FABM1 NATURE, HISTORY, USERS AND BRANCHES OF ACCOUNTING#ACCOUNTING1

Summary

In this introductory accounting class, the professor outlines the nature and history of accounting, emphasizing its role in decision-making through financial information. The class covers various definitions by professional bodies, the importance of stewardship, and the systematic process of financial statement preparation. The professor also differentiates between accounting and bookkeeping, explores the users of financial statements, and touches on the branches of accounting, ensuring a foundational understanding for students embarking on their accounting journey.

Takeaways

• 📚 The script is a lecture on the fundamentals of accounting, covering the nature, history, and users of accounting information.
• 🔍 Accounting is defined by various organizations, emphasizing the process of identifying, measuring, and communicating financial information for decision-making.
• 🎨 The American Institute of Certified Public Accountants (AICPA) describes accounting as an art of recording and summarizing financial transactions and events.
• 🛠️ Accounting serves multiple functions, including stewardship, which involves managing and taking responsibility for a company's resources to support informed decision-making.
• 👨‍🏫 The lecture introduces the systematic process of accounting, performed by professionals with skills and expertise, resulting in financial statements.
• 🔢 The Accounting 1 course will focus on the accounting cycle, including analyzing transactions, making journal entries, posting to ledgers, preparing trial balances, and adjusting entries.
• 🏦 Different branches of accounting are mentioned, such as public accounting, private accounting, government accounting, and accounting education, each with specific roles and functions.
• 👥 The users of accounting information are categorized as internal (managers, owners, employees) and external (potential investors, creditors, customers, suppliers, tax authorities, and regulatory bodies).
• 🏛️ The history of accounting dates back to the Renaissance period, with Luca Pacioli known as the father of modern accounting for his work on double-entry bookkeeping.
• 📈 The importance of financial statements for various stakeholders is highlighted, as they provide insights into a company's financial health and stability.
• 📝 The difference between accounting and bookkeeping is clarified, with bookkeeping focused on recording monetary transactions and accounting encompassing a broader scope of analysis and interpretation.

Q & A

What is the definition of accounting according to the American Accounting Association?

Accounting is defined by the American Accounting Association as the process of identifying, summarizing, measuring, and communicating economic events in terms of money, which are useful for making informed judgments and decisions by users.

What is the role of accounting in the context of stewardship?

In the context of stewardship, accounting involves managing or taking full responsibility for the resources of a company, primarily its financial assets. It helps in making informed decisions that support the daily operations and future plans of the company.

What are the main functions of accounting?

The main functions of accounting include recording, classifying, summarizing, and interpreting financial transactions and events to provide information for decision-making and economic evaluation.

How does the American Institute of Certified Public Accountants (AICPA) define accounting?

The AICPA defines accounting as the art of recording, classifying, and summarizing in a significant manner, and in terms of money, transactions and events which are, at least in part, of financial character, and interpreting the results thereof.

What does the Accounting Standards Council (ASC) consider accounting to be?

The ASC considers accounting to be a service activity that provides quantitative, primarily financial, information about economic entities, intended to be used in making economic decisions.

What are the key elements of the accounting cycle that students will learn in Accounting 1 or FABM1?

The key elements of the accounting cycle in Accounting 1 or FABM1 include analyzing business transactions, making journal entries, posting to ledgers, preparing trial balances, gathering adjustment data, making adjusting entries, preparing worksheets, and preparing financial statements such as the balance sheet, income statement, and cash flow statement.

What is the difference between accounting and bookkeeping?

Accounting is a broader scope that includes interpretation, analysis, classification, reporting, and summarizing of financial data, while bookkeeping is limited to the recording of monetary transactions.

Who is considered the father of modern accounting and why?

Lucca Pacioli, an Italian monk and mathematician, is considered the father of modern accounting because he wrote a book that included a detailed explanation of the double-entry bookkeeping system, which is fundamental to modern accounting practices.

Who are the internal users of accounting information and what do they use the information for?

Internal users of accounting information include managers, owners, employees, and labor unions. They use the information for planning, running the business daily, making informed decisions about capital infusion or withdrawal, ensuring job security, and understanding the company's compliance with government regulations.

What are the different branches of accounting and what are their main functions?

Different branches of accounting include public accounting (external audit, tax preparation, management advisory services), private accounting (financial accounting, cost accounting, budgeting, accounting information systems, tax accounting), government accounting, accounting education, and specialized fields like forensic accounting, information technology services, environmental accounting, and international accounting. Each branch serves specific functions related to financial reporting, planning, compliance, education, and specialized services in their respective areas.

What are the different types of business organizations and how do they affect the accounting system?

Different types of business organizations include sole proprietorships, partnerships, corporations, and cooperatives. Each type affects the accounting system differently due to their distinct ownership structures, legal requirements, and operational processes.

What are the different activities of a business and how do they impact the accounting practices?

Business activities include service, merchandising or trading, and manufacturing. Each activity impacts accounting practices as they have different operational processes, inventory management, and revenue recognition methods.