FINANCIAL ACCOUNTING & REPORTING

PRELIMS

I. TYPES OF BUSINESS:
  Product = Goods (Tangible) / Services Intangible
1. Service - offers intangible items; individuals or groups often provide traditional service
businesses. It delivers a product that is primarily composed of personal labor and expertise to
deliver the desired work
2. Trading - buying and selling TANGIBLE products
 Wholesaler - who sell merchandise to other businesses at a reduced rate
 Retailer - who sell inventory to the general public
3. Manufacturing - business that uses components, parts or raw materials to make a finished
good. These finished goods can be sold directly to consumers or to other manufacturing
businesses that use them for making a different product
4. Raw materials - materials or substances used in the primary production or manufacturing of
goods.
 Farming, mining, oil extraction, petroleum
5. Infrastructure - the basic physical systems of a business, region, or nation and often involves
the production of public goods or production processes
 Airports, trains amusement parks
6. Financial - receiving deposit, lending, spending
7. Insurance - business of undertaking liability under a contract of insurance to indemnify or
compensate a person in respect of loss or damage, including the liability to pay damages or
compensation contingent upon the happening of a specified event, and includes life insurance
business and reinsurance
 Workers’ Compensation Insurance, General liability insurance

II. FORMS OF BUSINESS:

1. Sole Proprietorship - a business that can be owned and controlled by an individual, a
company or a limited liability partnership
 There are no partners in the business.
 The business owner has unlimited liability (the business owner is personally liable for all
the debts and losses of the sole proprietorship)
 It can sue or be sued in the owner’s name
2. Partnership - consists of two or more people who combine their resources to form a business
and agree to share risks, profits and losses
 all partners share losses, debt and risk, and are fully liable for the financial obligations
of the business

3. Corporation – a legal entity created by individuals, stockholders, or shareholders, with the

purpose of operating for profit
 Minimum 1 maximum 15
 legally a separate and distinct entity from its owners. Corporations possess many of the
same legal rights and responsibilities as individuals.
 limited liability, which means that its shareholders are not personally responsible for
the company's debts.
III. ACTIVITIES IN BUSINESS ORGANIZATION:
1. Financing
 Flow of cash between a business and its owners and creditors
 Goods and services
 Selling stock
 Paying cash dividends
 Adding loans
2. Investing
 Purchasing physical assets
 Buying/selling long-term assets
 Investments in new machine to produce more output 
3. Operation
 daily activities of a company involved in producing and selling its product
 general administrative and maintenance activities
 manufacturing, sales, advertising, and marketing activities

IV. RA 9298 PHILIPPINE ACCOUNTANCY ACT OF 2004

 The standardization and regulation of accounting education
 The examination for registration of certified public accountants
 The supervision, control, and regulation of the practice of accountancy in the
Philippines
 Signed into law by Macapagal, Arroyo on May 13, 2004
 It repealed Presidential Decree No. 692 formerly known as the Revised Accountancy
Law which was enacted on May 5, 1975 by the late president Ferdinand E. Marcos

Notes:
 From Continuing Professional Education (CPE), it is now changed into
Continuing Professional Development (CPD)
 Refresher Courses are taken after 2 times of failing ng CPALE; must take 24 units
 PICPA – Philippine Institute of Certified Public Accountants is the
Accredited Professional Organization (APO) of CPA’s by the Professional
Regulation Commission (PRC)
 PRC licenses are renewed every after 3 years
 PICPA continuously work and collaborate with the Sectoral organizations in advancing
the practice of accounting profession in the country. Which includes the following:
a) ACPAPP – Association of Certified Public Accountants in Public Practice
b) ACPACI – Association of Certified Public Accountants in Commerce & Industry
c) nACPAE – National Association of Certified Public Accountants in Education
d) GACPA – Government Association of Certified Public Accountants

V. SCOPE OF PRACTICE OF ACCOUNTANCY (SECTION 4)

1. Practice in Public Accountant
 Involves audit and verification of records
 Preparation and signing of financial statements for clients
 Provide services, but doesn’t work for a company
 Profession > business
 provides advisory, audit, and related services to contractual clients
2. Practice in Commerce in Industry
 Employed by companies to perform accounting services
 Takes care of the financial activities of the company
  Commonly known as private accounting
 Serves only one (1) company
 They safeguard business assets
 May work as risk managers, health and safety specialists to make sure that the
contingency plans are in place to minimize business interruption in the event of
loss
3. Practice in Education
 Accountants who are into teaching, research, and training & development
 They can pursue a career as a faculty member in a school, an author of an
accounting book, trainer or reviewer
4. Practice in Government
 Accountants who work for government that needs accounting information
 Helps the government to plan, budget, forecast and allocate government funds
 Some were employed by the government to ensure the proper use and allocation
of monetary funds

VI. QUALIFICATION FOR PROFESSIONAL REGULATORY BOARD (SECTION

6):
 Must be natural born Filipino citizen and resident of the Philippines
 Must be duly registered CPA with at least 10 years of work experience
 Must be of good moral character and must not have been convicted of crimes involving moral
turpitude
 Must not have any pecuniary interested, direct or indirectly in any schools, college or
universities or institutions
 Must not be a director or officer of Accredited Philippines Organization at time of his
appointment

VII. QUALIFICATION OF CPALE: (Exams happen during May and October)

 Natural Born Filipino Citizen and resident of the Philippines.
 Must be of good moral character
 Must be a holder of bachelor’s degree in accountancy conferred by the school, college or
institution recognized by the CHED and other authorized government offices.
 Must have not been convicted in criminal offense

VIII. REQUIREMENTS OF APPLICANT BEFORE TAKING CPALE:

 Certificate of life birth by PSA
 Marriage Contract (If married: Female Only)
 College Diploma
 Baccalaureate Transcript of Records
 NBI Clearance
 As per announced by the PRC

IX. RATINGS IN LICENSURE EXAMINATION (SEC 16)

 Rating must be at least 75% with no less than 65% for every subject.
 Release of ratings after 10th day of calendar but in reality it's only after 2 days

X. SCOPE OF EXAMS (SECTION 15):

1. Financial Accounting and Reporting (FAR)
 Intermediate Accounting 1,2,3
2. Advance Financial Accounting and Reporting (AFAR)
  Business Combinations, Merges, Joint Ventures, Strategic Alliances.
3. Taxation
 Income Taxation, Business and Transfer Taxation, Percentage Tax, Values Added Tax,
Inheritance tax. (Under train law 6% of Donor Tax and Estate Tax) Law governs PWD,
Senior Citizen
4. Management Advisory Services
 Accountants gives suggestions for decisions
5. Auditing
 Auditing Theory
 Auditing Problem Analysis
6. Regulatory Framework for Business Transactions (RFBT)
 Business laws
                                            
XI. BRANCHES OF ACCOUNTING
1. Auditing
 Main branch of Accounting
2. External Auditing
 To check on accounting aspects to perform various significant services
 To get an independent auditor report
3. Bookkeeping
 Main branch of Accounting
 Records of financial reports
 Mechanical task for collect basic financial data
4. Cost of Accounting
 Process involves recording of const in  a books of accounts.
 For managerial planning and control
5. Financial Accounting
 Recording of transactions and reports of financial position (balance sheet).
6. Management Accounting 
 Decision making
7. Financial Management
 Are responsible for setting financial objections, planning base on objectives, obtaining
the resources, safeguarding the financial resources of entity
8. Taxation
 Income tax return
 Estate tax return
 Donor's tax return
  Tax Minimization/ Avoidance - Legal ways to reduce your tax.
  Tax Evasion/ Dodging - Illegal, understand revenue and overstate expenses.
9. Government Accounting
 Identification of Resources and uses of resources, such as:
 Business tax
 Income tax
 Percentage tax
 Value Added Tax
 Local tax (charge by the LGUs
 Estate Tax (Inherited tax 6%)
 Donor Tax

XII. DEFINITION OF ACCOUNTING AND FUNDAMENTAL CONCEPT:
Accounting - Is an art of recording, classifying and summarizing in a significant manner and in terms
of money transactions and events which are in parts at least of financial character, and interpreting
the results thereof. (American Institute of Certified Public Accountants, “Review and Resume”,
Accounting Terminology Bulletin No. 1 (New York: AICPA, 1953, par 9)
 Accounting Equations
1. A= L + OE
2. A= L + OE (Sole Proprietorship)
3. A= L + Partners’ Equity (Partnership)
4. A= L + Shareholders’ Equity (Corporation)

 Real Accounts - Remains in the book

 Nominal Accounts (Temporary Accounts)
a) Closes at the end of the year because the profit of the year has already been
computed.
b) No longer needed for the next 
c) renews on the next fiscal year

 Expanded Equation:
1. A= L + OE 
2. + revenue
3.  – expenses
4. – losses
5. – withdrawal
6.  + Investments, Additional Investment of the owner
7. Assets = Liabilities + Contributed Capital + Beginning Retained Earnings +
Revenue - Expenses - Dividends.