INTRODUCTION TO ACCOUNTING The group set forth the following objectives: 5.
the following objectives: 5. Professional behavior to comply with relevant laws and regulations
Accounting
Accounting is a service activity. Its function is to provide quantitative
information, primarily financial in nature, about economic entities
that is intended to be useful in making economic decisions.
Republic Act No. 9298
Republic Act No. 9298 also known as known as the “Philippine
Accountancy Act of 2004”.
This Act shall provide for and govern:
a) The standardization and regulation of accounting education;
b) The examination for registration of certified public accountants;
and
c) The supervision, control, and regulation of the practice of
accountancy in the
Philippines.
Professional Regulatory Board of Accountancy
The Professional Regulatory Board of Accountancy (or BOA) is the
regulatory body for the accountancy practice in the Philippines.
The following are some of the important functions of the Board:
• To supervise the registration, licensure and practice of accountancy
in the Philippines
• To issue, suspend, revoke, or reinstate the Certificate of
Registration for the practice of the accountancy profession
• To prescribe and/or adopt a Code of Ethics for the practice of
accountancy
Philippine Institute of Certified Public Accountant (PICPA)
The integrated national professional organization of Certified Public
Accountants accredited by the Board and the Commission per PRC
Accreditation No. 15 dated October 2, 1975.
1. To promote and maintain high professional and ethical standards
among accountants;
2. To advance the science of accounting;
3. To develop and improve accountancy education;
4. To encourage cordial relations among accountants, and
5. To protect the Certificate of Certified Public Accountant granted by
the Republic of the Philippines.
Scope of practice
1. Practice of Public Accountancy
2. Practice in Commerce and Industry
3. Practice in Education/Academe
4. Practice in the Government
Code of ethics
The International Code of Ethics for Professional Accountants “the
Code” sets out fundamental principles of ethics for professional
accountants, reflecting the profession’s recognition of its public
interest responsibility.
The fundamental principles are:
1. Integrity to be straightforward and honest in all professional and
business relationships.
2. Objectivity not to compromise professional or business judgments
because of bias, conflict of interest or undue influence of others.
3. Professional competence and due care
a. Attain and maintain professional knowledge and skill at the level
required to ensure that a client or employing organization receives
competent professional service, based on current technical and
professional standards and relevant legislation; and
b. Act diligently and in accordance with applicable technical and
professional standards
4. Confidentiality to respect the confidentiality of information
acquired as a result of professional and business relationships.
and avoid any conduct that the professional accountant knows or
should know might discredit the profession.
Accounting Standards in the Philippines
Accounting standards are authoritative statements of how particular
types of transaction and other events should be reflected in financial
statements. Accordingly, compliance with accounting standards will
normally be necessary for the fair presentation of financial
statements.
Financial Reporting Standards Council (FRSC)
The FRSC (formerly known as Accounting Standards Council “ASC”)
was established by the Professional Regulatory Commission under the
Implementing Rules and Regulations of the Philippine Accountancy of
Act of 2004 to assist the Board of Accountancy in carrying out its
power and function to promulgate accounting standards in the
Philippines. The FRSC’s main function is to establish generally
accepted accounting principles in the Philippines.
International Accounting Standard Boards (IASB)
The International Accounting Standards Board (formerly known as
International Accounting Standards Committee “IASC”) is an
independent private sector. Its objective is to achieve convergence in
the accounting principles that are used by businesses and other
organizations for financial reporting around the world.
Philippine Accounting Standards (PAS) &
Philippine Financial Reporting Standards (PFRS)
The Philippine Financial Reporting Standards (PFRS)/Philippine
Accounting Standards (PAS) are the new set of Generally Accepted
Accounting Principles (GAAP) issued by the Accounting Standards
Council (ASC) to govern the preparation of financial statements.
These standards are patterned after the revised International
Financial Reporting Standards (IFRS) and International Accounting
Standards (IAS) issued by the International Accounting Standards
Board (IASB).

International
International Accounting
Standards (IAS
International Financial Reporting
Standards (IFRS)
Branches of Accounting
Cost bookkeeping, costing and cost accounting BASIC BUSINESS ENVIRONMENT
Philippines
Philippine Accounting Standards Cost bookkeeping is the process that involves the recording of cost
(PAS)
data in the books of account. It is similar to bookkeeping except that
Philippine Financial Reporting Fundamental Business Model
data are recorded in very much greater detail.
Standards (PFRS)
Cost accounting makes use of those data once they have been For a business to be successful, it needs to develop a product or
extracted from the cost books in providing information for managerial service that customers will pay for and thus create a revenue stream.
planning and control. It can be a new product or service that meet specify needs.

The following are the main branches of accounting: The business model is built on five activities:

1. Auditing Financial accounting 1. Financing

2. Bookkeeping Financial accounting is the more specific term applied to the 2. Investment
preparation and subsequent publication of highly summarized
3. Cost bookkeeping, Costing, and Cost accounting 3. Production
financial information.
4. Financial accounting 4. Sale and collection
The information supplied is usually for the benefit of the owners of an
5. Financial management entity, but it can also be used by management for planning and 5. Use of cash inflows from sales
control purposes.
6. Management accounting
Financial management
7. Taxation Types of business
Financial management is a relatively new branch of accounting.
Financial managers are responsible for setting financial objectives, The following are the seven broad categories of business depending
making plans based on those objectives, obtaining the finance needed on its products and services:
Auditing to achieve plans, and generally safeguarding all the financial
resources of the entity.
Auditing forms a most important branch of accountancy. Once
financial statements have been prepared, they may need to be
validated to ensure that the financial statements are presented fairly
for the users of the reports. Management accounting

The checking of accounts and the reporting on them is known as
auditing.
Bookkeeping
Bookkeeping is a mechanical task involving the collection of basic
financial data. The bookkeeping procedures usually end when the
basic data have been entered in the books of account and the
accuracy of each entry has been entered.
Bookkeeping is the process of maintaining and recording all financial
transactions in the original books of entry of a business while
accounting is the process of interpreting, analyzing, summarizing and
reporting the financial transactions of a business.
Management accounting incorporates cost accounting data and
adapts them for specific decisions which management may be called
upon to make. A management accounting system incorporates all
types of financial and non-financial information from a wide range of
resources.
Forms of business organizations
The following are three major legal forms of business entities:
Taxation
1. Sole proprietorship
Taxation is a highly complex technical branch of accounting.
Accountants involved in tax work are responsible for computing the 2. Partnership
amount of tax payable of an entity.
3. Corporation
Sole Proprietorship
Sole proprietorship has a single owner called the proprietor. This is
most common for small service businesses and retail establishments.
Partnership
A partnership is a business owned and operated by two or more
persons who bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits
among themselves.
Corporation
A corporation is a business owned by its stockholders. It is an artificial
being created by operation of law, having the rights of succession and
the powers, attributes and properties expressly authorized by law or
incident to its existence.
Comparison
Regardless of the form of the business, the business should be treated
as distinct and separate from that of the owners.
Activities in Business Organizations
The three types of organizational activities are divided into three,
namely:
1. Financing activities
2. Investing activities
3. Operating activities
Financing activities Users and the information needs
Financing activities are the methods of an organization uses to obtain The following are different users of financial statements and their
financial resources from financial markets and how it manages these information needs:
resources.
Primary sources of financing most business are owners and creditors,
such as banks and suppliers. Repaying creditors and paying returns to
the owners are also financing activities.
Investing Activities
Investing activities involve the selection and management including
disposal and replacement of long-term resources that will be used to
develop, produce and sell goods and services.
Investing activities include buying land, equipment, buildings and
other resources that are needed in the operation of the business, and
selling these resources when they are no longer needed.
Operating activities
CONCEPTUAL FRAMEWORK
Operating activities involve the use of resources to design, produce,
Fundamental concepts
distribute and market goods and services.
Several fundamental concepts underlie the accounting process. In
Operating activities include research and development, design and
recording business transactions, accountants should consider the
engineering, purchasing, human resources, production, distribution,
following:
marketing and selling, and servicing.
1. Entity concept
2. Periodicity concept
Business stakeholders
3. Stable Monetary Unit Concept
Stakeholders need information in order to make economic decisions.
The stakeholders utilize financial statements in order to satisfy some
of their different needs for information.
Entity concept
The primary users of the financial statements as defined in the
Conceptual Framework are the potential and existing investors, Entity concept assumes that an entity is different from its owners
lenders and others creditors. therefore, accounting of events and conditions of the entity and its
owners should not be merged.
Periodicity concept
Periodicity concept assumes that the indefinite life on an entity is
divided into time periods accounting periods for the purpose of
preparing financial statements
Stable monetary unit concept
Stable monetary unit concept assumes that the purchasing power of
peso is stable or constant and its instability is insignificant.
Criteria for general acceptance of an accounting principle
The general acceptance of an accounting principle usually depends
on how well it meets three criteria:
1. Relevance
2. Objectivity
3. Feasibility
Relevance
An accounting principle is relevant if it results in information that is
meaningful and useful to the users of the accounting information.
Objectivity
A principle is objective to the extent that the accounting information
is not influenced by personal bias or judgment of those who provide
it.
Feasibility
A principle is feasible to the extent that it can be implemented
without much complexity or cost.
Conceptual Framework
The Conceptual Framework for Financial Reporting describes the
objective of, and the concepts for, general purpose financial
reporting.
Conceptual Framework for Financial Reporting was issued by the
International Accounting Standards Board in September 2010. It was
revised in March 2018.
Objective of financial reporting
The objective of general purpose financial reporting is to provide
financial information about the reporting entity that is useful to
existing and potential investors, lenders and other creditors in
making decisions relating to providing resources to the entity.
Those decisions involve decisions about:
1. buying, selling or holding equity and debt instruments;
2. providing or settling loans and other forms of credit; or
3. exercising rights to vote on, or otherwise influence, management’s
actions that affect the use of the entity’s economic resources.
General purpose financial reports provide information about the
financial position of a reporting entity, which is information about
the entity’s economic resources and the claims against the reporting
entity.
Financial reports also provide information about the effects of
transactions and other events that change a reporting entity’s
economic resources and claims.
Both types of information provide useful input for decisions relating
to providing resources to an entity
Economic resources and claims
Information about the nature and amounts of a reporting entity’s
economic resources and claims can help users to identify the
reporting entity’s financial strengths and weaknesses.
Changes in economic resources and claims
Changes in a reporting entity’s economic resources and claims result
from that entity’s financial performance and from other events or
transactions such as issuing debt or equity instruments.
Financial performance reflected by accrual accounting
Accrual accounting depicts the effects of transactions and other
events and circumstances on a reporting entity’s economic resources
and claims in the periods in which those effects occur, even if the
resulting cash receipts and payments occur in a different period.
Revenue recognition principle
Revenue is to be recognized in the accounting period when goods
are delivered, or services are rendered or performed.
Expense recognition principle
Expenses should be recognized in the accounting period in which
goods and services are used up to produce revenue and not when
the entity pays for those goods and services.
Financial performance reflected by past cash flows
Information about a reporting entity’s cash flows during a period also
helps users to assess the entity’s ability to generate future net cash
inflows and to assess management’s stewardship of the entity’s
economic resources.
Changes in economic resources and claims not resulting from
financial performance
A reporting entity’s economic resources and claims may also change
for reasons other than financial performance, such as issuing debt or
equity instruments.
Information about this type of change is necessary to give users a
complete understanding of why the reporting entity’s economic
resources and claims changed and the implications of those changes
for its future financial performance.
Qualitative characteristics of useful financial information
The qualitative characteristics of useful financial information are
divided into:
1. Fundamental qualitative characteristics
• Relevance
• Faithful representation
2. Enhancing qualitative characteristics
• Verifiability
• Consistency
• Understandability
• Timeliness
Relevance
Relevant financial information is capable of making a difference in
the decisions made by users. Financial information is capable of
making a difference in decisions if it has predictive value,
confirmatory value or both.
Financial information has predictive value if it can be used as an
input to processes employed by users to predict future outcomes.
Financial information has confirmatory value if it provides feedback
about (confirms or changes) previous evaluations.
Materiality
Information is material if omitting, misstating or obscuring it could
reasonably be expected to influence decisions that the primary users
of general purpose financial reports make on the basis of those
reports, which provide financial information about a specific
reporting entity
Faithful representation
Financial reports represent economic phenomena in words and
numbers. To be useful, financial information must not only represent
relevant phenomena, but it must also faithfully represent the
substance of the phenomena that it purports to represent.
To be a perfectly faithful representation, a depiction would have
three characteristics: completeness, neutrality, and freedom from
error.
Completeness
A complete depiction includes all information necessary for a user to
understand the phenomenon being depicted, including all necessary
descriptions and explanations.
Neutrality
A neutral depiction is without bias in the selection or presentation of
financial information. Neutrality is supported by the exercise of
prudence.
Prudence is the exercise of caution when making judgements under
conditions of uncertainty. The exercise of prudence means that
assets and income are not overstated and liabilities and expenses are
not understated.
Freedom for error
Faithful representation does not mean accurate in all respects. Free
from error means there are no errors or omissions in the description
of the phenomenon, and the process used to produce the reported
information has been selected and applied with no errors in the
process.
Verifiability
Verifiability helps assure users that information faithfully represents
the economic phenomena it purports to represent.
Verifiability means that different knowledgeable and independent
observers could reach consensus, although not necessarily complete
agreement, that a particular depiction is a faithful representation.
Comparability
Information about a reporting entity is more useful if it can be
compared with similar information about other entities and with
similar information about the same entity for another period or
another date.
Comparability is the qualitative characteristic that enables users to
identify and understand similarities in, and differences among, items.
Consistency
Consistency, although related to comparability, is not the same.
Consistency refers to the use of the same methods for the same
items, either from period to period within a reporting entity or in a
single period across entities.
Comparability is the goal; consistency helps to achieve that goal
Intracomparability and intercomparability
Intracomparability – comparability within an entity.
Intercomparability or dimensional comparability – comparability
across entities.
Understandability
Classifying, characterizing and presenting information clearly and
concisely makes it understandable.
Financial reports are prepared for users who have a reasonable
knowledge of business and economic activities and who review and
analyze the information diligently.
Timeliness
Timeliness means having information available to decision-makers in
time to be capable of influencing their decisions. Generally, the older
the information is the less useful it is.
Cost constraint on useful financial reporting
Cost is a pervasive constraint on the information that can be
provided by financial reporting. Reporting financial information
imposes costs, and it is important that those costs are justified by the
benefits of reporting that information.
Going concern assumption
Financial statements are normally prepared on the assumption that
the reporting entity is a going concern and will continue in operation
for the foreseeable future.
Elements of financial statement
1. Asset – is a present economic resource controlled by the entity as
a result of past events. An economic resource is a right that has the
potential to produce economic benefits.
2. Liability – is a present obligation of the entity to transfer an
economic resource as a result of past events. An obligation is a duty
or responsibility that the entity has no practical ability to avoid.
3. Equity – the residual interest in the assets of the entity after
deducting all its liabilities.
4. Income – is increases in assets, or decreases in liabilities, that
result in increases in equity, other than those relating to
contributions from holders of equity claims.
5. Expenses – are decreases in assets, or increases in liabilities, that
result in decreases in equity, other than those relating to
distributions to holders of equity claims.
Recognition and derecognition
Recognition is the process of capturing for inclusion in the statement
of financial position or the statement(s) of financial performance an
item that meets the definition of one of the elements of financial
statements—an asset, a liability, equity, income or expenses.
Derecognition is the removal of all or part of a recognized asset or
liability from an entity’s statement of financial position.
Derecognition normally occurs when that item no longer meets the
definition of an asset or of a liability.
Measurement of the elements of financial statements
1. Historical cost
2. Current value
• Fair value
• Value in use
• Fulfillment value
• Current cost
Historical cost
Historical cost measures provide monetary information about assets,
liabilities and related income and expenses, using information
derived, at least in part, from the price of the transaction or other
event that gave rise to them.
Fair value Under a financial concept of capital, such as invested money or
invested purchasing power, capital is synonymous with the net
Fair value is the price that would be received to sell an asset, or paid assets or equity of the entity.
to transfer a liability, in an orderly transaction between market
participants at the measurement date. Under a physical concept of capital, such as operating capability,
capital is regarded as the productive capacity of the entity based on,
for example, units of output per day.
Value in use
Value in use is the present value of the cash flows, or other economic Capital maintenance
benefits that an entity expects to derive from the use of an asset and
from its ultimate disposal. 1. Financial capital maintenance – Under this concept a profit is
earned only if the financial amount of the net assets at the end of
the period exceeds the financial amount of net assets at the
beginning of the period, after excluding any distributions to, and
Fulfilment value
contributions from, owners during the period.
Fulfilment value is the present value of the cash, or other economic
2. Physical capital maintenance – Under this concept a profit is
resources, that an entity expects to be obliged to transfer as it fulfils
earned only if the physical productive capacity of the entity at the
a liability.
end of the period exceeds the physical productive capacity at the
beginning of the period, after excluding any distributions to, and
contributions from, owners during the period
Current cost
The current cost of an asset is the cost of an equivalent asset at the
measurement date, comprising the consideration that would be paid
at the measurement date plus the transaction costs that would be
incurred at that date.
Capital and capital maintenance
A financial concept of capital is adopted by most entities in preparing
their financial statements.
Under a financial concept of capital, such as invested money or
invested purchasing power, capital is synonymous with the net
assets or equity of the entity.
Under a physical concept of capital, such as operating capability,
capital is regarded as the productive capacity of the entity based on,
for example, units of output per day.
Concepts of capital
A financial concept of capital is adopted by most entities in preparing
their financial statements.