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Development and Basic

Concepts of Accounting 1
September 3, 2020

What is Accounting?

process of identifying, measuring, and communicating

economic information to permit informed judgment and
decision by users of the information. American Accounting
Association AAA

Phases:

identifying - involves the non/recognition of business activities to be

accounted for

measuring - technical component of accounting. assigning of monetary

amounts to the accountable economic transactions and events

communicating - formal component of accounting. preparation and

distribution of accounting reports to potential users of accounting
information

*purpose: determine ___ based on financial reports (loans, etc)

art of recording, classifying, and summarizing in significant

manner and in terms of money, transactions and events and
interpreting the results thereof. American Institute of CPA
AICPA

Development and Basic Concepts of Accounting 1 1

 Phases:

recording - routine and mechanical process of committing to writing business

transactions and events on the books of accounts

classifying - sorting or grouping of similar items. process of posting the

information from journal to the ledger

summarizing - determination of the balances of each account in the ledger

and the preparation of financial statements

interpreting - giving meanings to the amounts, ratios, trends and other

information derived from the financial statements

a service activity. function is to provide quantitative

information (financial) about academic entities that is intended
to be useful in making economic decisions ASC

Venetian Approach to Record Keeping

1494, Luca Pacioli Franciscan monk and mathematician) - Father of
Accounting (he did not invent the double entry bookkeeping)

"Summa de Arithmetica, Geometria, Proportioni et Proportionalita" The

Collected Knowledge of Arithmetic, Geometry, Proportion and Proportionality)

information about double-entry bookkeeping. through this there were

improvements on the system.

Importance of Accounting
Professions: law, gardening, construction, school, engineering, medicine -
proper (financial) decisions can be made

accounting plays a major role in the attainment of the company's goals and
objectives

vital role in running a business because it helps you track income and
expenditures, ensure statutory compliance, provide investors, management,
and government with quantitative financial information which can be used in
making business decisions

Development and Basic Concepts of Accounting 1 2

 Users of Financial Information
Primary Users

existing and potential investors

lenders and other creditors

Other Users

employees

customers

government and their agencies

public

Users and Uses of Information

Investor - assess the ability of the entity to pay dividends
Creditors - assess whether their loans as well as the related interest can be
collected by them when due
Employees - assess the ability of the enterprise to provide remuneration and
retirement benefits

Customers - determine continuance of the enterprise, especially when they have

a long-term involvement with, or are dependent on, the enterprise
Government - regulate the activities of the enterprise and determine appropriate
taxation policies

Business Organizations
Sole Proprietorship

single ownership

one-man control

unlimited liability (and personal assets) - financed by the owner

Partnership

two/more persons

Development and Basic Concepts of Accounting 1 3

 partners/managing partners

unlimited liability

Corporation

operation of law

board of director/trustees

limited liabilities

Cooperative

association

operation by law

board of directors

limited liabilities

Business Firms
service concern (lawyers, beauty parlors, etc)

merchandising (sarisari store, rtws, bakeries)

Development and Basic Concepts of Accounting 1 4

 manufacturing

agriculture

GAAP - Generally Accepted Accounting Principles

rules, procedures, practice, and standards

world-wide acceptance

IASB - International Accounting Standards Board

replaced IASC (standards committee)

pubishes standards in a series of pronouncements - IFRS International

Financial Reporting Standards)

FRSC - Financial Reporting Standards Council

replaced ASC (accounting standards council)

Local version

establish and improve accounting standards that will be generally accepted in

the Philippines

created by PRC - Professional Regulation Commission

15 members 3 year terms)

PICPA - Philippine Institute of Certified Public Accountants

under its umbrella: ACPAPP, GACPA, ACPACI, NACPAE

national organization

Accounting Principles
Cost principle - requires that assets should be recorded initially at original
acquisition cost

Liability recognition principle - a liability is recognized when it is probable

that an outflow of resources embodying economic benefits will be required
for the settlement of a present obligation and the amount of the obligation
can be measured reliably

Development and Basic Concepts of Accounting 1 5

 income recognition principle - income should be recognized when earned
rather than when cash is received

Matching principle - all costs and expenses incurred in earning revenue should
be reported in the same period

Accural (accounting) - income is recognized when earned regardless of when

received and expense is recognized when incurred regardless of when paid

The Accountancy Profression

accountancy is a noble and a prestigious profession

BOA is authorized by law to promulgate rules and regulations affecting the

practice of accountancy profession in the Philippines

accountancy has played a great part in nation building and development

 public accounting - accountants who render accounting services on a fee

basis. involved in public practice

 private accounting - accountants employed by a particular business firm or

not-for-profit organizations are engaged in private accounting

 government accounting - large number of accountants are employed by the

commission of audit, bureau of internal revenue, local government units, or
national government

example:

private accounting - accountant of smart corporation ; samsung philippines

public accounting - sycip gorres velayo and co.

government accounting - bir, lgu, commission on audit auditors

CPAs and the Board Examination - read more dire na part pls
CPA - person who holds a valid certificate of registration and professional
identification card

scope of the cpa board examination: advanced financial accounting and

reporting, auditing, financial accounting and reporting, management advisory
services, regulatory framework for business transactions, taxation

Development and Basic Concepts of Accounting 1 6

 qualified: general average of 75% and no grades lower than 65% ; event: 75%
and above in majority of subjects provided in the act

failing candidate who fails 2 cpa board exams shall be disqualified

The Board of Accountancy is the body authorized by law to promulgate rules

and regulations affecting the practice of the accountancy profession in the
Philippines. The board is responsible for the preparation and grading of the
CPA examination.

Basic professional values and ethics

integrity - a professional accountant should be straightforward and honest in
performing professional service

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 based on current developments in practice, legislation and techniques

confidentiality - a professional accountant should respect the confidentiality

of information acquired as a result of professional and business relationships
and should not disclose any such information to third parties without proper
and specific authority unless there is a legal or professional right or duty to
disclose. information should not be used for the personal advantage of the
accountant / third parties

professional behavior - a professional accountant should comply with

relevant laws and regulations and should avoid any action that discredits the
profession.

Specialized Accounting Fields

 general or financial accounting - recording of transactions for an economic
unit and the periodic preparation of reports.
*GAAP - Generally Accepted Accounting Principles

Development and Basic Concepts of Accounting 1 7

  auditing - field of activity involving an independent review of the accounting
records.

 management advisory services / management accounting - (has no precise

coverage) generally to refer to services to clients on matters of accounting,
finance, business policies, procedures and administration and many other
phases of business operations. they may employ historical and estimated
data in assisting management in daily operations and in planning future
operations.

 tax accounting - preparation of tax returns and determination of tax

consequences of certain proposed business transactions.

 accounting system - design and implementation of procedures for the

accumulation of financial data

 government accounting - principles and procedures associated with

accounting for the national and local government

 accounting education or instruction - education of students of accounting

principles, methods and their applications. aside from teaching, accounting
professors or instructors, may engage in other fields of accounting activities.

 cost accounting - determination and control of costs particularly in

manufacturing companies. the cost accountant interprets cost data for the
use of management in controlling current operations and planning for the
future.

comparisons
accounting - constructive in nature
auditing - analytical

bookkeeping - systematic and chronological recording of business transactions

and events. it is procedural and is referred to as recording phase of accounting.

accounting - embraces bookkeeping. accounting deals with principles and

concepts. it is not only concerned with the recording of data but is also
concerned with the transformation of accounting data into a reportable form, its
analyses and interpretations.

Development and Basic Concepts of Accounting 1 8

 accounting assumptions or postulates
accounting assumptions are the basic notions or fundamental premises on
which the accounting process is based.

accounting assumptions serve as the foundation or bedrock of accounting in

order to enhance understanding and usefulness of the financial statements.

going concern or continuity

in the absence of evidence to the it is assumed that the business is

contrary, the accounting entity is going to operate for an indefinite
viewed as continuing in operation period of time.
indefinitely.

economic entity / accounting entity

the business is treated as a separate entity from that of its owners, managers
and employees who constitute the firm.

accounting entity is the specific business organization.

an accounting entity is an organizational unit for which financial and

economic data are gathered and processed.

a business is considered as an accounting entity and is therefor considered as

a unit separate and distinct from that of its owner/s.

monetary unit

the monetary unit assumption requires entities to include in their accounting

records only transaction data that can be measured in terms of money.

time period or periodicity

the concept behind the preparation of financial statements for a specified

time period. the basic accounting period is 12 months or one year

the accounting period could be: calendar year 12-month period that starts
jan 1 to dec 31 or fiscal year 12-month period that starts at any month of
the year)

a natural business year is any 12-month period that ends when business
acitvities are at their lowest point.

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