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Importance of Accounting in Business

Here in the Philippines, accounting is often seen by many people as book keeping and just essential for meeting tax requirements.  This is how I see it. 

Truthful Information

Input  à Process à Output
                                ꜜ            ꜜ
                                                 Transactions                     Financial Statements:
                                             Input = Output                    1. Balance Sheet
                                 Asset = Liabilities + Capital            2. Income Statement
                                          Debit = Credit                       3. Statement of Owner’s Equity
                                                                                      4. Statement of Cash Flow
                                                                                     Increase in Wealth = Income

Balance Sheet (Statement of Financial Condition)
Investing (Assets)
  • Returns
  • Also called resources in economics
Financing (Liabilities and Owner’s Equity)
  • Considers risk in debt to capital ratio

Income Statement (Operating)
  • Production à Distribution à Collection

Business Cycle
Finance à Invest à Operating

Petty Cash – Checking of receipts and other documents with signatures