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1. Accounting a.

Information system that identifies, records and communicates the economic events
of an entity to interested users (‘language of business’) i. Identifying - involves selecting economic activities relevant to a particular entity ii. Recording - consists of keeping a systematic, chronological diary of events, measured in pesos and centavos, and events are classified and summarized iii. Communicating - information are accumulated, totaled and reported in a standardized way so as to make the financial information meaningful b. 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. 2. Users

a. Internal users - include managers and employees b. External users - include investors and creditors such as suppliers and banks
3. Luca Pacioli a. Italian Renaissance mathematician b. In 1494 text Summa de Arithmetica, Geometria, Proportione et Proportionalite, described a system to ensure that financial information was recorded efficiently and accurately (‘double entry bookkeeping’) Double-entry bookkeeping is based on the principle of dual aspect concept and principle of balance. Two effects are to be made - 1. value received and 2. value parted with 4. Bookkeeping vs. Accounting a. Bookkeeping - involves only the recording of economic events b. Accounting i. Financial accounting - provides information to internal and external users ii. Managerial accounting - concerned primarily with providing information to internal users 5. Ethics - standards of conduct by which actions are judged as right or wrong, honest and dishonest, fair or not fair a. Integrity - should be honest in performing services b. Objectivity and Independence - should be impartial and independent c. Professional Competence and Due Care - should have qualifications and technical skills d. Confidentiality - refrain from disclosing confidential information, except when authorized or legally obligated to do so e. Professional Behavior - should have discipline and honorable behavior

6. Generally accepted accounting principles (GAAP) - accounting rules that indicate how to
report economic events a. Philippine Financial Reporting Standards i. Philippine Financial Reporting Standards (PFRS) ii. Philippine Accounting Standards (PAS) iii. Philippine Interpretations b. Philippine Financial Reporting Standards for Small and Medium-sized Entities To achieve the goals of the business, internal users would need more detailed accounting financial information. Internal reports (product of managerial accounting) are usually prepared for the use of internal users. It does not need to comply with GAAP.
1_ACTBAS1_C41_K46 Term 1, AY 2011-12 1

Ownership is divided into transferrable shares 3. Examples are the financial statements. ‘Mutual agency’ . AY 2011-12 2 . Personally liable for all debts of the business 5. Fields of accounting profession and potential accounting careers a. Ability to acquire capital 7. Unlimited personal liability for the debts of the business 2. Heavy taxation b. Private (or managerial) accounting . Organized as a separate legal entity under corporation laws 2. Compliance to government regulations 9. Not-for-profit accounting i. Manufacturing 9. Types of business organizations a. Separation of ownership and management 8. Government accounting 8. law and auditing firms) 3. Owner is often the manager 2. Auditing ...g. Proprietorship (sole proprietorship) .business owned by one person 1. Accounting for entities needing financial reporting and control (e. Often service-type businesses (e.structured representation of the financial position and financial performance of an entity. schools) ii. Merchandising iii. hospitals. but accounting books are separately kept (‘economic entity assumption’) ii. Tax accounting v. Public accounting . No legal distinction between the owner and business. As to ownership i.g. Preparation is governed by GAAP. General accounting ii. Accounting information systems iv. Continuous life 5. Often small service-type businesses and retail stores is employed by the entity (‘Controller’) i. Corporation 1. Partnership . Relatively small amount of capital 4.External reports (product of financial accounting) are usually prepared for external users. Limited liability for shareholders 4. 7.examination of the financial statements by a certified public accountant (CPA) in order to express an opinion as to the fairness of presentation ii. Financial statements .business owned by at least two persons associated as partners 1. As to activity i. financial performance and cash flows of an entity that is useful to a wide range of users in 1_ACTBAS1_C41_K46 Term 1.offers expert service to the general public i.acts of the partners bind the partnership iii. Internal auditing c. No mutual agency 6. Taxation b. Budgeting iii. objective is to provide information about the financial position. Service ii.

Quantifiable . Statement of Financial Position (‘Balance Sheet’) b. expense is recognized regardless of when cash is paid 10.income is recognized in the accounting period in which it is earned 11. Materiality .Conservatism (prudence) . Board of Accountancy (BOA) .entity is separate from its owners (for fair presentation) 2.should be stated in terms of a unit of measure (Philippine peso) b.authorized by law to promulgate rules and regulations affecting the practice of accountancy 13. Time period . Accrual . Statement of Changes in Equity e.making economic decisions. Monetary unit a. Income Statement (‘Profit or Loss’) c.Philippine Institute of Certified Public Accountant (PICPA) 1. Reliability (objectivity) .entity is viewed as continuing in operations indefinitely in the absence of evidence to the contrary 6.purchasing power of peso is stable and any instability is insignificant (account for peso.uniform application of accounting methods from period to period. Stability of peso . Statement of Cash Flows regulating the practice of accountancy 11.quality of information is free of error and bias 5. not for changes in purchasing power) 3. AY 2011-12 3 .Professional Regulation Commission (PRC) 12.income is recognized when earned regardless of when cash is received. Consistency . Statement of Comprehensive Income d. Matching (expense recognition) .when in doubt.efforts (expense) should be matched with accomplishments (income) 12. Cost . also show the results of the management’s stewardship of the resources entrusted to it a. Notes to Financial Statements that make a difference to users should be disclosed 8.RA 9298 (‘Philippine Accountancy Act of 2004’) .indefinite life of the entity is subdivided into time periods or accounting 9. Accounting entity . Disclosure . Going concern . retain the presentation and classification of items in the financial statements from one period to the next (comparability .Income recognition . choose the least likely to overstate asset and income 1_ACTBAS1_C41_K46 Term 1.uniform application of accounting methods among entities in the same industry) 13.determining if an item is important enough to likely influence the decision of a user 7.assets should be recorded at cost (reliable) 4.

1_ACTBAS1_C41_K46 Term 1. AY 2011-12 4 .