REPUBLIC OF THE PHILIPPINES

CAGAYAN STATE UNIVERSITY

APARRI CAMPUS
Aparri, Cagayan
COLLEGE OF BUSINESS, ENTREPRENEURSHIP AND ACCOUNTANCY

1.1 ACCOUNTING DEFINED

DEFINITION OF ACCOUNTING
A service activity, whose 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 Committee(ASC)

Art of recording, classifying, and summarizing in a significant manner and in terms of

money, transactions and events which are in part at least of a financial character and
interpreting results thereof.
~American Institute of CPAs (AICPA)

The process of identifying, measuring, and communicating economic information to

permit informed judgement and decisions by users of the information.
~American Accounting Association (AAA)

A lot of definitions are provided by various institutions, however, notice how these
definitions are alike in terms of:
 accounting for quantitative information or transactions,
 information is financial in nature,
 and this information is useful in decision making

From these different definitions we have also learned these basic components of
accounting:
 Identifying: analytical, recognition and non-recognition of accountable events
 Measuring: technical, assigning of peso amounts to recognized accountable
events.
 Communicating: formal, preparing and distributing accounting reports to potential
users of accounting information.

HISTORY OF ACCOUNTING
Accounting history is the “study of the evolution in accounting thought, practices and
institutions in response to changes in the environment and societal needs. It also
considers the effect that this evolution has worked on the environment.”
 REPUBLIC OF THE PHILIPPINES
CAGAYAN STATE UNIVERSITY
APARRI CAMPUS
Aparri, Cagayan
COLLEGE OF BUSINESS, ENTREPRENEURSHIP AND ACCOUNTANCY

Primitive period
Accounting is one of the oldest skills and the presence of bookkeeping in the ancient
world has been attributed to various factors including:
 invention of writing
 the existence of symbols impressed on wet clay tablets to secure traders that
shipments to buyers are complete and not tampered, the wet clays, “bullae”, were
the first bills of lading.
 introduction of Arabic numerals
 the decimal system
 diffusion of knowledge of algebra
 presence of inexpensive writing materials
 use of clay tokens in the form of cones, disks, spheres and pellets that
represented commodities like sheep, jugs of oil, bread or clothing and were used
in the Middle East to keep records in as early as 8500 B.C.
 rise of literacy
 the Code of Hammurabi, Babylonian law, required merchants trading goods to
give buyers a sealed memorandum containing the agreed price before it can be
considered enforceable
 existence of standard medium of exchange
 clay tablets unearthed the recorded payments of wages in Babylonia at around
3600 B.C.

Middle ages and renaissance period

The invention of the double-entry bookkeeping was the decisive event in the European
economic history as described by Oswald Spengler in his book entitled The Decline of
the West, and perhaps the entire trading community of the world. The development was
a collected effort of traders and scribes, predecessor of modern day accountant, to meet
the changing needs of merchants.

The Inca Empire, throughout the 11th to 14th century used Quipu, knotted cords of different
lengths and color to keep accounting records, however, the prevalence of credit
compelled merchants and bankers to develop a more formal account-keeping method.
The system founded at the time resembles an international banking system.

While in Florence, Venice and Genoa, about 13th to 15th century, formal accounting
records were used and traders regarded business and living life as extensions of each
other, business was conducted in logic of friendship. Hence, account books were
consistent with social exchange. The method of Venice used the postulates of Pacioli, the
double-entry bookkeeping.
 REPUBLIC OF THE PHILIPPINES
CAGAYAN STATE UNIVERSITY
APARRI CAMPUS
Aparri, Cagayan
COLLEGE OF BUSINESS, ENTREPRENEURSHIP AND ACCOUNTANCY

Industrial Revolution and Information Age

By the end of the 17th century, taxes were levied on professionals and skilled labor. While
in the 18th century, a corporate form of business as a result of the growing financing
provided to the US Steel industry in the building of factories, railroads and machineries
emerged.

The need for accounting services begun in the early 19th century when the change of
production method, from the handicraft method to factory system, caused problems in
costing and accounting for large production. At that time, a handful of textbooks and
handbooks on accounting surfaced.

In 1979, VisiCalc, the first electronic spreadsheet written by Dan Brinklin and Bob
Frankston, was released to the public. It ran on an Apple II computer. Most early
microprocessor computers had been supported by BASIC and a few games, but VisiCalc
introduced a new level in application software. It was considered a fourth generation
software program.

Accounting revolutionaries
Giovanni Farolfi & Company, florentine merchants firm, first to use double-entry
bookkeeping (1299-1300)

Amatino Manucci, inventor of double-entry bookkeeping and gave importance to the

aspect of financial control; introduction of five books: General Ledger, Merchandise
ledgers, Expense ledger and Cash book

Luca Pacioli, father of accounting and bookkeeping; established the purpose of

accounting: “to give the trader without delay information as to his assets and liabilities”
and gave importance to closing books each year, especially if you are in a partnership
with others. Introduced double-entry bookkeeping thru his publish book in 1494 Summa
de Arithmetica, Geometria, Proportioni et Proportionalita

Goethe, famous german poet and dramatist who regarded double-entry bookkeeping as
“one of the finest discoveries of human intellect”

Jacques Savary, introduced the concept of depreciation and current cost rather than
historical cost valuation of inventory

Benjamin Workman, published “The American Accountant”, the earliest known

American accounting textbook.

Eugen Schmalenbach, published “The Model Chart of Accounts”, the result of his
research on making meaningful comparison of financial data.
 REPUBLIC OF THE PHILIPPINES
CAGAYAN STATE UNIVERSITY
APARRI CAMPUS
Aparri, Cagayan
COLLEGE OF BUSINESS, ENTREPRENEURSHIP AND ACCOUNTANCY

BRANCHES OF ACCOUNTING
Throughout the development of accounting several new disciplines have emerged in the
practice of accounting, the more common branches include the following:

Auditing
An independent, unbiased examination and evaluation of an organizations financial
statements and internal control.
o External audit, independent examination that ensures fairness and reliability of
financial reports.
o Internal audit, within the entity and ensures accuracy of business records, uncover
internal control problems and identify operational difficulties.

Bookkeeping
Mechanical task involving the collection of basic financial data.

Cost Accounting
The collection, allocation and control of the cost of producing specific goods and services.
A sub-branch of management accounting. Involves the process of:
o Cost bookkeeping, the recording of cost data in books of accounts, and
o Costing, process of determining cost

Financial Accounting
Concerned with the recording of business transactions and preparation of financial
statements.

Management Accounting
Incorporates all types of financial and non-financial information from a wide range of
sources aimed at informing management of business operations.

Taxation
Preparation of tax returns & consideration of the tax consequences or alternative courses
of action.

Government Accounting
Concerned with the identification of the sources and uses of resources consistent with
the provisions of law, specifically the proper custody and disposition of these funds.

Forensic Accounting
Also known as legal accounting that enables calculating damages or settling disputes in
legal matters. It combines accounting, auditing, and investigating skills in understanding
the causes of fraud and embezzlement cases, results of which are suitable to be used in
legal proceedings.
 REPUBLIC OF THE PHILIPPINES
CAGAYAN STATE UNIVERSITY
APARRI CAMPUS
Aparri, Cagayan
COLLEGE OF BUSINESS, ENTREPRENEURSHIP AND ACCOUNTANCY

Fund and Fiduciary Accounting

Accounting and evaluation of a third party’s business and/or funds maintained under the
guardianship of another person and/or the use of funds related to a particular project or
purpose.

Accounting Auditing
Broad Embraces auditing One of the areas of Accounting
Sense specialization
Limited Constructive. Ceases when Analytical. Work begins when the
Sense financial statements are prepared. work of accountant ends.
Report Financial Statements Independent Auditor’s Report
Financial Accounting Managerial Accounting
Broad Concerned with the recording of Encompasses all fields of
Sense business transactions and accounting aimed at informing
preparation of financial management of business
statements. operations.
Emphasis Reporting to creditors and Developing accounting
investors: General purpose information for use within the
reports entity

Accounting Bookkeeping
Conceptual. Why? Concerned with the Procedural. How? Concerned with the
reason or justification of any action development and maintenance of
adopted. accounting records.
Accounting Accountancy
Broad sense: Synonymous, both referring to the entire field of accounting theory and
practice.
Used in reference only to a particular field Refers to the profession of accounting
of accountancy practice.
 REPUBLIC OF THE PHILIPPINES
CAGAYAN STATE UNIVERSITY
APARRI CAMPUS
Aparri, Cagayan
COLLEGE OF BUSINESS, ENTREPRENEURSHIP AND ACCOUNTANCY

ACCOUNTING INFORMATION SYSTEM

Information System (IS)
A collection of people, procedures, software hardware and data which together provide
information essential to running an organization.
 Parts
o People, end-users use for decision making
o Procedures, instructions (how to’s)
o Software, programs that process data
o System Software, background software
o Application Software, general-purpose use
o Hardware, input devices, system, unit, secondary storage, etc.
o Input Devices, translates data and programs where human can understand and
computer can process
o The System Unit, Central Processing Unit (CPU) and memory
o Secondary Storage, external or additional storage devices
o Output devices, monitor and printer
o Communication devices, send and receive data and programs from one computer
to another e.g. modem
o Data, raw material for processing

Accounting Information System (AIS)

A system that records, processes and reports on transactions to provide financial and
non-financial information to make decisions and have appropriate levels of internal control
(security) for those transactions. It is a combination of personnel, records, and procedures
that a business uses to meet the need for financial information.

AIS improve efficiency in operations and achieve high level of profitability through:
o organized work activities
o simplified storage of operational data and documents
o eased decision making process
o improved communication among employers and employees

Effective AIS observes the following:

o Cost-benefit principle, the benefits from an accounting system should always
outweigh the costs associated with it.
o Control principle, ensures that data are reliable, and minimize wastes and the
possibility of theft or fraud
o Compatibility principle, the system must be able to provide the required result and
should take into consideration the needs and knowledge of accounting information
users. It should be in harmony with entity’s organization.
 REPUBLIC OF THE PHILIPPINES
CAGAYAN STATE UNIVERSITY
APARRI CAMPUS
Aparri, Cagayan
COLLEGE OF BUSINESS, ENTREPRENEURSHIP AND ACCOUNTANCY
o Flexibility principle, the system must adequately meet the demands not only of the
users but of the growing business and possible organizational changes.

Types of Accounting Information System

o Manual systems, paper based journals and ledgers. Rely on human processing so
they are labor intensive ad may be inefficient in today’s complex business
environment.
o Computer-based Transactions system, replace paper records. Maintains accounting
data separately from other operating data. This system bypasses the journalizing
thereby easing the posting process and it makes it easier to review detailed listings
of transactions at any time.
o Database systems, embed accounting data. This systems capture data, both financial
and non-financial, and store that information in a data warehouse. Database systems
reduce inefficiencies and redundancies that often exists in transaction-based systems

 Stage of data processing: Input - Processing – Output

THE ACCOUNTANCY PROFESSION IN THE PHILIPPINES

The Accountancy Law Evolution
1923: Act no. 3105
The year where the practice of accounting found its way as a profession. The law
enacted structured the practice of Public Accounting, created the Board of
Accountancy (BOA) and the conduct of licensing and suspension of certificates.

1967: Republic Act No. 5166 The Accountancy Act

The act provided and governed the standardization and regulation of accounting
education, examination for registration of CPAs and supervision, control and
regulation of the practice of accountancy. Through this law the Board of Accounting
Education was created and changes in the structure and member of the Board of
Accountancy were instituted.

1975: Presidential Decree No. 692 Revised Accountancy Law

The PD repealing and modifying RA No.5166 and all laws, executive orders,
administrative orders, rules and regulations, or parts thereof that are inconsistent
with the provisions of the Decree.

2004: Republic Act No. 9298 Philippine Accountancy Act

The RA included the institutionalization of the Financial Reporting Standards
Council and Auditing and Assurance Standard Council that perform the task of
formulating and recommending accounting and auditing standards for approval by
the BOA
 REPUBLIC OF THE PHILIPPINES
CAGAYAN STATE UNIVERSITY
APARRI CAMPUS
Aparri, Cagayan
COLLEGE OF BUSINESS, ENTREPRENEURSHIP AND ACCOUNTANCY

2016: RA no. 10912, Continuing Professional Development (CPD)

An Act Mandating and Strengthening the Continuing Professional Development
Program for All Regulated Professions. CPD, the inculcation and acquisition of
advance knowledge, skill, proficiency and ethical and moral values after initial
registration into the profession.

Board of Accountancy (BOA)

The body authorized by law to promulgate rules and regulations affecting the practice of
the accountancy profession in the Philippines.

Core competencies framework of accountants

 Knowledge
o General knowledge
o Organizational & Business knowledge
o InfoTech Knowledge
o Accounting
 Skills
o Intellectual: Analysis, Problem Solving & Critical Thinking
o Interpersonal
o Communication
 Values
o Professional Ethics
o Moral Values

Ethical Financial Reporting

Ethics is concerned with right and wrong and how conduct should be judged to be good
or bad.

The accountant’s responsibility to provide credible information and reports that are made
in good faith (corporate integrity) shall be governed through:
 Code of Corporate Governance promulgated by the Securities and Exchange
Commission
 Code of Ethics based on the International Code of Ethics for Professional
Accountants developed by International Federation of Accountants adopted and
regulated by BOA and PRC
 Fundamental Principles
o Integrity
o Objectivity
o Professional competence and due care
o Confidentiality
o Professional Behavior
 REPUBLIC OF THE PHILIPPINES
CAGAYAN STATE UNIVERSITY
APARRI CAMPUS
Aparri, Cagayan
COLLEGE OF BUSINESS, ENTREPRENEURSHIP AND ACCOUNTANCY

Here is what we learned

 Accounting is the process of identifying, measuring, recording, and communicating
an organization’s economic activities to users for decision making.
 Accounting dates back to ancient history and has contributed to a lot of the current
systems used at present.
 Managerial accounting serves the decision-making needs of internal users while
financial accounting focuses on external reporting to meet the needs of external
users.
 Accountant’s objective is to supply unbiased financial information so that statement
users could make informed judgment and better decision.