Bookkeeping

- the preservation of a systematic, quantitative record of an activity

-The key development in accounting in the last 500 years

-Keeps track of things and evaluates the performance and health of a business

-Bookkeeping as an evaluation tool is not often used, as it doesn’t structure the information to be used
for evaluation. It just systematically records quantitative data

-Without bookkeeping, business is impossible

Double entry Bookkeeping- developed in the 1300s-1400s in Italy

Accounting System

-The procedures and processes used to:

1. Analyze transactions
2. Handle routine bookkeeping tasks
3. Structure information so it can be used to evaluate the performance and health of the business.

-An accounting system provides information that can be used to make knowledgeable financial decisions

-Generates outputs in the form of financial reports. +

Accounting

-the “Language of Business”

- a system that provides quantitative information, primarily financial in nature, about economic entities
that are intended to be useful in making economic decisions.

-Provides the means of recording and communicating business activities and the results of those
activities.

Key Terms:

A. Quantitative= accounting relates to numbers

B. Financial- Accounting focuses on just the financial factor of the business, which affects the
health and performance of the business.
C. Useful- Accounting only exists because it is useful
D. Decisions- Although accounting is the structured reporting of what has already occurred, this
past information can only be useful if it impacts decisions about the future.
2 CATEGORIES OF FINANCIAL REPORTS:

A. INTERNAL REPORT
- used by those who direct the day-to-day operations of a business enterprise/ the
management.

Management Accounting
- the related area of accounting that focuses on the information needed for planning,
implementing plans, and controlling costs.

-Area of accounting concerned with providing internal financial reports to assist management in
making decisions.
-Ex: managers and executives who work inside a company have access to specialized
management accounting information that is not available to outsiders.

B. EXTERNAL REPORT
-Includes the firm’s annual report.

Annual report
- a document that summarizes the results of operations and financial status of a company for
the past year and outlines future plans.

-are used by individuals and organizations that have an economic interest in the business but
are not part of its management.

 Information is provided to these external users in the form of General Purpose Financial
Statements and Special reports required by government agencies.
 The General Purpose Information provided by Financial Accounting is the summary of the 4
primary financial statements:

1. Balance Sheet
-Reports the assets, liabilities, and equity of a firm.

2. Statement Comprehensive Income

-Reports the amount of net income and the amount of other comprehensive income of a
company during a period.

3. Statement of changes in equity

-Reports the amount of each of the ff items that result in changes in equity during a time period:
net income, other comprehensive income, owner’s capital contribution, and dividend
distribution to owners.

4. Statement of Cash Flows

-Reports the cash receipts (Inflow) and cash payments (outflow) of a company in the 3 types of
activities: operating, Investing, and Financing.
Financial Accounting- The area of accounting concerned with reporting financial information to
interested parties.
ACCOUNTING VS BOOKKEEPING

ACCOUNTING BOOKKEEPING

-encompasses the whole

accounting process -a component of accounting
-involves analysis of transactions -only a routine recording
-Analysis requires specialized
process of subsequent
knowledge and the exercise of transaction analysis
judgment regarding the impact
of a transaction on economic
activity.

-has a broader concept which

includes providing information
of decision making and can
affect economic consequences

 An Economic entity may be an individual, a business enterprise, or a nonprofit organization

Business- an organization operated with the objective of making a profit from the sale of goods or
services.

Nonprofit Organization- An entity without a profit objective, oriented toward providing services
efficiently and effectively.