Topics: Balance sheet, Financial statements, Generally Accepted Accounting Principles Pages: 169 (35916 words) Published: October 9, 2012

DEFINITION of Accounting


Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decisions.


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

AAA - definition states the very definition of accounting

Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information.

Identifying-analytical component
Measuring-technical component
Communicating-formal component

Information System
Accounting is an information system that measures business activities, processes information into reports and communicates the reports to decision makers.

Key Product- Financial Statements


This is the recognition and non-recognition of business activities as “accountable events”. An accountable/quantifiable event when it has an effect on ALE.

Transactions involve 3rd parties while Events does not involve 3rd parties.

Economic activities are referred to as transactions which may be classified as external or internal. • Production
• Exchange
• Income distribution
• Consumption
• Investment
• Savings

External/Exchange transactions are those economic events involving one entity and another entity. Ex. Purchase, Sale, Borrowing, Payment

Internal transactions are transactions are economic events involving the entity only. Ex. Production, Casualty


This process is the assigning of peso amounts to accountable economic transactions and events.

The measurement bases are historical cost, current cost, realizable value and present value.


Is the process of preparing and distributing accounting reports to potential users of accounting information. Identifying and measuring are pointless if the information contained in the accounting records are not communicated to users.

Recording or journalizing is the process of systematically maintaining a record of all economic business transactions after they have been identified and measured.

Classifying is the sorting or grouping of similar inter-related economic transactions into their respective classes. It is accomplished by posting to the ledger.

Ledger is a group of accounts which are systematically categorized into assets, liabilities, equity, revenue and expense accounts.

Summarizing is the preparation of FS which include the statement of financial position, income statement, statement of comprehensive income, statement of change in equity, and statement of cash flows.

BASIC PURPOSE of Accounting

To provide quantitative financial information about a business that is useful to statement users particularly owners and creditors, in making economic decisions.

TYPES of Information:

QUANTITATIVE – expressed in NUMBERS, quantities or units.
QUALITATIVE- expressed in WORDS or descriptive form.
FINANCIAL- expressed in the terms of MONEY.

FINANCIAL REPORTING is the process of COMMUNICATING FINANCIAL ACCOUNTING INFORMATION about a company to external users. The PRIMARY MEDIUM of communicating is the GENERAL PURPOSE FINANCIAL STATEMENTS. Other ways is thru prospectuses, news releases, president’s letter and other supplementary schedules.

USERS of Accounting Information:
• Investors
• Employees
• Lenders
• Suppliers and other trade creditors
• Customers
• Government and their agencies
• Public

BRANCHES of Accounting:
• Financial Accounting
• Auditing
• Management Advisory Services
• Government Accounting
• Tax Accounting
• Fiduciary Accounting
• Accounting Systems

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