General Purpose Financial Statements
Production Manager - about production
1. Statement of Financial Position -
progress report about assets and
liabilities
2. Income Statement – performance
3. Statement of Cash Flows – cash report
4. Statements of Changes in Owner’s Equity
– progress report about wealth
Fr. Luca Pacioli – wrote the book Summa de
Aritmetica
Tenedor de Libro – bookkeeper in the Philippines
Bookkeeping – gathering financial data
Accounting - preparation of reports
Sources of Capital
1. Primary Source – owner or investor
2. Secondary Source – relative, bank,
friend, or cooperative
3. Micro Finance Programs
Risk – the element of uncertainty in an outcome
Forms of Businesses
1. Sole Proprietorship – managed by one
person
2. Partnership – owned by two or more
persons called partners
3. Corporation – separate legal entity from
the owners
- Managed by Board of Directors
Types of Business Operation
1. Service
2. Merchandising
3. Manufacturing
Types of Business Activities
1. Financing - start-up capital and
withdrawals
2. Operating – earning of income and
incurring expenses
3. Investing – acquisition of properties and
disposal of properties
Management involves four processes:
1. Planning – determining the goals and
creating activities
2. Organizing - creating divisions and
assigning tasks
3. Directing – overseeing the daily operation
4. Controlling – guarding and guiding.
Ensuring the activities.
A.
B. Marketing Manager – 4pcs and marketing
C. Finance Manager – financial resources
D. Sales Manager – selling operation
E. Personnel Manager – human resource
Accounting – a service activity
- Process of recording,
classifying, summarizing
transactions, and interpreting
results
Stakeholder – users of financial statements
Types of Accounting Areas
A. Internal reports (Managerial) – or
managerial reports for management use
B. Financial reports (Financial) – or called
general purpose financial statements.
Source of information for stakeholders
C. Tax Accounting (Tax) – determination of
taxes and preparation of various tax
returns
D. Special reports (Government) – prepared
for certain regulatory bodies
Accounting Information System can be
classified into two:
1. Measurement System – processing phase
that involves analysing, measuring,
recording, classifying, and summarizing
2. Communication System – reporting and
communicating phase involves
presentation of formal reports
AIS Principles
1. Control – must have good internal control
2. Cost-Benefit – advantages must outweigh
its cost
3. Relevance – must be useful
4. Compatibility – fit the characteristics
5. Flexibility – should allow for changes
Career Opportunities
1. Public Accounting – open to firms and
individual CPAs
a. Auditor – make an independent
examination or review if the financial
records of the firm. Assurance
services for quality information.
 b. Tax Consultant – skilled in preparing
tax returns in giving advice concerning
tax consequences
c. Management Consultant – advices
management on many delicate issues
2. Industry Accounting (Private Accounting)
a. Bookkeeper – person with knowledge
of accounting who does the routine
work
b. Controller – overall in-charge of all
accounting activities and functions as
the chief accounting officer (CAO)
c. Internal Auditor – who assists in
maintenance of the organization’s
internal control
d. Budget Officer – prepares plan and
forecasts of the company’s future
operation.
e. Chief Information Officer (CIO) – in
charge of the information and
communication technology department
whose function is to oversee the
electronic data processing operation
f. Tax Officer – handles tax plans,
prepares tax returns and advises
management on the effect of taxes on
is various plans and projects
3. Government and Not for Profit
Accounting
4. Research and Education
a. Researcher – investigates and makes a
study in relating to accounting
theories or business concepts
b. Accounting Professor – develops
competent students and prepares
them for CPA board exam
Accounting Areas
1. Bookkeeping – routine activity of
recording, classifying and summarizing
business transactions
2. Financial Accounting – involves
preparation and interpretation of
financial statements
3. Cost Accounting – details of materials,
labor and overhead to produce and sell a
product or service
4. Management Accounting – assist them in
planning, directing and controlling
5. Auditing – independent verification and
examination of the accounting records
for the purpose of giving credibility
6. Fund Accounting – use of public or
community to bring service to people
7. Tax Accounting – tax matters
8. Forensic Accounting – fraud examiner in
cases involving illegal transactions
Professional Regulatory Bodies
A. Professional Regulation Commission (PRC)
– regulating and licensing the practice of
profession
B. Board of Accountancy (BOA-BOARD) –
Republic Act 3105 under jurisdiction of
PRC and tasked to set up and promulgate
professional standards and ethics
C. Philippine Institute of Certified Public
Accountants (PICPA) – PRC Accreditation
No. 15 having the authority of setting up
and implementing rules to the accounting
profession.
 Philippine Financial Reporting
Standards (PFRS)
 Philippine Accounting Standards
(PAS)
 Interpretations
D. Securities and Exchange Commission
(SEC) – C.A. 83 tasked to safeguard
public interest
E. Bangko Sentral ng Pilipinas (BSP) –
regulated operations of all banks and
financing institutions to maintain peso
stability
F. Bureau of Internal Revenue (BIR) –
exacts tax and license compliance from
people
Accountancy Act of 2004 has the following for
its objectives:
1. Standardization and regularization of
accounting education
2. Examination for registration of certifies
public accountants and
3. Supervision, control and regulation of the
practice of accountancy in the Philippines
Assets – are economic resources owned by the
business
Liabilities – obligation to do or to pay
Equity – residual right or interest of the owner
Double entry bookkeeping r Venetian Model –
business should have a dual effect for every
received there is equal value parted
Statement of Financial Position (formerly called
as Balance Sheet before PAS 1 was revised in
2007) – shows the balances of each account and
the grand total shows a balance between the
assets
Accounting Framework – set of accounting
standards and operating guidelines
Four Qualitative Attributes
1. Understandability – have reasonable
knowledge; terminologies must be clear;
and presentation must be orderly
2. Relevance – quality information will make
a difference
a. Materiality – will depend whether
the item will influence the user’s
decision
b. Timeliness –must be promptly or
within the period
3. Reliability – objective and free from
material errors or misstatements
a. Faithful representation –
represent what they purport to be
b. Substance over form – substance
of contract is not consistent with
the legal form
c. Neutrality – information should be
useful to all users
d. Prudence – exercise caution when
it is marked by uncertainty
e. Completeness – all information
should be provided
4. Comparability – helps one identify
changes taking place between two or more
periods
Accounting Principles (GAAP)
A. Going Concern Principle – it is expected
that the business will continue to exist
indefinitely
B. Business Entity Concept – assumes
business as separate and distinct from ts
owner
C. Exchange Price of Cost Principle – should
be recorded on the amount agreed upon
a. PAS 16 par. 15-16 deals with
recognition and measurement of
property and equipment at
acquisition date
D. Measurement in terms of money –
recorded using only one unit of
measurement
E. Accrual Assumption – PAS 1 par. 27-28
requires that financial statements should
be prepared under accrual basis. Should
be recognized base on the occurrence of
the transaction
F. Objectivity – assets acquired must be
verifiable and substantiated by
documents, invoices, vouchers or official
receipts
G. Reporting period – PAS 1 par. 36-37
provides that the basic accounting period
is one year within interim reports
prepared for shorter periods of time
such as monthly, quarterly or semi-
annually.
Accrual Concept
A. Realization of Revenue Principle –
revenue is recognized when it is earned
regardless of collection
B. Recognition of Expense Principle –
expense is recognized when incurred
regardless of whether cash is paid or not
Income – represents inflow of cash or other
assets coming from a client or customer for
service rendered or for merchandise sold
 Gain – income which may arise but
not really form the normal course
of business
 Service Income – common for all
servicers
 Sales – is the revenue title used by
the merchandising and
manufacturing
PAS 1 define income as an increase in economic
benefits during the period that results in
increase in equity.
PAS 1 defines expenses as a decrease in
economic benefit during the accounting period
results in a decrease in equity
Matching Principle – expense is recognized when
revenue is recognized because it is impossible to
earn without incurring expense
Cash Concept – recognize only when cash is
collected
PAS 15 (Revenue Recognition Standard) gives
guideline for recognition of revenue from
contracts with customers.
Statement of Comprehensive Income (PAS 1.81)
– requires an entity to present income and
expenses either in
 Single Statement
 Two Statements – starts with profit and
loss plus other comprehensive income
PAS 1.10 – states however that an entity may use
titles for the statements other than those used
in this Standard
PAS 1 revised 2007 describes the financial
statements as fundamentally related
Statement of Cash Flows IAS No. 7 revised
2007 – requires the preparation of this
statement for a certain period of time
1. Evaluating cash stewardship
2. Guide in planning future cash flows
3. Assessing the ability of generating cash
flows
Report Form – all the elements are in one column
Account Form – following the position of the
elements in the accounting equation
PFRS Framework 102 – under financial concept
of capital, capital is synonymous with net assets
or net worth
PFRS Framework 104 – under financial concept
of capital maintenance, profit is earned only
when the financial net assets at the end of the
year is more than the financial net assets at the
start of the year but not as a result of
contribution of or distribution to the owner
Classification of Assets and Liabilities
 Current Assets – expected to be realized
into cash, or sold, or consumed within the
operating cycle
 Non-current Assets – are in the form of
plant, property and equipment
 Current Liabilities – debts or obligations
reasonably expected to be liquidated in
the normal course
 Non-current Liabilities – long term
liabilities
PAS 1.68 – defines it as the time between the
acquisition of assets, their processing and
realization in cash or cash equivalent
Invoice – issued when service or merchandise is
given to a customer or client
Official Receipt – issued when cash is received
by the entity
Cash or Check Voucher – a document used when
cash is paid or issued
Check – negotiable instrument used as a
substitute for cash
Promissory Note – written promise to pay a
certain sum of money at a future date
Statement of Account – bill represented to a
customer of service rendered or merchandise
for which payment is demandable (like a
summary)
Chart of Accounts – listing of account title which
guides the bookkeeper in the recording of the
transactions
General ledger which is also called the book of
final entry
Posting – process of transferring the debits and
credits from the journal entry to the ledger
Normal Balances:
Debit Credit
Assets Liabilities
Drawings Capital
Expenses Income
Locating Errors:
 Difference of ten – error in addition
 Difference is divisible by two – wrong
side of posting
 Difference is divisible or multiple of nine
– error is transposition or transplacement
Transposition – order of numbers is interchange
Transplacement – decimal point is misplaced
Subsidiary Ledger or customer’s card and
creditor’s card – keep track of each customer
and supplier
Payroll Sheet – document shows the take home
pay of employees and workers from which a
voucher. A tabular form prepared by the
Accounting Department to determine the take
home pay of employees and workers.
Payroll – represents compensation paid to
employees and workers