08/24/2023

UNIVERSITY OF SOUTHERN MINDANAO

Chapter 1
Accounting and Its Environment
Acc 112b: Financial Accounting and Reporting I

Prepared by: Ella Mae P. Villanueva & Sandra Angela A. Bangcaya

2022

SANDRA ANGELA AMOLO BANGCAYA

Ma’am Apple

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Learning Objectives
• Discuss accounting and explain its role in business.
• Discuss the basics of ASEAN and recognize how it will
affect accountancy practice in the region.
• Describe the fundamental business model and find how it
is applied to the various types of business.
• Distinguish between different forms and activities of
business organizations.
• Explain the importance of the purpose and phases of
accounting.
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Learning Objectives
• Explain the fundamental accounting concepts and
principles.
• Summarize the salient features of the Accountancy Act
of 2004, the Core Competencies Framework and the
Code of Ethics for Professional Accountants and
harness them to attain professional advancement.
• Explain why ethics are crucial in accounting.
• Identify and discuss the career opportunities open to
accountants.
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Definition of 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.
(Accounting Standards Council)

• Accounting is the art of recording, classifying, 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. (American Institute of Certified Public Accountants)

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Fundamental Business Model

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Types of Business
• Generally there are three types of business:
1. Servicing
2. Merchandising
3. Manufacturing

Products and services that businesses offer:

1. Service 5. Infrastructure
2. Trader 6. Financial
3. Manufacture 7. Insurance
4. Raw Materials

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Forms of Business Organizations

• Sole Proprietorship. There is only one owner called the proprietor. The
owner receives all profits, absorbs all losses and is solely responsible for all debts
of the business.
• Partnership. In a contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a common fund, with
the intention of dividing the profit among themselves. Two or more persons may
also form a partnership for the exercise of a profession (Civil Code of the
Philippines, Article 1767).
• Corporation. A corporation is an artificial being created by operation of law,
having the right of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence (The Corporation Code of
the Philippines, Sec.2).

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Activities in Business Organization

• Financing Activities. These are business activities that involves

obtaining and managing of financial resources.

• Investing Activities. These are business activities that involves the

purchase and disposal of long-term assets.

• Operating Activities. These are business activities that are done to

provide goods and render services to clients.

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Purpose and Phases of Accounting

• Recording. The function of accounting which includes the routine
and mechanical process of writing down business transactions and
events.
• Classifying. The function of accounting which involves sorting or
grouping similar transactions and events into their respective kind
and classes.
• Summarizing. The function of accounting is achieved through the
preparation of financial statements or financial reports.
• Interpreting. The function of accounting which involves the
analytical and interpretative skills of an accountant.

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Fundamental Concepts
that underlie the accounting process
• Entity Concept. The entity is separate from other entities
and individuals
• Periodicity Concept. Life of the entity is divided into equal
time periods for reporting purposes
• Stable Monetary Unit Concept. Unit of measure to use in
the FS is the Philippine Peso.
• Going Concern. An entity will continue in operation for the
foreseeable future.

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Basic Principles
in order to generate information that is useful to users
• Objectivity Principle. The accounting process and
statements are based on the most reliable data available so
that they will be as accurate as possible
• Historical Cost. Assets should be recorded at original or
acquisition cost
• Revenue Recognition Principle. Revenue is recognized in
the accounting period when goods and services are earned.
• Expense Recognition Principle. Expense is recognized in the
accounting period when incurred.
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Generally Accepted Accounting Principles

• Adequate Disclosure. Requires all relevant information that

would affect the user’s understanding and assessment of
the entity should be disclosed in the financial statement.
• Materiality. Financial Statements is concerned with
information that is significant enough to affect evaluations
and decisions.
• Consistency Principle. The firm should use the same
accounting method from period to period to achieve
comparability over time within a single enterprises.

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Professional Accountant
• holders of baccalaureate degree in Bachelor of Science in
Accountancy
• taken and passed the licensure examination for Certified Public
Accountants
• carry the title as “CPA.” who is under the supervision of the
Professional Regulation Commission (PRC) in the practice of
their profession.

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Scope of Practice

CPAs in the CPAs in

Government Public Practice

CPAs in CPAs in
Education/ Commerce and
Academe Industry

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Core Competence Framework

for Entry to the Philippine Accountancy Profession

• Knowledge
• General knowledge
• Organizational and business knowledge
• Information technology (IT) knowledge
• Accounting knowledge

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Core Competence Framework

for Entry to the Philippine Accountancy Profession

•Skills
• Intellectual
• Interpersonal
• Communication

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Core Competence Framework

for Entry to the Philippine Accountancy Profession

•Values
• Professional ethics
• Moral values

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Fundamental Principles
of a professional accountant
• Integrity A professional accountant should be straightforward and honest in all professional and
business relationships.

• Objectivity A professional accountant should not allow bias, conflict of interest or undue influence of
others to override professional or business judgments.

• Professional Competence and Due Care A professional accountant has a continuing

duty to maintain professional knowledge and skill at the level required to ensure that a client or employer
receives competent professional service. A professional accountant should act diligently and in accordance
with applicable technical and professional standards.

• Confidentiality Confidential information acquired as a result of professional and business

relationships should not be used for the personal advantage of the professional accountant or third parties.

• Professional Behavior A professional accountant should comply with relevant laws and
regulations and should avoid any action that discredits the profession.

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Summary
• Accounting is a service activity.
• There are different types of business according to service/products
offered.
• There are 3 basic forms of business according to ownership.
• The business transactions can be classified into 3 types of activities.
• The GAAP ensures a company's financial statements are complete,
consistent, and comparable
• The fundamentals principles of accountants form the standard of
behavior expected of a professional accountant. It reveals the
profession's recognition of its public interest responsibility.
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Reference
• Ballada, W. & Ballada, S., 2019. Basic Financial Accounting
and Reporting. Manila, Philippines: DomeDane Publishers &
Made Easy Books.

• Cabrera, M.E. & Cabrera, G.A. (2018-2019). Financial

Accounting and Reporting. Manila, Philippines: GIC
Enterprises & Co., Inc..

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