportunities‬
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●‬ ‭Maximize profitability‬
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●‬ ‭Manage cash flow‬
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●‬ ‭Analyze the financial health of the business‬
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‭ he reports and other information that accountants produce are also used outside of the‬
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‭company, by lenders, investors, auditors and, in the case of public companies, investors.‬

‭References‬

‭What Is Accounting? Definition, Types, History, & Examples‬‭. (2023, October 23). NetSuite.‬

‭Retrieved January 17, 2025, from‬

‭https://www.netsuite.com/portal/resource/articles/accounting/accounting.shtml‬

‭What are the branches of Accounting?‬

‭ pecialized fields in accounting have emerged as a result of economic, industrial, and‬

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‭technological developments in business. Let's go through the different branches of accounting‬
‭and see what they specialize on.‬

‭1. Financial Accounting‬

‭ inancial accounting involves recording and classifying business transactions, and preparing‬
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‭and presenting financial statements to be used by internal and external users.‬
‭In the preparation of financial statements, strict compliance with generally accepted accounting‬
‭principles or GAAP is observed. Financial accounting is primarily concerned in‬
‭processing historical data.‬

‭2. Managerial Accounting‬

‭ anagerial or management accounting focuses on providing information for use by internal‬

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‭users, the management. This branch deals with the needs of the management rather than strict‬
‭compliance with generally accepted accounting principles.‬
‭Managerial accounting involves financial analysis, budgeting and forecasting, cost analysis,‬
‭evaluation of business decisions, and similar areas.‬

‭3. Cost Accounting‬

‭ ften times considered as a subset of management accounting, cost accounting refers to the‬
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‭recording, presentation, and analysis of manufacturing costs. Cost accounting is very useful in‬
‭manufacturing businesses since they have the most complicated costing process.‬
‭Cost accountants also analyze actual costs versus budgets or standards to help determine‬
‭future courses of action regarding the company's cost management.‬

‭4. Auditing‬

‭ xternal auditing refers to the examination of financial statements by an independent party with‬
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‭the purpose of expressing an opinion as to fairness of presentation and compliance with‬
‭GAAP. Internal auditing focuses on evaluating the adequacy of a company's internal control‬
‭structure by testing segregation of duties, policies and procedures, degrees of authorization,‬
‭and other controls implemented by management.‬

‭5. Tax Accounting‬

‭ ax accounting helps clients follow rules set by tax authorities. It includes tax planning and‬
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‭preparation of tax returns. It also involves determination of income tax and other taxes, tax‬
‭advisory services such as ways to minimize taxes legally, evaluation of the consequences of tax‬
‭decisions, and other tax-related matters.‬

‭6. Accounting Information Systems‬

‭ ccounting information systems (AIS) involves the development, installation, implementation,‬

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‭and monitoring of accounting procedures and systems used in the accounting process. It‬
‭includes the employment of business forms, accounting personnel direction, and software‬
‭management.‬
‭7. Fiduciary Accounting‬

‭ iduciary accounting involves handling of accounts managed by a person entrusted with the‬
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‭custody and management of property of or for the benefit of another person. Examples of‬
‭fiduciary accounting include trust accounting, receivership, and estate accounting.‬

‭8. Forensic Accounting‬

‭ orensic accounting involves court and litigation cases, fraud investigation, claims and dispute‬
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‭resolution, and other areas that involve legal matters. This is one of the popular trends in‬
‭accounting today.‬

‭References‬

‭Branches / Types of Accounting‬‭. (n.d.). Accountingverse. Retrieved January 17, 2025, from‬

‭https://www.accountingverse.com/accounting-basics/types-of-accounting.html‬

‭Who are the Users of Accounting Information?‬

‭Internal Users of Accounting‬

‭Internal users are the primary users of accounting.‬

‭Following are the 3 types of internal users and their information needs:‬

‭Owners‬

‭Owners need to assess how well their business is performing.‬

‭ inancial statements provide information to owners about the profitability of the overall‬
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‭business as well as individual products and geographic segments.‬

‭Owners are also interested in knowing how risky their business is.‬

‭ ccounting information helps owners in assessing the level of stability in business over the‬
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‭years and to what extent have changes in economic factors affected the bottom line of the‬
‭business.‬
‭ uch information helps owners to decide if they should invest any further in the business or if‬
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‭they should use their financial resources elsewhere in more promising business ventures.‬

‭Managers‬

‭Managers need accounting information to plan, monitor and make business decisions.‬

‭ anagers need to allocate the financial, human and capital resources towards competing needs‬
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‭of the business through the budgeting process.‬

‭ reparing and monitoring budgets effectively requires reliable accounting data relating to the‬
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‭various activities, processes, products, services, segments and departments of the business.‬

‭ anagement requires accounting information to monitor the performance of business by‬

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‭comparison against past performance, competitor analysis, key performance indicators and‬
‭industry benchmarks.‬

‭ anagers rely on accounting data to form their business decisions such as investment,‬
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‭financing and pricing decisions.‬

I‭n case of investment decisions for example, managers would require the return on‬
‭investment calculation of a proposed project supported by reliable estimates of the costs and‬
‭revenues.‬

‭Employees‬

‭ or the employees operating in the finance department, using accounting information is usually‬
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‭part of their job description. This includes for example preparing and reviewing various financial‬
‭reports such as financial statements.‬

‭ mployees are interested in knowing how well a company is performing as it could have‬
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‭implications for their job security and income.‬

‭ any employees review accounting information in the annual report just to get a better‬
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‭understanding of the company’s business.‬

I‭n recent years, the increase in number of shares and share options schemes for employees‬
‭particularly in startups has fostered a greater level of interest in accounting information by‬
‭employees.‬

‭ oreover, potential employees are also interested to learn about the financial health of the‬
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‭organization they aspire to join in the future.‬

‭External Users of Accounting‬

‭External users are the secondary users of accounting.‬

‭Following are the 8 types of external users and their information needs:‬

‭Investors‬

I‭nvestors need to know how well their investment is performing. Investors primarily rely on the‬
‭financial statements published by companies to assess the profitability, valuation and risk of‬
‭their investment.‬

I‭nvestors use accounting information to determine whether an investment is a good fit for their‬
‭portfolio and whether they should hold, increase or decrease their investment.‬

‭Lenders‬

‭ enders use accounting information of borrowers to assess their credit worthiness, i.e. their‬
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‭ability to pay back any loan.‬

‭ enders offer loans and other credit facilities on terms that are based on the assessment of‬
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‭financial health of borrowers.‬

‭ ood financial health is indicated by the borrower’s ability to pay its liabilities on time, high‬
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‭profitability, substantial securable assets and liquidity.‬

‭ oor liquidity, low profitability, lack of assets that can be secured and an inability to pay‬
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‭liabilities on time demonstrate poor financial health of borrowers.‬

‭ n a lighter note, borrowers can only get a loan from lenders if they can prove that they don’t‬
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‭need the money.‬

‭Suppliers‬

‭ ust like lenders, suppliers need accounting information to assess the credit-worthiness of its‬
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‭customers before offering goods and services on credit.‬

‭ ome suppliers only have a handful of customers. These customers could be very large‬
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‭businesses themselves. Suppliers need accounting information of its key customers to assess‬
‭whether their business is in good health which is necessary for sustainable business growth.‬

‭Customers‬

‭Most consumers don’t care about the financial information of its suppliers.‬
I‭ndustrial consumers however need accounting information about its suppliers in order to‬
‭assess whether they have the required resources that are necessary for a steady supply of‬
‭goods or services in the future. Continuity in supply of quality inputs is essential for any‬
‭business.‬

‭Tax Authorities‬

‭ ax authorities determine whether a business declared the correct amount of tax in its tax‬
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‭returns.‬

‭ ccasionally, tax authorities conduct audits of the tax returns filed by businesses in order to‬
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‭verify the information with the underlying accounting records.‬

‭ ax authorities also cross reference accounting information of suppliers and consumers in‬
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‭order to identify potential tax evaders.‬

‭Government‬

‭ overnment ensures that a company’s disclosure of accounting information is in accordance‬

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‭with the regulations that are in place to protect the interest of various stakeholders who rely on‬
‭such information in forming their decisions.‬

‭ overnment defines and monitors accounting thresholds such as sales revenue and net profit to‬
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‭determine the size of each business for the purpose of ensuring that it complies with the‬
‭relevant employee, consumer and safety regulations.‬

‭Auditors‬

‭ xternal auditors examine the financial statements and the underlying accounting record of‬
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‭businesses in order to form an audit opinion.‬

I‭nvestors and other stakeholders rely on the independent opinion of external auditors on the‬
‭accuracy of financial statements.‬

‭Public‬

‭ eneral public may also be interested in accounting information of a company. These could‬
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‭include journalists, analysts, academics, activists and individuals with an interest in economic‬
‭developments.‬

‭References‬

‭Ali, A. (n.d.).‬‭11 Users Of Accounting Information‬‭. Accounting Simplified. Retrieved January 17,‬

‭2025, from‬
 ‭https://accounting-simplified.com/financial/introduction/users-of-accounting-informatio‬

‭n/‬

‭Who is Luca Pacioli?‬

‭ uca Pacioli (c.1447 – 1517) was the first person to publish detailed material on the‬
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‭double-entry system of accounting. He was an Italian mathematician and Franciscan friar who‬
‭also collaborated with his friend Leonardo da Vinci (who also took maths lessons from Pacioli).‬

I‭t is said that Luca Pacioli published works for the double entry accounting system based on‬
‭procedures in use by Venetian merchants during the Italian Renaissance. Most of the‬
‭accounting principles and cycles described by Luca are still in use to this very day. His‬
‭documentation includes journals, ledgers, year-end closing dates, trial balances, cost‬
‭accounting, accounting ethics, Rule 72 (developed 100 years earlier than Napier and Briggs),‬
‭and extensive work on the double entry accounting system.‬

I‭f you are an accountant working in today’s modern world of ingenious inventions and‬
‭technology, just remember that the majority of the accounting principles you are using actually‬
‭date back to the late medieval period and even much earlier. ‬

‭ acioli credits Benedetto Cotrugli with originating the double entry method which Cotrugli‬
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‭described in a brief (but at the time unpublished) manuscript some 36 years earlier than Pacioli.‬
‭History is blurred and some historians actually suggest that the double entry accounting system‬
‭was in use for hundreds of years before this time in Italy. Pacioli however, is largely‬
‭acknowledged as producing the first detailed and published material on the subject.‬

‭ uca Pacioli is famously quoted as saying that ‘a person should not go to sleep at night until the‬
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‭debits equal the credits’. How many sleepless nights would this equate to for some‬
‭accountants!‬

‭References‬

‭James, T. (n.d.).‬‭Luca Pacioli the ‘Father of Accounting’‬‭. Success Tax Professionals. Retrieved‬

‭January 17, 2025, from https://www.stptax.com/luca-pacioli-the-father-of-accounting/‬