CHAPTER 1

I. Discussion Questions:

1. Why is Accounting often referred to as the language of the Business?

 Accounting is relevant in all walks of life, and it is absolutely essential in the world of Business.
Accounting is the system that measures business activities, processes that information into
reports and communicates the results to decision makers. For this reason, accounting is called
the Language of Business.

2. What is Globalization? To your mind, what benefits it will bring to you?

 Globalization (Globalisasyon/Pag-unlad) is the term used to describe the increasing

interdependence of the world's economies, cultures, and populations as a result of cross-border
trade in goods and services, technology, and flows of investment, people, and information.
More simply, globalization refers to an open flow of information, technology, and goods among
countries and consumers. This openness occurs through various relationships, from business,
geopolitics, and technology to travel, culture, and media. As the world continue to evolve, it
brings a lot of benefits to people and the economy. This growing world makes it easier for me to
have access to opportunities like having knowledge using evolving technology. Globalization as
well, allows me to be resourceful and find lower cost ways to live. I have a large variety of
choices around me.

3. To your mind, why is business ethics important? Cite some ethical dilemmas.

 Business ethics is the system of ethical and moral beliefs that guides the values, behaviors and
decisions of a business organization and the individuals within that organization. Basically,
Business Ethics is important as it aims to open the perspective of business leaders to promote
good morals and values which affects the decision-making for the better result in the industry in
the long run. These refers to implementation of business policies and practices with regard to
arguably controversial subjects. In addition, it ensures management guides and mentors their
employees in a healthy environment. A workplace with good ethics usually strengthens the
bond employees have with their superior. Some of the ethical dilemmas are the ff:
1. Discrimination in the workplace - When an employer, supervisor, or coworker treats
another employee unfairly because of religion, age, ethnicity, gender, disability, skin
color, or race, this is an example of workplace discrimination. This includes hiring and
firing practices in addition to workplace behavior.
2. Abuse of Power - Abusive Behavior. Too many workplaces are filled with leaders who use
their position and power to mistreat others. Unfortunately, unless the situation involves
race, gender, or ethnic origin, there is often little to no legal protection against abusive
behavior in the workplace. Abusive behavior is unethical.
3. Theft/Embezzlement - Some employees are known for diverting company funds into
their personal bank accounts—padding project quotations, invoices, and so on—in order
to deceive the company about how much money was spent on specific projects. This act
is harmful to the company because employees who steal sometimes replace high-quality
products with counterfeits that are less expensive but cause long-term damage.
4. What are the three forms of Business organizations? Define each briefly.

 Sole Proprietorship, Partnership, and Corporation are the three forms of Business organizations.
Sole Proprietorship tend to be a small service type business and retail establishments as these
businesses are owned by one person, usually, the individual who has day-to-day responsibility
for running the business. Sole proprietors can be independent contractors, freelancers or home-
based businesses. Partnership, on the other hand, has two or more people that shares
ownership of a single business. The partners should have a legal agreement that sets forth how
decisions will be made, profits will be shared, disputes will be resolved, how future partners will
be admitted to the partnership, how partners can be bought out or what steps will be taken to
dissolve the partnership when needed. Lastly, Corporation is a separate legal entity which
means it is separate from those who own it. A corporation can be taxed, sued and enter into
contractual agreements. The corporation has a life of its own and does not dissolve when
ownership changes.

5. What are MSMEs? What purpose does it serve for economic development?

 MSMEs, or Micro, Small, and Medium Enterprises, are businesses that differ from corporations
or conglomerates but play an important role in the economy. These businesses contribute
significantly to the economy in terms of employment and global environmental development.

6. What are the types of Business? Distinguish them.

 The range of products and services can be summarized in seven broad categories, they are as
follows: Services, Trader, Manufacture, Raw materials, Infrastructure, Financial, and Insurance.

7. Give three definitions of accounting.

 (1) According to the Statement of Financial Accounting Standards No. 1 “Basic Concepts and
Accounting Principles Underlying Financial Statements of Business Enterprises”, 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. (2)
Accounting is an information system that measures, processes, and communicates financial
information about an economic entity as stated by Financial Accounting Standards Board, 1978,
par 9. It is defined as well as the process of identifying, measuring, and communicating
economic information to permit informed judgments and decisions by users of the information.
(3) Accounting is the 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 the results thereof, defined by American institute of Certified Public Accountants
(AICPA, 1953)

8. Enumerate and distinguish the four phases of accounting.

 There are four basic phases of accounting: recording, classifying, summarizing and interpreting
financial data. Recording: Also known as bookkeeping, every business transaction is recorded
thematically and chronologically in the appropriate accounting books. There are two types of
bookkeeping: single entry and double entry. Classifying: All of the items have been sorted and
grouped, with similar items classified under the same name. It reduces the effects of numerous
 transactions into useful groups or categories. Summarizing: Data are recorded and summarized
by financial statements after each transaction. Those data are kept very secure, and the financial
statements are Income Statements, Balance Sheets, and so on. Interpretation: This is the final
stage in which the accountant interprets the financial statement. These are the types of Analysis
Reports that must be submitted alongside financial reports.

9. Why has a recording system, the double-entry, devised in medieval times lasted for so long?

 There are two main reasons for this: it provides an accurate record of what happened to a
business over a specified period of time; and information extracted from the system can help
the owner or manager run the business much more efficiently. In short, Pacioli was able to
create a comprehensive and fully articulated set of double-entry records with a regular
balancing procedure on General Ledger closure. Furthermore, he emphasized the importance of
financial control.

10. Discuss the criteria for general acceptance of an accounting principle.

 The general acceptance of the accounting principles or practices depends on how well they
meet the following three criteria. 3 main criteria of GAAP are; Relevance - A principle is relevant
to the extent that it results in information that is meaningful and useful to the users of the
accounting information. Objectivity - Objectivity connotes impartiality and trustworthiness. 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. It also implies verifiability, which means
that there is some way of ascertaining the correctness of the information reported.

11. What does the term generally accepted accounting principles mean?

 GAAP or Generally Accepted Accounting Principle is a set of procedures and guidelines that
businesses use to prepare their financial statements and other accounting disclosures. The
Financial Accounting Standards Board (FASB), an independent non-profit organization, creates
the standards. The goal of GAAP standards is to help ensure that financial information provided
to investors and regulators is accurate, reliable, and consistent. The term "generally accepted"
indicates that an authoritative accounting rule-making body has established a reporting
principle in a given area, or that a given practice has been accepted as appropriate over time
due to its universal application. Although principles and practices continue to spark debate and
criticism, most members of the financial community recognize them as the standards that have
proven to be most useful over time.

12. What is meant by the concept of stable monetary unit? Is this assumption realistic? Why is it used in
accounting?

 The concept of a stable monetary unit assumes that the value of a particular currency remains
relatively stable over time. This concept is not concerned with inflation over time. It deals more
with the ability to measure transactions in money without drastic fluctuations in currency values
in the short-term. To be useful, financial information must be relevant, reliable, and prepared in
a consistent manner. Relevant information helps a decision maker understand a company’s past
performance, present condition, and future outlook so that informed decisions can be made in a
 timely manner. This means that this assumption is realistic. Stable monetary value is used in
accounting because it makes the process of accounting more manageable. The monetary unit is
a simple and universally recognized basis of communicating financial information. It is the most
appropriate and effective basis of recording, communicating and analyzing the financial data on
the basis of which rational business decisions can be made.

13. What is the periodicity concept? Why is it important for business entities to provide periodic
information?

 The periodicity assumption states that an organization can report its financial results within
certain designated periods of time. This typically means that an entity consistently reports its
results and cash flows on a monthly, quarterly, or annual basis. It is very important because it
allows the users to obtain timely information to serve as a basis on making decisions about
future activities.

14. What is Materiality?

 Financial statements are used by businesses to record historical data, communicate with
investors, and make data-driven decisions. It can be difficult to know what should and should
not be included in these financial statements. The financial accounting concept of materiality
will make this task easier. Materiality is a key accounting principle used by accountants and
auditors when preparing a company's financial statements. Materiality is an accounting principle
that states that all items that are reasonably likely to influence investors' decision-making must
be recorded or reported in detail in a company's financial statements prepared in accordance
with GAAP standards. Essentially, materiality refers to the importance of information in a
company's financial statements. If a transaction or business decision is significant enough to
warrant reporting to investors or other users of financial statements, that information is
"material" to the business and cannot be omitted.

15. Trace the development of accountancy in the Philippines.

 Although accounting has been practiced in the Philippines since the Spanish period and possibly
even before, the seeds of Philippine accountancy as a recognized profession were planted on
March 17, 1928, when Act No. 3105 was approved by the Sixth Legislature. Entitled “An Act
Regulating the Practice of Public Accounting; Creating the Board of Accountancy, Providing for
Examination, for the Suspension or Revocation of Certificates; and for other purposes,” the law
paved the way for local accountants to do the work which, up to that time was performed by
foreign accountants in the country. Since then, both the profession and the body that directly
regulates it have grown rapidly.

16. Profile the founders and current leaders of your school so as to draw inspirations from their
experiences. Let’s not forget them. Please share with us your write-ups by e-mailing it to:
winballada@yahoo.com

17. What constitutes the practice of accountancy in the Philippines?

 The practice of accountancy shall include, but not limited to, the following:
 (a) Practice of Public Accountancy - shall constitute in a person, be it his/her individual capacity,
or as a partner or as a staff member in an accounting or auditing firm, holding out
himself/herself as one skilled in the knowledge, science and practice of accounting, and as a
qualified person to render professional services as a certified public accountant; or offering or
rendering, or both, to more than one client on a fee basis or otherwise, services.

(b) Practice in Commerce and Industry - shall constitute in a person involved in decision making
requiring professional knowledge in the science of accounting, or when such employment or
position requires that the holder thereof must be a certified public accountant.

(c) Practice in Education/Academe - shall constitute in a person in an educational institution

which involve teaching of accounting, auditing, management advisory services, finance, business
law, taxation, and other technically related subjects: Provided, that members of the Integrated
Bar of the Philippines may be allowed to teach business law and taxation subjects.

(d) Practice in the Government- shall constitute in a person who holds, or is appointed to, a
position in an accounting professional group in government or in a government–owned and/or
controlled corporation, including those performing proprietary functions, where decision
making requires professional knowledge in the science of accounting, or where a civil service
eligibility as a certified public accountant is a prerequisite.

18. State the qualifications of members in the Professional Regulatory Board.

 According to the Republic Act No.9298, Article II, Section 6, A member of the Board shall, at the
time of his/her appointment, possess the following qualifications: (a) Must be a natural-born
citizen and a resident of the Philippines; (b) Must be a duly registered Certified Public
Accountant with a least ten (10) years of work experience in any scope of practice of
accountancy. (c) Must be of good moral character and must not have been convicted of crimes
involving moral turpitude. (d) Must not have any pecuniary interest, directly or indirectly, in any
school, college, university or institution conferring an academic degree necessary for admission
to the practice of accountancy or where review classes in preparation for the licensure
examination are being offered or conducted, nor shall he/she be a member of the faculty or
administration thereof at the time of his/her appointment to the Board and; (5) Must not be a
Director or Officer of the Accredited National Professional Organization of Certified Public
Accountant (APO) at the time of his appointment.

19. State the qualifications of applicants for the CPA Examinations.

 Article III, Section 6 of Republic Act 9298 states that the Qualifications of Applicants for
Examinations are the following:
– Any person applying for examination shall establish the following requisites to the satisfaction
of the Board that he/she: (a) is a Filipino citizen; (b) is of good moral character; (c) is a holder of
the degree of Bachelor of Science in Accountancy conferred by a school, college, academy or
institute duly recognized and/or accredited by the CHED or other authorized government
offices; and (d) has not been convicted of any criminal offense involving moral turpitude.