Accountancy
According to Philippine Institute of Certified
Accounting
- Accounting is the process of identifying,
measuring, and communicating economic
information to permit informed judgement and
decisions by users of the information. (American
Accounting Association, AAA)
- The art of recording, classifying, and
summarizing in a significant manner as in terms
of money, transactions and events which are in
part at least financial character, and interpreting
the results thereof. (American Institute of
Certified Public Accountant, AICPA)
- A service activity. It’s function is to provide
quantitative information, primarily financial in
nature, about economic entities, that is intended
to be useful in making economic decisions,
(Accounting Standards Council, ASC)
Nature of Accounting
- Accounting is an art
- Accounting deals with financial information and
transactions
- Accounting is a process
- Accounting is an information system
- Accounting is a means to an end
Function of Accounting in Business
1. To fulfill the stewardship function of the
management (for owners)
2. To help interested users to come up with
informed decisions
3. To support daily operations
Difference between bookkeeping and accounting
Bookkeeping
- Confide with the recording of monetary
transactions.
- Records business transactions
Accounting
- Includes bookkeeping function.
History of Accountancy
13th Century- The cradle of civilizations
14th Century- Double Entry Bookkeeping by Luca
Pacioli (the father of Accounting)
17th- French Revolution
1760s-1830- The industrial revolution
19th Century- The beginning of Modern Accounting in
Europe and America
The Present-The development of Modern Accounting
Standard and Commerce.
Branches of Accounting
Public Accountants (PICPA), there are four main sectors
of Accounting namely;
1. Public Accounting
 Accountant performs or offers to
perform any activity that will result to
the issuance of an attest report that is in
accordance with professional standards.
*Certified Public Accountant- refer to those
who passed the licensure examination for
accountants.
Examples:
 External Auditing
o Public accountants examine the
financial statements in order to
express an opinion on whether
statements have been fairly
presented or not.
 Tax Preparations and Planning Services
o Accountants offer tax services
wherein they advise and help
their clients in tax planning and
preparing tax returns.
o Accountant is a tax specialist
 Management Advisory Services
o Involves financial planning and
control, and the development of
accounting and computer
systems.
o Advises managements on
matters such as the installations
of an accounting system,
finance, budgeting, business
processes, introduction to new
products and others.
2. Private Accounting
 Involves setting up systems of recording
business transaction that are aggregated
into financial statements and includes
the development and interpretation of
accounting information intended to
assist management in operating the
business.
 A private accountant is salaried
employee who deals with company’s
day-to-day accounting needs.
Examples
 Financial Accounting
o Branch of accounting that
provides economic and financial
 information for investors,
creditors, and other external
users.
o Uses a system of reporting
designed to meet the
information needs of external
users.
 Cost Accounting
o Focuses on accumulating
manufacturing costs for
financial reporting and decision-
making purposes.
o Accountant’s primary role is to
determine the inventory cost for
financial reporting purposes.
 Budgeting
o Provides detailed collection and
reporting of the expenditures
and revenues involved in a
business or company operations.
o Tracks the financial details of
the firm, including the money
taken in and the money spent by
the company and the staff.
 Accounting Information System
o Collects and processes
transaction data.
o Disseminates information to
interested parties.
o Involves the designing of both
manual and computerized data
processing systems.
 Tax Accounting
o Deals with the preparation of
various tax returns and doing
tax planning for the business.
Similar to tax services in Public
Accounting.
 Internal Auditing
o Reviews the business operations
to check if they are complying
to management policies.
o Evaluates the efficiency of
business operations.
3. Government Accounting
 A system used in government offices to
record and report financial transactions.
 Systematic process of collecting,
recording, classifying, summarizing, and
interpreting the financial transactions
relating to the revenues and
expenditures of government offices.
4. Accounting Education
 Responsible for training future
accountants.
 Engages in teaching accounting,
financial management, taxation and
other related business course.
 As per CHED Memorandum Order
No.3, Series 2007, a CPA in accounting
education should possess the
educational qualifications, professional
experience, classroom teaching ability,
computer literacy, scholarly research
productivity, and other attributes.
CPAs in Specialized Areas
1. Forensic Accounting
- Provide the detective work needed to
investigate and examine evidences of
white-collar financial crimes such as
stealing and fraud.
2. Information Technology Services
- Individual who can design and
implement customized software
systems.
3. Environmental Accounting
- Determine how companies can be both
profitable and environmentally-
responsible.
4. International Accounting
- Accountants are knowledgeable in
international trade rules and regulations,
international mergers, government
regulations, tax laws, and overseas
transactions.
USERS OF ACCOUNTING INFORMATION
Internal Users
1. Managers/Management - They plan, organize
and run a business.
a) Top-level management- CEO, COO,
and CFO.
b) Middle-level management- Dept. Heads,
branch managers, and junior executives.
c) Lower-level management- supervisors
and team leaders.
2. Employees/Labor unions – they assess the
company’s profitability and stability and their
consequence on future salary and job security.
3. Owners - Provides capital to the business.
External Users
 1. Potential and existing investors – They need
information to help them decide whether they
should invest or not in the business.
2. Creditors and potential creditors – they assess
the credit worthiness and the capability of the
business to pay its obligation.
3. Customers – they assess the financial position of
their suppliers which is necessary for them to
maintain stable source of supply in the long
term.
4. Suppliers – Use financial statement to determine
whether the debts owed to them will be paid
when due.
5. Tax authorities – use fs to determine the
credibility of the tax returns filed on behalf of
the company.
6. Regulatory bodies – they want to ensure that the
company’s disclosure of accounting information
is in accordance with the rules and regulations.
7. Public – They use fs to know how the business
affects the economy.
TYPES OS BUSINESSES
According to Ownership
Sole Proprietorship
- Owned by only one individual for the practice of
trade or profession.
Partnership
- Business that is owned by two or more
individuals pooling their resources together as a
common fund.
- The profit is divided by among the partners as
per their agreements.
o General Partnership – each partner is a
general partner with unlimited liability.
o Limited Partnership – with limited
partners and at least one general partner.
They have limited liability to the extent
only of their capital contribution.
Corporation
- Required to have five to fifteen incorporators.
Incorporators refer to those who originally
formed the corporation.
- It is separate from its owners.
Cooperative
- Owned by a group of individuals who also
serve as benefactors to the business endeavor.
- Usually requires at least fifteen members to
function.
According to Activities
Service Business
- Provides services
Merchandising Business
- Buy and sell
Manufacturing Business
- Materials are bought to create a new product.
ACCOUNTING PRINCIPLES
GAAP- Generally Accepted Accounting Procedure
Underlying Accounting Assumption
1. Economic Entity Assumption
- Assumes all of the business transaction
are separate form the business owner’s
personal transactions.
2. Accrual Basis Assumption
- It requires that all business transactions
and other events are recognized in the
accounting records when they occur.
3. Going Concern Assumption
- Assumes that a company will continue
to exist long enough to carry out its
objectives.
4. Monetary Unit Assumption
- Assumes that only transactions that can
be expressed in terms of money are
recorded.
- Measured in PH peso and is assumed to
be stable over the years in terms of
purchasing power.
5. Time Period Assumption
- Assumptions requires a business to
complete the whole accounting process
of a business over a specific operating
time period.
-
Basic Accounting Period
1. Cost Principle
- All assets acquired should be valued and
recorded based on the actual cash
equivalent or original cost of
acquisition, not the prevailing value.
2. Full Disclosure Principle
- Important information should be
disclosed to permit stakeholders to make
informed judgement.
3. Matching Principle
- Requires that expenses be matched with
revenue.
 4. Revenue Recognition Principle o Furniture and Fixtures
- Revenues are recognized as soon as o Building
goods have been sold or services has o Land
been rendered. o Allowance for bad debt
5. Materiality Principle *Contra asset account: Accumulated Deprecation
- Business transactions that may affect the LIABILITIES
decision of a sure of financial  Present obligations of an entity arising from past
information are considered important or transaction or events, the settlement of which are
material and should be reported expected to result in an outflow from the
properly. business of resources embodying economic
6. Conservatism or Prudence Principle benefits.
- If a situation arises where there are two  Something the business OWES.
acceptable alternatives for reporting an Classifications
item, conservatism directs the
 Current
accountant to choose alternative that
o Payables
will result in less effect on net income
 Account Payable
and/or less asset amount.
 Notes Payable
7. Objectivity Principle
 Loan Payable
- Requires business transactions to have
o Unearned Revenue
some form of impartial supporting
evidences or documentation.  Non-Current
*Relevant – helps a decision maker o Mortgage Payable
*Reliable – verifiable and objective o Bonds Payable
*Consistent – allows meaningful comparisons OWNERS EQUITY
 Residual interest
BASIC ACCOUNTING PERIOD  Contains the net difference between total assets
and total liabilities.
Asset = Liability + Owner’s Equity Examples
o Capital
ASSETS o Withdrawal/Drawing
 Normal balance: Debit o Investment
 Resources controlled by the business as a result o Additional Investment
of past transactions and events and from which o Net income/Net Loss
future economic benefits are expected to flow to REVENUES
the business.  Earnings arising from the main line of
 Something the business OWNS operations of the business.
`Classifications  Result from rendering of services or selling
 Current goods.
o Cash and Cash Equivalents o Service Revenue
 Cash on hand o Interest Income
 Cash in bank o Sales
o Receivables o Professional Fees
 Account receivable EXPENSE
 Interest receivable  Cots being incurred by the business in
 Notes receivable generating revenues.
 Cash receivable o Salaries Expense
o Inventories
o Utilities Expense
o Unused Supplies
o Cost of Sales
o Prepaid Rent
o Wages Expense
*Contra asset account: Allowance for bad debts
 Non-Current
o Equipment