Introduction

Accounting has evolved, as in the case of medicine and law, in

response to the social and economic needs of society. As
business and society become more complex, accounting
develops new concepts and techniques to meet the ever-
increasing needs for financial information. Without such
information, many complex economic developments and
social programs may never have been undertaken.

Accounting Measures Processes

“Language of Business” Communicates

Without accounting, a business couldn’t function
optimally; it wouldn’t know where it stands
financially, whether it’s making a profit or not,
and it wouldn’t know its financial situation. Also,
a sound understanding of this language will
bring about a better management of the
financial aspects of living.
Types of Business
Type Activity Structure Examples
• Software
Selling Hiring skilled staff and development
Services
people’s time selling their time • Accounting
• Legal
Buying a range of raw
materials and
Buying and
manufactured goods • Wholesaler
Trader selling
and consolidating • Retailer
products
them, making them
available for sale
 Type Activity Structure Examples
• Vehicle
Designing Taking raw materials
assembly
products and and using equipment
• Food and drink
Manufacture assembling and staff to convert
• Water
finished them into finished
• Chemicals,
products goods
etc.
Growing or Buying blocks of land • Farming
Raw
materials
extracting raw and using them to • Mining
materials provide raw materials • Oil
Buying and operating • Transport
Selling the assets; selling • Hotels
Infrastructure utilization of occupancy often in • Telecoms
infrastructure combination with • Sports
services facilities
 Type Activity Structure Examples
Accepting cash from
Receiving
depositors and paying
deposits, • Bank
them interest; using
Financial lending and • Investment
money to provide
investing house
loans, charging them
money
fees and interest
Collecting cash from
customers; investing
Pooling
the money to pay the
premiums of
losses experienced by
Insurance many to meet • Insurance
few customers. More
claims of a
premium income can
few
be earned than claims
paid.
 Forms of Business
Organizations

Sole Proprietorship Partnership

Corporation
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. (ASC)

Accounting is an information system that measures,

processes and communicates financial information
about an economic entity. (ASB)
Accounting is the process of identifying, measuring and
communicating economic information to permit informed
judgments and decisions by users of the information.
(AAA)
Definition of Accounting
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. (AICPA)
Phases of Accounting
Recognition issue

Measurement
Valuation issue

Classification
issue
Recording

Interpretation
Fundamental Concepts

Entity Concept. An accounting entity is an organization

or a section of an organization that stands apart from
other organizations and individuals as a separate
economic unit. Simply put, the transactions of different
entities should not be accounted together. Each entity
should be evaluated differently.
Fundamental Concepts
Periodicity Concept. An entity’s life can be
meaningfully subdivided into equal time periods for
reporting purposes. This concept allows the users to
obtain timely information to serve as a basis on making
decisions about future activities. For the purpose of
reporting to outsiders, one year is the usual accounting
period.

Stable Monetary Unit Concept. The Philippine peso is

a reasonable unit of measure and that its purchasing
power is relatively stable.
Criteria for General Acceptance of
an Accounting Principle
A principle has relevance to the extent that it results in
information that is meaningful and useful to those who
need to know something about a certain organization.

A principle has objectivity to the extent that the

resulting information is not influenced by the personal
bias or judgment of those who furnish it. Objectivity
connotes reliability, trustworthiness and verifiability.
A principle has feasibility to the extent that it can be
implemented without undue complexity or cost.
Basic Principles
Objectivity Principle. Accounting records and
statements are based on the most reliable data
available. Without this principle, accounting records
would be based on whims and opinions and is therefore
subject to disputes.
Historical Cost. This principle states that acquired
assets should be recorded at their actual cost and not at
what management thinks they are worth as at reporting
date.
Revenue Recognition Principle. Revenue is
recognized in the accounting period when goods are
delivered or services are rendered.
Basic Principles
Expense Recognition Principle. Expenses should be
recognized in the accounting period in which goods and
services are used and not when the entity pays for those
goods and services.

Adequate Disclosure. Requires that all relevant

information that would affect the user’s understanding
and assessment of the accounting entity be disclosed in
the financial statements.
Basic Principles
Materiality. Financial reporting is only concerned with
information that is significant enough to affect
evaluations and decisions. Materiality depends on the
size and nature of the item judged.

Consistency Principle. The firms should use the same

accounting method from period to period to achieve
comparability over time within a single enterprise.
However, changes are permitted if justifiable and
disclosed in the financial statements.
Fundamental Principles
Integrity

A professional accountant should be straightforward and

honest in all professional and business relationship.
Integrity also implies fair dealing and truthfulness.

Objectivity

A professional accountant should not allow bias, conflict

of interest or undue influence of others to override
professional or business judgments.
Fundamental Principles
Professional Competence and Due Care

A professional accountant should act diligently and has a

continuing duty to maintain professional knowledge and
skill at the level required to ensure that a client or
employer receives competent professional services.
Confidentiality

A professional accountant should not disclose any

information to third parties without proper and specific
authority unless there is a legal or professional right or
duty to disclose.
Fundamental Principles
Professional Behavior

A professional accountant should comply with relevant

laws and regulations and should avoid any action that
discredits the profession.
Accountancy Profession
All members of the accountancy profession are CPAs,
which means that they have earned a Bachelor of
Science in Accountancy degree and have passed the
CPA licensure examination.

Career Opportunities

Government
Public Practice
Service

Commerce & Education/

Industry Academe
Branches of Accounting
1. Auditing
2. Bookkeeping
3. Cost Bookkeeping, Costing, and Cost Accounting
4. Financial Accounting
5. Management Accounting
6. Financial Management
7. Taxation
8. Government Accounting
Test Your Learnings
1. Accounting is a service activity and its function is to provide
quantitative and qualitative financial information.
2. The communication phase of accounting is accomplished by
reporting to decision makers.
3. A partnership is always owned by two individuals.
4. For accounting purposes, a business and its owner are
considered one and the same.
5. The terms bookkeeping and accounting are used
interchangeably.
6. Accounting is often characterized as the “language of
business”.
7. Summarization reduces the effects of numerous transactions
into useful groups or categories.
8. Summarization is achieved thru the preparation of financial
statements.
 On June 18, 2018, Light Yagami Company, a cleaning
service provider, received a request from a customer to clean
their eight units of airconditioners at 2,500 each. LYC
company able to render a service on June 20, 2018 cleaning
five units of aircon and another three units on the following
day.

How much revenue that LYC will recognize on June 18,

2018? June 20, 2018? June 21, 2018?