M.14.18.22.P

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, an interpreting the results thereof.
Recording popularly called journalization
Classifying involves sorting or grouping of similar and interrelated transactions and events into their respective classes
Summarizing refers to preparation of financial statements or reports (balance sheet, statement of retained earnings, income statement and statement of changes in financial position).
Interpreting is the analytical phase of accounting. It is this function that makes accounting the language of business.
The analytical function is performed by answering four basic questions, namely:
Is the company liquid?
Is the company solvent?
Is the company stable?
Is the company profitable?
Very briefly, liquidity is synonymous with cash. “How much cash does the company have” conveys whether the company if liquid or illiquid.
Solvency is the ability to pay current obligations.
Stability is the ability to pay long-term obligations. THIS PERTAINS TO “HOW LONG” CAN A COMPANY EXIST SO AS TO COMPLY WITH ITS LONG-TERM COMMITMENTS.
Profitability is the ability to increase capital not from additional investment, but from the results of operations.
USERS OF FINANCIAL INFORMATION 1. DIRECT INTEREST OR DIRECT USERS 2. INDIRECT INTEREST OR INDIRECT USERS
DIRECT: Stockholders, prospective stockholders, management, creditors, employees, taxing authorities, customers
INDIRECT: regulatory or registration authorities, labor unions, stock exchanges, trade associations, lawyers
SPECIALIZED AREAS OR BRANCHES OF ACCOUNTING 1. FINACIAL ACCOUNTING 2. Auditing 3. Management accounting or management services 4. Tax accounting 5. Accounting systems 6. Government accounting 7. Accounting education
FINANCIAL ACCOUNTING specialization pertains to the constructive