BATANGAS STATE UNIVERSITY – THE NATIONAL ENGINEERING UNIVERSITY

PABLO BORBON CAMPUS – MAIN 1

COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS, AND INTERNATIONAL HOSPITALITY MANAGEMENT
ACCOUNTANCY AND MANAGEMENT ACCOUNTING DEPARTMENT
BACHELOR OF SCIENCE IN ACCOUNTANCY
BLOCK 1101

ACC 101 – FINANCIAL ACCOUNTING AND REPORTING 1

Instructor: Prof. Wennie F. Medina, CPA, MBA

MODULE 1 – PART 1
ACCOUNTING AND ITS ENVIRONMENT

 The evolution of accounting

 The accounting profession
 The conceptual framework and business model
 Accounting concepts, conventions, standards and principles
 Business ethics
 Branches of accounting
 How accounting is applied to the three types of businesses-service, merchandising and manufacturing

INTRODUCTION

BUSINESS
The regular conduct of legal activities primarily intended to accumulate profit.
Obligation of the business to the society called corporate social responsibility.

Aside from profit motives, businesses also have responsibility toward the environment where they operate:
• Promote welfare of the employees, respect their rights, values and traditions
• Providing clean and safe working place.
• Sustaining a healthy environment
• Contribute taxes to the local and national government.

DEFINITION
What is Accounting?
• It is the language of business.
• It is an art of recording, classifying, and summarizing, in a significant manner, and in terms of money,
transactions, and events that are, at least, part of a financial character, and interpreting the results thereof.
(AICPA)
• It is a service activity.
• A system that measures business activities, processes information into reports and communicates results to
decision-makers.
• A process of identifying, measuring and communicating economic information to permit informed judgments
and decisions by users of accounting information.

EVOLUTION
I. PRIMITIVE ACCOUNTING
• The origin of record-keeping can be traced back as early as 8,500 B.C.
Proof: Archeologists have established
certain clay tokens-cones, disks, spheres and pellets found in Mesopotamia (modern Iraq) used as a medium of
exchange for commodities such as sheep, jugs of oil, bread or clothing.

• The tokens were sealed in clay balls called bullae and broken on delivery for checking of the shipment against
the invoice.
• Bullae is considered to be the first bill of lading
• Clay tablets replaced the tokens later.
• Account records date back to the ancient civilizations of China, Babylonia, Greece and Egypt, the initial stage
of record-keeping.

II. MIDDLE AGES

• During the 11th to the 13th centuries, Northern Italy’s literacy became widespread.
• Arabic numerals were used as a result of trade.
• The use of credit was prevalent and a semblance of international banking system was also functioning
• Development of a more formal account-keeping methods is attributed to the merchants and bankers of
Florence, Venice and Genoa in 13th to 15th centuries which soon gives rise to double-entry bookkeeping.
Proof:
Earliest evidence of business bookkeeping were bank ledger fragments of 1211 found in Florence, France and
transcribed by Pietro Santini in 1887.

• AMATINO MANUCCI – the inventor of double-entry bookkeeping., giving importance to the aspect of
financial control.

• LUCA PACIOLI-a Franciscan friar and mathematician, he is associated with the introduction of double-entry
bookkeeping through his books where he described what were prevalent accounting practices of the day.

• NICOLAS PETRI- the first person to group similar transactions in a separate record and enter the monthly
totals in the journal.

• BENJAMIN WORKMAN-published the first American accounting textbook, “The American Accountant”

III. INFORMATION AGE

Tremendous advances in information technology have revolutionized and necessarily bring changes to the field of
accounting.
Those tasks that are time-consuming when done manually can now be done with speed, consistency, precision and
reliability by computers.

• DAN BRINKLIN and BOB FRANKSTON – wrote VisiCalc for Apple II, the first electronic spreadsheet, a
business application for personal computer.

ASSOCIATION OF SOUTHEAST ASIAN NATIONS (ASEAN)

Established on August 8, 1967 in Bangkok, Thailand with then five (5) founding members Indonesia, Malaysia,
Philippines, Thailand and Singapore. Later, the following nations joined the group namely Brunei Darussalam,
Vietnam, Lao PDR, Myanmar and Cambodia.

VISION:
A stable, prosperous and highly competitive ASEAN Economic Region in which there is a free flow of goods,
services, investment and a freer flow of capital, equitable economic development and reduced poverty and socio-
economic disparities.
Pillars of ASEAN economic community (AIC)
A. SINGLE MARKET AND PRODUCTION BASE
 Are measures to ensure free flow of goods, services, investment, capital, skilled labor and priority
integration sector.
B. COMPETITIVE ECONOMIC REGION
 Actions on competition policy, consumer protection, intellectual property rights, infrastructure
development, taxation and e-commerce.
C. EQUITABLE ECONOMIC DEVELOPMENT
 SME development, an initiative for ASEAN integration.
D. INTEGRATION INTO THE GLOBAL ECONOMY
 Coherent approach towards external economic relations and enhanced participation in global supply
networks.

FUNDAMENTAL BUSINESS MODEL

THE BUSINESS MODE IS BUILT ON 5 ACTIVITIES

1. INVESTORS PROVIDE CAPITAL

 The cash investment will be deposited in the bank account of the business.
2. CASH CONVERTED INTO OTHER ASSET OR RESOURCES
 Other assets can be inventory for sale, equipment or to pay operating costs such as salaries, rentals, utilities.
3. RESOURCES ARE USED TO PRODUCE GOODS OR SERVICES
 The basis for producing products.
4. SALE OF PRODUCTS OR SERVICES
 The sale of products generates cash or receivable
5. CASH OR COLLECTED RECEIVABLE
 will be used to pay-off obligations, taxes, operating costs
 The remaining cash can be sent back to the cycle or reinvested (stage 2)
TYPES OF BUSINESS

TYPE ACTIVITY STRUCTURE EXAMPLES

SERVICES Selling people’s time Hiring skilled staff and Accounting firm, law
selling their time firm, service shops

TRADER/MERCHANDISING Buying and selling Buying range of raw Wholesaler

products materials or
Retailer
manufactured goods,
making them available
for sale to customers or
online delivery

MANUFACTURING Designing, Raw materials are Vehicle assembly

aggregating converted into finished
Construction
components and products using
assembling finished equipment and people Engineering
goods.
Food and drinks

Pharmaceuticals

RAW MATERIALS Growing or extracting Buying tract of land and Farming

raw materials using them to provide
Mining
raw materials
Oil

INFRASTRUCTURE Selling the utilization Buying and operating Transport (airlines,

of infrastructure assets; selling trains
occupancy often in
ferries, buses), Hotels,
combination of services
telecoms, sport facilities

FINANCIAL Receiving deposits, Accepts cash from depositors and Banks

lending and investing pay them interest, use deposit
Investment
money money to provide loans to
houses
borrowers, charging them fees and
higher interest rate than what the
depositors receive.

INSURANCE Pooling premiums of many Collects money from many Insurance

to meet claims of a few
customers to pay claims of the
insured due to losses. By accepting
the risk of a claim, more premium
income can be earned than claims
paid.
FORMS OF BUSINESS ORGANIZATIONS
A business can assume any of the three forms of business organization. The accounting procedures depends on which
form the business takes.

FORM CHARACTERISTICS OWNER

A. SOLE PROPRIETORSHIP • Single owner who also serves as the manager of Proprietor
the business.

• The owner receives all the profits of the business

and also absorbs all losses.

• Solely responsible for all the debts of the

business.

• Business affairs is separate and distinct from the

owners.

B. PARTNERSHIP • A business owned by two or more persons who Can have as many
contribute money, property or industry to a Partners as possible.
common fund with the intention of dividing
profits among themselves.

• Each partners is personally liable for the debts of

partnership

• Business affairs is separate and distinct from that

of the partners.

C. CORPORATION • A separate legal entity Share holders or

Stockholders
• An artificial being created by the operation of law

• With rights of succession,

• With powers, attributes expressly authorized by

law or incident to its existence.

• The stockholders are not personally liable to

corporate debts.
TYPES OF ORGANIZATIONAL ACTIVITIES
Business activities encompasses all economic activities that the company engages in for the purpose of making
PROFIT.

FINANCING ACTIVITIES INVESTING ACTIVITIES OPERATING ACTIVITIES

• Methods used in business to
obtain financial resources
from financial markets such
as sources of cash from
investors or banks and uses
of cash to pay dividends to
shareholders and payment
of loans.
• Include purchase sale of long-
term assets such as land,
equipment, buildings and
other resources needed to
produce goods and services
and selling these resources
when they are no longer
needed.
• The core activities of
the business directly
related to providing
its goods and services
to the market which
involves competing
with suppliers and
customers.

BASIC PHASES OF ACCOUNTING

• MEASURING AND RECORDING
 Business transactions before recording must be analyzed and measured or be expressed in terms of
money.
• CLASSIFYING
 Because of numerous data, recorded business transactions will be useful if it can be classified into
groups or categories, otherwise the resulting information will be of limited use.
• SUMMARIZING
 The results of classifying will be summarized in order to produce a good financial statement or
financial reports.
• INTERPRETING
 To evaluate the liquidity, solvency and profitability of the business organization the result of
summarization must be interpreted by interested parties.

FUNDAMENTAL CONCEPTS
ENTITY CONCEPT
• Business and owners are treated separately and its transactions should not be accounted for together because
the business stands apart from other organizations as a separate economic unit.
PERIODICITY CONCEPT
• Also known as time period assumption, periodicity allows an entity’s life to be subdivided into equal time
periods for reporting purposes and for timely information as a basis for making decisions.
STABLE MONETARY UNIT CONCEPT
• The Philippine peso is a reasonable unit of measure whose purchasing power is relatively stable overtime and
it ignores or disregards the effects of inflation in accounting records.
GOING CONCERN
• A fundamental principle in accounting which assumes that a reporting entity will continue in operation even
beyond the next accounting period and will continue its current plans, use its existing assets and meet its
financial obligations. That it has neither the intention to enter liquidation or cease trading.
CRITERIA FOR GENERAL ACCEPTANCE OF AN ACCOUNTING PRINCIPLES
RELEVANCE
 A principle has relevance if it results in information that is meaningful and useful to those who needs to know
something about a certain organization.
OBJECTIVITY
 A principle has objectivity if the resulting information is not influenced by the personal bias or judgment of
those who furnish it thus it connotes reliability and trustworthiness. It also connotes verifiability which means
that there is some way of finding out whether the information is correct.
FEASIBILITY
 A principle has feasibility to the extent that it can be implemented without undue complexity of cost. This
criteria often conflict with each other because in some cases the most relevant solution may be the least
objective and least feasible.

BASIC PRINCIPLES OF ACCOUNTING

A. OBJECTIVITY PRINCIPLE. Accounting records and statements should be based on the most reliable data
available which is verifiable and can be confirmed by independent observers.
B. HISTORICAL COST. States that acquired assets should be recorded at their actual cost and not at what
management thinks they are worth at a reporting date.
C. REVENUE RECOGNITION PRINCIPLE. A feature in accrual accounting which requires that revenue
must be recognized in the period it was realized or earned –not necessarily when cash is received.
D. EXPENSE RECOGNITION PRINCIPLE. States that expenses should be recognized at the time it was
incurred or used up to produce revenue and not at the time the entity paid for those goods and services.
E. ADEQUATE DISCLOSURE. Confirms that all essential information that would affect the user’s clear
understanding of company’s financial position must be disclosed in the financial statements.
F. MATERIALITY PRINCIPLE. Financial reporting is concerned with information that is significant enough
to affect evaluations and decisions. It depends on the size and nature of the item judged in the particular
circumstances of its omission.
G. CONSISTENCY. States that the firm should use the same accounting method from period to period to
achieve comparability overtime within a single enterprise

ACCOUNTANCY IN THE PHILIPPINES

• Accounting has been practiced in the Philippines. since the Spanish period but only on March 17, 1928, this
was formally recognized by the approval of Act No. 3105.
• Act. 3105 – “An act regulating the practice of Public Accounting; Creating the Board of Accountancy;
Providing for Examinations, Granting of Certificates and Registration of Certified Public Accountants; for the
Suspension or Revocation of Certificates; and Other Purposes”
• The profession has grown rapidly from 43 registered accountants in 1923 to more than 160,000 as of 2018
(Ballada,2018). New accountants are added to the roster every passing year.

PAST & PRESENT LUMINARIES OF THE ACCOUNTING PROFESSION

• Dr. Vicente Fabella. Became the first Filipino CPA in the U.S.
• Dr. Nicanor Reyes. Founder and first President of Far Eastern University (formerly Institute of Accountancy)
• Belen Enrile-Gutierrez. First Filipina CPA.
• Jaime Hernandez & Paciano Dizon. First and second Filipino Auditor Generales of Commission on Audit
(COA).
• Manuel Villar. Filipino tycoon, former Speaker of the House; Senate President.
• Washington Sycip. President of International Federation of Accountants; founder of SGV & Co., leading
accountancy firm in the country.
• Jose W. Diokno. Former Senator and Secretary of Justice.
• Alberto Romulo. Former Senator, Secretary of Foreign Affairs.
SCOPE OF PRACTICE
Rep. Act No. 9298 –known as the Philippine Accountancy Act of 2004 states that the practice of accountancy
shall include but not limited to:
• Practice of Public Accountancy
• Practice in Commerce & Industry
• Practice in Education / Academe
• Practice in Government

ACCOUNTING STANDARDS IN THE PHILIPPINES

ACCOUNTING STANDARDS COUNCIL-created by the Philippine Institute of Certified Public Accountants, the
official organization of CPA’s, whose mission is to establish and improve accounting standards that will generally be
accepted in the Philippines. It is composed of eight (8) members.
FINANCIAL REPORTING STANDARDS COUNCIL-the new accounting standard setting body as reflected in
Sec.9 (A) of the Accountancy Act of 2004. It is composed of fifteen (15) members with a chairman and fourteen (14)
representatives, all CPAs from different fields of practice or agencies.

ROLE OF ETHICS IN BUSINESS

BUSINESS ETHICS provide guidelines that businesses follow in terms of appropriate policies and practices
regarding controversial subjects including corporate governance, insider trading, bribery, discrimination, corporate
social responsibility and fiduciary responsibilities.

 The law set the tone for business ethics.

ETHICAL DILEMMA is a situation in which there is no obvious right or wrong decision but rather right answer.
Business is a good source of ethical dilemma because its primary purpose is for profit. There is no easy solution to
ethical dilemmas, we follow a process of ethical reasoning based on our own ethical standards.

COMMON ETHICAL DILEMMAS

• WHITE COLLAR CRIME. A fact of business life and should be on the lookout for it such as fraud,
embezzlement, theft of equipment and supplies, false insurance claims, bribery, kickbacks, and other schemes.
• WHISTLE BLOWING. Going to authorities or media with proof that a company is engage in wrong-doing.
• CONFLICTS OF INTEREST. Arise when a person must play two conflicting roles in a situation.
Example : nepotism , self-dealing, etc.
• FIDUCIARY RESPONSIBILITIES. In a relationship with client, a professional must put the interest of the
client first ahead of its own because of the significant trust the client placed in him and his professional
abilities.
• SEXUAL HARASSMENT. Unwanted repeated or aggressive sexual advances toward another usually
happened between a superior and a person of lower rank.
• DISCRIMINATION: The unjust or prejudicial treatment of different categories of people or things
especially on grounds of race, religion, ethnicity, age, sex, gender preferences and marital status.

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS

A professional accountant must observe the following fundamental principles:
 Integrity. Straightforward and honest in all professional and business relationships. It implies fair dealing
and truthfulness.
 Objectivity. Should not allow bias, conflict of interest or undue influence of others to override professional
or business judgments.
 Professional Competence and Due Care. Has duty to maintain professional knowledge and skill at a level
required to ensure that client or employer receives competent professional services which include exercise of
sound judgment.
  Diligence. Encompasses responsibility to act persistently in accordance with the requirements of an
assignment and in an effort to accomplish something.
 Confidentiality. Respect the confidentiality of information, not disclosing to third parties without proper or
specific authority.
 Professional behavior. Should comply with relevant laws and regulations and should not avoid any action
that discredits the profession.

BRANCHES OF ACCOUNTING
AUDITING
The independent examination that ensures fairness and reliability of the reports that management submits to
users of accounting information:
 Internal auditing – within the organization.
 External auditing – outside the business entity.
BOOKKEEPING
The routine task of recording financial transactions to the books of accounts as part of the process of
accounting in business and keeping its financial records.

FINANCIAL ACCOUNTING
The focus is on the recording of financial transactions and the periodic preparation of reports on financial
position and results of operations. It also applies to the preparation and subsequent publication of highly summarized
financial information to be used by management for planning and control purposes.

FINANCIAL MANAGEMENT
A new branch of accounting occupied by financial managers who are responsible for setting financial
objectives, obtaining the finances needed to achieve plans and generally safeguarding all the financial resources of the
entity. Financial managers are much more heavily involved in management and draws on a much wider range of
disciplines and relies more on non-financial data.

MANAGEMENT ACCOUNTING
The process of preparing reports about business operations that helps managers make short-term and long-
term decisions. It incorporates all types of financial and non-financial data from a wider range of sources. It
incorporates cost accounting data and adapts them for specific decisions.

TAXATION
Tax accounting is a structure of accounting methods focused on taxes rather than the appearance of public
financials statements. It includes preparation of tax returns and the consideration of the tax consequences of proposed
business transactions.

GOVERNMENT ACCOUNTING
Refers to the process of recording and management of all financial transactions incurred by the government
which includes income and expenditures. It is necessary to account proper custody of public funds and its disposition
because it involves huge amount.