The Public Group

External users in the public group and their needs are the following:

Government, Regulatory Agencies or Taxing Authorities

These users are interested in the financial statements of the organization for taxes, regulations, data and statistics. 

Employees, Labor Unions or Retirees

These users are interested in the financial statements to ascertain the employers financial strength and stability.   

They want to know the capability of their employer to provide for remuneration, benefits, retirement assistance, and other allowances or incentives the company can provide.

Customers

These users are interested in the financial statements of their suppliers and trade creditors to evaluate the latter's capability to continue doing business with them.  

Existence of some business are dependent with some suppliers. They need the financial statements to ensure the availability of supplies and sustainability of their production or operation.

Public or Economic Planners

The public or economic planners are interested in the financial statements of entities because they provide information regarding trends, operations, activities, and developments of the organization.

The Financing Group

External users in the Financing Group and their reasons and needs on the financial information:

Investors or Potential Investors

• To asses the risk of investments portfolio and the return on investments

These users need information to help them evaluate and determine whether they should invest or buy, hold and retain, or sell their investments.

Suppliers, Trade Creditors or Potential Creditors

• To determine the continuity of customers' business.

These users need the information to enable them to determine whether debts owed to them  will be paid when due date comes.  

Lenders, Banks or Financing Institutions

• To determine if borrowers can pay the loaned value.

These users need the information to determine whether borrowers and debtors can pay their loans and its interests when due.

The Management Group

Again, Internal users of accounting information are those who own, manage, monitor, and/or control the entity.

The management group needs detailed financial information in order to help them make relevant economic decisions in achieving the goals and targets of the firm.

The internal financial reports are not governed by the standards in financial accounting and reporting, and auditing.

Normally, it is the management accountants who focus in providing internal financial reports.  Examples of such reports are variance analysis, opex and capex monitoring reports, sales and distribution reports, cost behavior trending and analysis, and other internal reports relating to management uses and purposes.

The management accountants are those who assist in the corporate planning and profit planning, and translate the corporate plans into budgeting terms.  They are those who monitors and interprets the differences between the budgeted and actual figures thru variance analysis reports.

Management group also uses the financial information for target setting and and metrics for key performance indicators and administration of incentives to participating employees in attaining the targets.



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Users of accounting information

Users of Accounting Information may be classified into two groups, as follows:

• Internal users

• External users

Internal users of accounting information

These users are usually people inside the organization. They are those who own, manage, monitor, and/or control the entity. 

Thus, internal users are most interested with internal financial reports. 

External users of accounting information

They are those who are outside the organization but are interested in the financial standing and economic performance of the entity. 

Hence, these group of users usually looks at the external financial reports which are the general purpose financial statements issued by the company. 

Internal Financial Reports 

These financial reports are those various internal reports prepared for the use of management or internal users.  

Examples of such reports are variance analysis, opex and capex monitoring reports, sales and distribution reports, cost behavior trending and analysis, and other internal reports relating to management uses and purposes.

External Financial Reports

These financial reports are normally the end-products of financials accounting and reporting, the basic financials statements such as Statement of Financial Position, Income Statement, Statement of Cash Flows, Statement of Changes in Equity and Notes to Financial Statements. 

Internal users comprise the management group while external users, the financing group and the public group.


The Management Group

The management group needs detailed financial information in order to help them make relevant economic decisions in achieving the goals and targets of the firm...read more


The Financing Group

The following are the external users in the Financing Group and their reasons and needs on the financial information:

Investors or Potential Investors

• To asses the risk of investments portfolio and the return on investments

These users need information to help them evaluate and determine whether they should invest or buy, hold and retain, or sell their investments...read more

The Public Group

The external users in the public group and their needs are the following:

Government, Regulatory Agencies or Taxing Authorities

These users are interested in the financial statements of the organization for taxes, regulations, data and statistics...read more 

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Confidentiality

Following are excerpts from the IFAC Code regarding "Confidentiality"

Confidentiality 

140.1 The principle of confidentiality imposes an obligation on  all  professional accountants to refrain from: 

(a) Disclosing outside the firm or employing organization confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose; and 

(b) Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties. 

140.2 A professional accountant shall maintain confidentiality, including in a social environment, being alert to the possibility of inadvertent disclosure, particularly to a close business associate or a close or immediate family member. 

140.3 A professional accountant  shall  maintain confidentiality  of information disclosed by a prospective client or employer. 

140.4 A professional accountant  shall  maintain confidentiality of information within the firm or employing organization. 

140.5 A professional accountant shall  take reasonable steps to ensure that staff under the professional accountant’s control and persons from whom advice and assistance is obtained respect the professional accountant’s duty of confidentiality. 

140.6 The need to comply with the principle of confidentiality continues even after the
end of relationships between a professional accountant and a client or employer.
When a professional accountant changes employment or acquires a new client,
the professional accountant is entitled to use prior experience. The professional
accountant  shall  not, however, use or disclose any confidential information
either acquired or received as a result of a professional or business relationship. 

140.7 The following are circumstances where professional accountants are or may be required to disclose confidential information or when such disclosure may be appropriate: 

(a) Disclosure is permitted by law and is authorized by the client or the employer; 

(b) Disclosure is required by law, for example: 

(i) Production of documents or other provision of evidence in the course of legal proceedings; or 

(ii) Disclosure to the appropriate public authorities of infringements
of the law that come to light; and 

(c) There is a professional duty or right to disclose, when not prohibited
by law: 

(i) To comply with the quality review of a member body or professional body; 

(ii) To respond to an inquiry or investigation by a member body or regulatory body; 

(iii) To protect the professional interests of a professional accountant in legal proceedings; or 

(iv) To comply with technical standards and ethics requirements. 

140.8 In deciding whether to disclose confidential information, relevant factors to consider include: 

• Whether the interests of all parties, including third parties whose interests may be affected, could be harmed if the client or employer consents to the disclosure of information by the professional accountant. 

• Whether all the relevant information is known and substantiated, to the extent it is practicable; when the situation involves unsubstantiated facts, incomplete information or unsubstantiated conclusions, professional judgment shall be used in determining the type of disclosure to be made, if any. 

• The type of communication that is expected and to whom it is addressed. 

• Whether  the parties to whom the communication is addressed are appropriate recipients.

Source : http://www.ifac.org/publications-resources/2012-handbook-code-ethics-professional-accountants

Professional Competence and Due Care

Following are excerpt from the IFAC Code regarding "Professional Competence and Due Care"

Professional Competence and Due Care 

130.1 The principle of professional competence and due care imposes the following obligations on all professional accountants: 

(a) To maintain professional knowledge and skill at the level required to ensure that clients or employers receive competent professional service; and

(b) To act diligently in accordance with applicable technical and professional standards when providing professional services. 

130.2 Competent professional service requires the exercise of sound judgment in applying professional knowledge and skill in the performance of such service. Professional competence may be divided into two separate phases: 

(a) Attainment of professional competence; and 

(b) Maintenance of professional competence. 

130.3 The maintenance of professional competence requires a continuing awareness and an understanding of relevant technical, professional and business developments. Continuing professional development enables a professional accountant to develop and maintain the capabilities to perform competently within the professional environment. 

130.4 Diligence encompasses the responsibility to act in accordance with the requirements of an assignment, carefully, thoroughly and on a timely basis. 

130.5 A professional accountant shall take reasonable steps to ensure that those working under the professional accountant’s authority in a professional capacity have appropriate training and supervision. 

130.6 Where appropriate, a professional accountant shall make clients, employers or other users of the  accountant’s  professional services aware of  the limitations inherent in the services.

Source : http://www.ifac.org/publications-resources/2012-handbook-code-ethics-professional-accountants

Objectivity

Following are excerpt from the IFAC Code regarding "Objectivity"

Objectivity 

120.1 The principle of objectivity imposes an obligation on all professional accountants not to compromise their professional or business judgment because of bias, conflict of interest or the undue influence of others. 

120.2 A professional accountant may be exposed to situations that may impair objectivity. It is impracticable to define and prescribe all such situations. A professional accountant shall  not perform a professional service if a circumstance  or  relationship biases or unduly influences the  accountant’s professional judgment with respect to that service.

Source : http://www.ifac.org/publications-resources/2012-handbook-code-ethics-professional-accountants

Integrity

Following are excerpt from the IFAC Code regarding "Integrity"

Integrity  

110.1 The principle of integrity imposes an obligation on all professional accountants to be straightforward and honest in all professional and business relationships. Integrity also implies fair dealing and truthfulness.  

110.2 A professional accountant  shall  not  knowingly  be associated with reports, returns, communications or other information where the professional accountant believes that the information: 

(a) Contains a materially false or misleading statement; 

(b) Contains statements or information furnished recklessly; or 

(c) Omits or obscures information required to be included where such omission or obscurity would be misleading. When  a professional accountant becomes aware that the accountant has been associated with such information, the accountant shall take steps to be disassociated from that information. 

110.3 A professional accountant will be deemed not to be in breach of paragraph  

110.2 if the professional accountant provides a modified report in respect of a matter contained in paragraph 110.2.

Source : http://www.ifac.org/publications-resources/2012-handbook-code-ethics-professional-accountants

NORMAL BALANCES OF ACCOUNTING ELEMENTS

In accounting principle, accounting elements have this so-called normal balance.  A beginner to bookkeeping must bear in mind the following:

• The ASSETS and EXPENSES Accounting Elements have a DEBIT normal balance.

• The LIABILITIES, EQUITIES and REVENUES Accounts have a CREDIT normal balance.

In mathematics, numbers or integers with the same signs means addition or adding the numbers with the same sign or increases the sum, while, integers with the different signs means subtraction or deducting the numbers or decreases the sum.

In analogy, an account with a debit normal balance increases when a like-sign amount is added, so, when an asset or expense account is debited, the account increases (because an amount is added) and when an asset or expense account is credited the account decreases (because an amount is subtracted).

Likewise, an account with a credit normal balance increases when a like-sign amount is added, so, when a liability, equity or revenue account is credited, the account increases  (because an amount is added) and when a liability, equity or revenue account is debited the account decreases (because an amount is subtracted).

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Debit and Credit

It is important to remember the accounting equation has its right side and left side and must be equal.

To expound, the right side is further known as debit side and the left side is the credit side of any accounting element / account. Both sides must always be equal when recording a transaction.

The equation for debit and credit:

In any accounting element, its right side is the debit side and represented by Dr. or dr sign. While the left side is the credit side and represented by Cr. or cr sign.

To understand better the debit and credit, we must touch first what a business transaction is? A business transaction is an exchange of values.  The entity give away something of value in return or in exchange of taking something of value.  These values are the value received by an entity and the value parted with by an entity.

Debit

Debit denotes the value received.  A value received may increase or decrease the monetary balances of accounting elements. 

Credit

Credit symbolizes the value parted with.  A value parted with may increase or decrease the monetary balances of accounting elements.

Note that the words Debit and Credit may be used as verbs or adjectives.

Debit and Credit used as a Verb

• The account was debited with P8,000.00

This simply means that the amount of P8,000.00 was recorded or entered on the debit side or left side of the account.

•  The account was credited with 5,000.00

This simply means that the amount of P5,000.00 was recorded or entered on the credit side or right side of the account.

Debit and Credit used as an Adjectives

• The debit side of the account has an entry of P8,000.00

This means the left-side is being referred to and it has a recorded amount of P8,000.00

• The credit side of the account has an entry of P5,000.00

This means the right-side is being referred to and it has a recorded amount of P5,000.00

A debit to an account may signify increases or decreases depending on the classification and normal balance of the accounting element 

A credit to an account may signify increases or decreases depending on the classification and normal balance of the accounting element.

Knowing when a debit or credit and a value received or value parted with increases or decreases an accounting element is mastering the normal balances of an accounting element or account.

Click here to read discussions about the NORMAL BALANCES OF ACCOUNTS


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Books Of Accounts

Bookkeeping starts with recording a business transaction in the Books Of Accounts.

For now, the basic Books Of Accounts a beginner/bookkeeper must know are the Books of Original Entry and the Books of Final Entry.

The Book of Original Entry is called Journal, while the Book of Final Entry is called Ledger.

Actually, these books may come in a bounded book format or loose-leaves, or computerized form.

Journal is called the book of original entry because it is where a bookkeeper first record the original business transaction, then afterwards the bookkeeper finally record the business transaction in the book of final entry namely, Ledger.

The Journals has many kinds, the contents of which are depending on the nature of the business transactions and events. Thus, journals may come as general journal or special journals.

The kinds of journals are the following:

• General Journal
• Purchases Journals or Purchase Book
• Cash Payments Journal, or Cash Disbursements Book
• Sales Journal, or Sales Book
• Cash Receipts Journal or Cash Receipts Book
• Petty Cash Book

The kinds of ledgers are as follows:

• General Ledger
• Subsidiary Ledger

Values Received and Values Parted Wtih

Again, a business transaction is an exchange of values. There's a give and take in a business transaction. There are two items that must be considered and analyzed in a business transaction, the value received and the value parted with.

These two values reciprocate each other in terms of financial measurements or money equivalent.  (See measurement concepts)

However, the nature of the value is varied in forms and should be readily recognized. (See recognition concepts)

In the study of these values as to their ready recognition, the following must be kept in mind:

Guiding principle for recognition:  

Give and take in a business transaction.

(One value is received and another value is parted with) 

The following illustrates the ready recognition of the various forms of values (the value received or the value parted with) in a business transaction:

1. A form of property is received in exchange for money parted with.
2. A form of property is parted with in exchange for money received.
3. Use of property, or hire of services, of another person is received in exchange for money parted with.
4. Use of property, or hire of services, of another person is parted with in exchange for money received.  
5. An oral promise (from an individual or entity) to pay is received in consideration for a thing of value parted with.
6. An oral promise (by an individual or entity) to pay is parted with in consideration for a thing of value received.
7. An oral promise (from an individual or entity) is received in consideration for the hire of services by the entity.
8. An oral promise (by an individual or entity) to pay is the value parted with in consideration for the hire of services of another.
9. An oral promise (from an individual or entity) to pay is the value received in exchange for the hire (or use) of the property. 
10. An oral promise (by an individual or entity) to pay is the value parted with in exchange for the hire (or use) of the property. 
11. Cancellation of oral promise to pay is the value received in consideration for the money parted with.
12. Cancellation of oral promise to pay is the value parted with in consideration for the money received.
13. Implied promise to safeguard the proprietary interest in consideration for money or property received.
14. Reduction of its responsibility to safeguard the proprietary interest in consideration for money or property parted with.

Note, click the above various forms of values to read their examples and its analysis.

Business Transactions

Actions or activities inside or related to the business organizations are its business transactions.

A Business Transaction is exchanging of values between transacting persons/parties.

Exchange of values means that one value is received in return or in exchange for another value parted with. 

Value means that thing desired or desirable with money’s worth. Thing of value may come in the form of property or a right and protection.

In accounting, the thing of value is recorded whether received or parted with, in terms of money received or paid for it and as to when the value is received or parted with. 

The business transactions must be recorded, classified and summarized periodically in financial terms so in order for a business organization to come up with financial conditions as of a given time, results of operations during the period, and sources and applications of fundings during the period. The processes of recording, classifying and summarizing are the bookkeeping phase of accounting.  They are the starting and necessary phase.