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Course Code: EC1

INITAO COLLEGE Course Title: Intermediate Accounting and
Jampason, Initao, Misamis Oriental Business Application
1st Semester, S.Y. 2021 - 2022 Unit: 3 (Lecture)

Instructor: YOLLY FRANZ S. DADOLE, CPA Subject Schedule:

BSBA: Thursday 10:30-12:00
Mobile Number: 0917-178-0506 BSHM: Friday 10:30-12:00
Contact Schedule: M,T,W,Th and F; 8:00am - 5:00pm Facebook Group Page:
EC1_Initao College 2021

MODULE 2: August 23 – 27, 2021

Topic: Introduction to Accounting Desired Learning Outcomes:
 Describe the nature of accounting
Duration: 3 hrs  Understand the functions of accounting in business
 Discuss the significance of accounting in business

SPECIFIC INSTRUCTIONS FOR SUBMISSION

Answer the short quiz found in page 5. Do not use a separate sheet of paper. Answer directly from the
sheet provided and do not forget to write your personal information from the spaces given at the top.
Deadline will be on August 31, 2021.
INTRODUCTION
Accounting is one of the key functions for almost any business. It may be handled by a bookkeeper or an
accountant at a small firm, or by extensive finance departments with dozens of employees at larger
companies. The reports generated by various streams of accounting, such as cost accounting and
managerial accounting, are invaluable in helping management make informed business decisions.
– investopedia.com
ABSTRACTION
In all activities and organizations (business or non-business) which require money and other economic
resources, accounting is required to account for these resources. In other words, wherever money is
involved, accounting is required to account for it. Accounting is often called the language of business. The
basic function of any language is to serve as a means of communication. Accounting also serves this
function.
ANALYSIS
Definitions 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 is the process of identifying, measuring and communicating economic information to permit
informed judgments and decisions by users of the information.
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.
Accounting is an information system that measures, processes and communicates financial information
about an identifiable economic entity.
When an aspiring entrepreneur starts a business, the office is full of excitement, enthusiasm and great
expectations. Employees are hired to answer the phones, and salespeople are selling. The owner is buying
raw materials, and the workforce is manufacturing the products. But how is the company doing? Is it making
a profit? Everyone is working really hard, so they must be doing something right. So how do you keep the
score of the game? This is where accounting in business steps in.

Accounting is often referred to as “Language of Business”. It is a means of communicating financial

information to different users for decision making.
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The Role of Accounting

The purpose of accounting is to provide financial information to the stakeholders of the business –
management, investors and creditors. Accounting measures and summarizes the activities of the company
and communicates the results to management and other interested parties.
Managers need accurate and timely financial data to make intelligent decisions, and accountants are the
ones who produce this information. While the accounting process collects the data and presents it in various
types of reports, the accountants help interpret the meanings of the reports and suggest ways to use these
details to solve business problems.

Phases of Accounting
Business transactions are the economic activities of a business. Recording these historical events is a
significant function of accounting. Before the effects of transactions can be recorded, they must be
measured. In order that accounting information will be useful, it must be expressed in terms of a common
financial denominator – money. Money serves as both a medium of exchange and a measure of value.

By simply measuring and recording transactions, the resulting information will be of limited use. To be
useful in making decisions, the recorded data must be classified and summarized. Classification reduces
the effects of numerous transactions into useful groups or categories.

Summarization of financial data is achieved through the preparation of financial statements or financial
reports. These usually summarize the effects of all business transactions that occurred during some period.
After going through the preceding phases, it is imperative that the result of the summarization phase be
interpreted or analysed to evaluate the liquidity, profitability and solvency of the business organization.
Accounting provides the decision-makers with information to make reasoned choices among alternative
uses of scarce resources in the conduct of business and economic activities.

BRANCHES OF ACCOUNTING
The main branches of accounting and their brief descriptions are the following:
Auditing
Auditing is the accountancy profession’s most significant service to the public. There are two main
classifications of audit – external and internal. An external audit is the independent examination that
ensures fairness and reliability of the reports that management submits to users outside the business entity.
The result of the examination is embodied in the independent auditor’s report. External auditors are
appointed from outside the organization. The external auditor’s job is to protect the interests of the users
of the financial statements. By contrast, internal auditors are employees of the company. They are
appointed by, and answer to, the company’s management though they work independently of the
accounting and other departments. To differentiate further, internal auditors perform routine tasks and
undertake detailed checking of the company’s accounting procedures, whereas external auditors are likely
to go in for much more selective testing.
Bookkeeping
Bookkeeping is a mechanical task involving the collection of basic financial data. The data are first entered
in the accounting records or the books of accounts, and then extracted, classified and summarized in the
form of income statement, balance sheet and cash flows statement. The bookkeeping procedures usually
end when the basic data have been entered in the books of accounts and the accuracy of each entry has
been tested. At that stage, the accounting function takes over. Bookkeeping is a routine operation, while
accounting requires the ability to examine a problem using both financial and non-financial data.
Cost Accounting
Cost accounting deals with the collection, allocation, and control of the cost of producing specific goods
and services. This accumulation and explanation of actual and prospective cost data is important to control
current operations and to plan for the future. Cost accounting now forms one of the main sub-branches of
management accounting.
Financial Accounting
Financial accounting is focused on the recording of business transactions and the periodic preparation of
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reports on financial position and results of operation. It is the more specific term applied to the preparation
and subsequent publication of highly summarized financial information. The information supplied is usually
for the benefit of the owners of the entity, but it can also be used by management for planning and control
purposes. It will also be of interest to other parties, e.g. employees and creditors.
Financial Management
Financial management is a relatively new branch of accounting that has grown rapidly. Financial managers
are responsible for setting financial objectives, making plans based on those objectives, obtaining the
finance needed to achieve the plans, and generally safeguarding all the financial resources of the entity.
Management Accounting
Management accounting incorporates cost accounting data and adapts them for specific decisions which
management may be called upon to make. A management accounting system incorporates all types of
financial and non-financial information from a wide range of sources.
Taxation
Tax accounting includes the preparation of tax returns and the consideration of the tax consequences of
proposed business transactions or alternative courses of action. Accountants with this specialization aim
to comply with the existing tax statutes but are also in constant legal search for ways to minimize tax
payments.
Government Accounting
It is concerned with the identification of the sources and uses of resources consistent with the provisions
of city, municipal, provincial or national laws. The government collects and spends huge amount of public
funds annually so it is necessary that there is proper custody and disposition of these funds.

FUNCTIONS OF ACCOUNTING
A person who is involved in the process of bookkeeping and accounting is called an accountant. With the
coming up accounting as a specialized field of knowledge, an accountant has a special place in the
structure of an organization, because he performs certain vital functions. The following paragraphs examine
the functions of accounting and what role does an accountant play in discharging these functions.
An accountant is a person who does the basic job of maintaining accounts as he is the man who is engaged
in bookkeeping. Since the managers would always want to know the financial performance of the business.
An accountant prepares profit and loss account which reports the profits/losses of the business during the
accounting period. Balance Sheet is a statement of assets and liabilities of the business at a point of time,
is also proposed by all accountants. Since both statements are called financial statements, the person who
prepares them is called a financial accountant.
Accounting information serves many purposes. A part from revealing the level of performance, it throws
light on the causes of weakness and deviation from plans (in any). In this way, an accountant becomes an
important functionary who plays a vital role in the process of management control, which is a process of
diagnosing and solving a problem. Seen from this point of view, an accountant can be referred to as a
management accountant.
Tax planning is an important area as far as the fiscal management of a company is concerned. An
accountant has a suggestive but very specific job to do in this regard by indicating ways to minimize the
tax liability through his knowledge of concessions and incentives available under the existing taxation
framework of the country.
An accountant can influence a company even by not being an employee. He can act as a man who verifies
and certifies the authenticity of accounts of a company by auditing the accounts. It is a strictly professional
job and is done by persons who are formally trained and qualified for the purpose. They have an educational
status and a prescribed code of conduct like the Philippine Institute of Certified Public Accountants (PICPA).
Accounting Data for Decision-Making
Running a business requires accurate data about the company's assets, liabilities, profits and cash position.
Accounting provides this crucial information. Accounting plays a significant role in evaluating the viability of
investments. Proper consideration of an investment demands a careful analysis of costs and projections of
expectations for future cash flows.
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Consider the decision managers often face of whether to invest in a new factory plant or expand the existing
facilities. A choice might be to invest ₱1 million in a new production facility or spend ₱300,000 to expand a
production line. Each approach will have a different return on investment. So, which one should
management choose? The company's accountants will analyze the figures for each investment, calculate
the rate of return for each project and present their findings to management.
This is a situation where accounting procedures produce the relevant financial data that management
needs to make intelligent decisions. They also have to explore the various ways to finance these
investments. Decisions must always be backed up with valid facts and figures.

Accounting for Planning

Successful organizations create plans to achieve their objectives. These plans include cash flow
projections, sales planning, purchases of fixed assets and projecting inventory levels. An accounting
analysis of historical data will provide the basis for making forecasts and developing plans to meet those
targets.

Using Accounting Data for Budgeting

Budgets are essential to running a successful business. Accounting uses historical data to form the basis
for future budgets and cost controls. With this information, managers can prepare overhead expense
budgets and sales plans, and create cash flow projections. Then they monitor the regular accounting
reports to make sure costs stay within the budgets.

Cost Accounting for Products

Manufacturing companies use cost accounting to calculate the cost of making products, determine break-
even sales volumes and set optimum inventory levels. Managers need to know how much it costs to make
their products to develop pricing strategies that allow the company to make a reasonable profit.
An important responsibility of management is to control costs. However, to do this, managers must have
predetermined standard costs of operations to use as yardsticks for measurement.
Take, for example, a company that manufactures ceramic cups. The company's accountants have
determined that manufacturing costs for one cup include ₱10.00 in materials, ₱20.00 in labor and applied
production overhead of ₱5.00 per unit. The total cost of production for a ceramic cup is ₱35.00. The selling
price is ₱58.00, giving the company a gross profit margin of 40 percent.
With these figures in hand, management can monitor production costs on a weekly or monthly basis to
make sure the costs of production do not exceed these standards. If accounting reports show a discrepancy
above the intended cost of manufacturing, then management knows to step in, find the cause of the problem
and take corrective action.
Accurate accounting of manufacturing costs for each product is essential to the development of a sales
plan and a projected product mix. More than likely, each product will have a different gross profit
contribution, and management must establish sales goals for each item to reach the overall gross profit
level needed to cover overhead and produce the target net profit.
REFERENCES:
Ballada, W., & Ballada, S. (2007). Basic Accounting, Made Easy - 12th Edition. Manila: DomDane
Publishers & Made Easy Books.
https://www.investopedia.com/terms/a/accounting.asp
Shekhar, C. Introduction to accounting. Retrieved from: http://www.ddegjust.ac.in/studymaterial/bba/bba-
104.pdf
Woodruff, J. (2018, December 3). The role of accounting in business. Retrieved from Chron:
https://smallbusiness.chron.com/role-accounting-business-
459.html#:~:text=business%20steps%20in.-,The%20Role%20of%20Accounting,management%20and%2
0other%20interested%20parties.
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Course Code: EC1

INITAO COLLEGE Course Title: Intermediate Accounting and
Jampason, Initao, Misamis Oriental Business Application
1st Semester, S.Y. 2021 - 2022 Unit: 3 (Lecture)

Instructor: YOLLY FRANZ S. DADOLE, CPA Subject Schedule:

BSBA: Thursday 10:30-12:00
Mobile Number: 0917-178-0506 BSHM: Friday 10:30-12:00
Contact Schedule: M,T,W,Th and F; 8:00am - 5:00pm
Facebook Group Page:
EC1_Initao College 2021

MODULE 3: August 30 – September 3, 2021

Topic: Objectives of Financial Statements Desired Learning Outcome:
and its Underlying Assumptions  Demonstrate an understanding of the importance
of financial statements in doing business
Duration: 3 hrs.  Illustrate the meaning of accrual basis accounting

SPECIFIC INSTRUCTIONS FOR SUBMISSION

Answer essay in page 3. Do not use a separate sheet of paper. Answer directly from the sheet provided
and do not forget to write your personal information from the spaces given at the top. Deadline will be on
August 31, 2021.
INTRODUCTION
The framework, Framework for the Preparation and Presentation of Financial Statements, sets out
the concepts that underlie the preparation and presentation of financial statements for external users.
The framework is concerned with general-purpose financial statements (hereafter referred to as
“financial statements”). Such financial statements are prepared and presented at least annually and are
directed toward the common information needs of a wide range of users.
ABSTRACTION
Financial statements form part of the process of financial reporting. The framework applies to the financial
statements of all commercial, industrial and business reporting enterprises, whether in the public or the
private sectors.

ANALYSIS
OBJECTIVE OF FINANCIAL STATEMENTS
The objective of financial statements is to provide information about the financial position, performance,
and changes in financial position of an enterprise that is useful to a wide range of users in making
economic decisions.
Financial statements should meet the common needs of most users. However, financial statements do
not provide all the information that users may need to make economic decisions, since they largely portray
the financial effects of past events and do not necessarily provide non-financial information.
The classical notion of stewardship was focused on how the money and the other assets entrusted to the
steward (i.e. in previous times, a steward is the one employed by a large household or estate to manage
domestic concerns such as supervision of servants, collection of rents and keeping of accounts) by the
owner were used, and how much money the other assets were present at the end of the reporting period.
Financial statements also show the results of the stewardship of management, that is the accountability
of management for the resources entrusted to it by the owner(s).
The management of the enterprise has the primary responsibility for the preparation and presentation of
the financial statements of the enterprise. Information about the financial position is primarily provided in
a statement of financial position (or balance sheet). Information about performance is primarily in a
statement of comprehensive income and statement of changes in equity. Information on cash flows
is provided by the statement of cash flows.
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UNDERLYING ASSUMPTIONS:

Accrual Basis
The financial statements, except for the cash flow statement, are prepared on the accrual basis of
accounting in order to meet their objectives. Under the accrual basis, the effects of transactions and other
events are recognized when they occur and not as cash is received or paid. This means that the
accountant records revenues as they are earned and expenses as they are incurred. The timing of cash
flows is relatively immaterial for determining when to recognize revenues and expenses.

Financial statements prepared on the accrual basis inform users not only of past transactions involving
payment and receipt of cash, but also of obligations to pay cash in the future, and of resources that
represent cash to be received in the future. Generally accepted accounting principles require that a
business use the accrual basis.

In cash basis accounting however, the accountant does not record a transaction until cash is received
or paid. Generally. Cash receipts are treated as revenues and cash payments as expenses. Cash basis
income is the difference between operating cash receipts and disbursements. These cash flows
necessarily exclude investments by and distributions to the owner in the computation of income.

Illustration. A client paid the Sea Wind Resort in Boracay Island ₱7,000 on April 8, 2021 for a one-day
super deluxe accommodation on May 13, 2021. Under accrual basis of accounting, the receipt of ₱7,000
will be considered as revenues when the business has rendered its service on May 13.

In contrast, if cash basis is used, the hotel will recognize revenues on April 8. Expenses related to this
revenue transaction will be incurred on May 13. Suppose a financial report is prepared at the end of April,
under accrual basis, no revenue or expense will be reported; under cash basis, revenues of ₱7,000 will
be reported but the related expenses will be recognized when incurred on May 13. Observe that the
accrual basis provided a better measure of the results of transactions.

Going Concern

The financial statements are normally prepared on the assumption that an enterprise is a going concern
and will continue in operation for the foreseeable future. Hence, it is assumed that the enterprise has
neither the intention nor the need to liquidate or curtail materially the scale of its operations.

This assumption underlies the depreciation of assets over their useful lives. If an entity expects to liquidate
in the near future, its assets are valued at their worth at liquidation rather than original cost.
REFERENCE:
Ballada, W., & Ballada, S. (2007). Basic Accounting, Made Easy - 12th Edition. Manila: DomDane
Publishers & Made Easy Books.