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.

 service- whether physical or mental service

 quantitative- expressed in numbers
 economic entities- businesses and all who use resources. it does not mean that the
goal is only money
 accountant- who provides information, not decision-makers.
 {accountant are like nurses. mas magaling raw ang nurses kesa sa doctor. don't
belittle accountants}
 are psychological or sociological a part of accountants’ work? No. because emotions
are not relevant to them. If we cannot measure it financially, it is not in our control or
authority, unless there is a loss created.

ACCOUNTING is a process of identifying, measuring, recording, and communicating

economic information that is useful in making economic decisions.

 4 processes:
 identifying- what are the accountable events? accountable events are those that
have an impact on assets (resources e.g buildings, money, cars; liabilities e.g
obligations to pay loans; or equity (capital))
 measuring- assigning values to the accountable events. universal measurement on
PH is PHP. All principles and manners international are the same as ours just the
same monetary value. USD or other currencies are converted to PHP. we will not
measure who does not have an effect on assets, liabilities, and equity for example
fight, or insanity; but if he died at work it is a liability
 recording- writing in the accounting books journals, ledgers, until we make a financial
statement. FS is the output.
 communicating- we communicate the FS to the different users. we need to explain
with analysis and interpretation in order to make relevant economic decisions
 ACCOUNTING is a service activity and a process

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 or at least, of financial
character, and interpreting the results thereof.

 in journals or columnar books- right to left and pagsulat ng pera without comma
kapag accounting. baligtad kesa sa normal.
 Dr and Cr- debit left, credit right.
 left is always equal to the right.
 the art of recording is journalizing. transferring of information from the source
document (are evidence of the transaction, e.g, invoice, bills, etc) to the journal.
 classifying (posting)- putting together similar items. process of recording from the
journal to the ledger (e.g passbook of a bank).
 summarizing- making FS
 interpreting (communicating)
ACCOUNTING is an information system that measures, processes, and communicates
financial information about an economic entity

 system- has interrelated parts (the system is in the third definition of accounting
above)
 SD->Journal->Ledger->FS
ESSENTIAL ELEMENTS IN THE DEFINITION OF ACCOUNTING

1. IDENTIFYING- The accountant analyzes each business transaction and identifies whether
the transaction is an "accountable event" or "non-accountable event." This is because only
"accountable events' are recorded in the accounting books. "Non-accountable events" are
not recorded in the accounting books

2. MEASURING- the accountant assigns value or monetary equity using a common financial
denominator- the PHP

3. RECORDING- the accountant recognizes (records) the "accountable events" he has

identified CHRONOLOGICALLY in the journal. This process is called "journalizing." The
journal is called the "book of original entry"

4. CLASSIFYING- after journalizing, the accountant then classifies the effects of the event
on the accounts" (the group of assets, liabilities, equity)

 posting- journal to the ledger

 ledger the "book the second entry"

5. COMMUNICATING- at the end of each accounting period summarizes the info processed
in the accounting system in order to produce meaningful reports. Accounting information is
communicated to interested users through accounting reports, the most common form of
which is the financial statements

 there are 4 kinds of FS

6. INTERPRETING- the accountant analyze items in the FS to evaluate the liquidity,

profitability, solvency, and future growth of the business

 liquidity- the ability to pay current obligations, or liability in one year (e.g bills, short
term loans) (mahalaga sa investors)
 di lahat ng negosyo lahat ay mas cash (mga banko ang pinaka liquid)
 profitability (mahalaga sa investors)
 solvency- the ability to pay long term obligations (mahalaga sa business)
 future growth (interested ang mayaman na negosyante)
4 KINDS OF FINANCIAL SYSTEM

STATEMENT OF FINANCIAL POSITION (balance sheet)- financial condition. how is it? the
list of assets, liabilities and equities (they must be balanced)

 Accounting Equation -
 Assets = Liabilities + Equities
 Assets (resources controlled (not necessarily owned) by the business) = Liabilities
(obligations that are long-term or short-term) (it arises from the past transaction, you
will not get liabilities if you did not get the benefit, e.g. loaning to the bank, there are
no future liabilities) + Equities (invested capital, residual definition)
 Sa accounting di pwedeng pagbaligtarin ang liabilities at equities
 Assets can come from outside or from the owner itself inside
 Pwedeng walang liabilities

STATEMENT OF COMPREHENSIVE INCOME (Income Statement)- it shows the financial

performance of result of the operation of the company by deducting expenses from revenues
for a period of time)

 Revenue - Expenses = Net Income/Net Loss

 Net income if revenue is greater than expenses
 Net loss if revenue is lower than expenses
 open and close parentheses (not negative sign) if it is a net loss

STATEMENT OF CHANGES IN EQUITY- shows the changes in the components of the

owner's interest in the business for a period of time

 anong pwedeng gawin ng owner sa business

 4 components of the owner's interest:
 mag-invest
 mag-withdraw ng investment
 kunin ang net, income kunin or idagdag as investment
 recognize net loss, walang wiwithdrawin mababawasan ang capital ng owner
 inaanalyze ang profitability

STATEMENT OF CASH FLOWS- shows the cash inflows and cash outflows from the
operating, investing, and financing activities of the company

 Makikita ang lahat ng papasok at lalabas na pera na manggagaling sa operating (e.g

regular day to day or monthly activities e.g pagbabayad ng salary, utility bayad,
pagkuha ng revenues), investing (not necessarily regular, if it there is a need on the
company, this are the decisions to add or subtract in the company), and financing
(about the owner, if he will withdraw, invest, etc.) activities
 inaalyze ang cash and how was it dealt by the company
 FS are provided annually (traditional) pero pwede rin monthly, semi-annually, etc.
 Iooffer tong 4 as a whole sa mga users
 meron 5th FS ang Notes to Financial Statement (mga dagdag na hindi makikita sa
unang 4)
 Accounting as a service activity, process, art, and system
NATURE OF ACCOUNTING

-Accounting is a process with the basic purpose of providing quantitative information

about economic activities intended to be useful in making economic decisions.

-An accountant's role is to supply financial information to inform users for them to
make an informed judgment

 Hindi sa Accountant ang FS

 responsible and owner to FS are the managements
 accountant is a part of management but he/she is not the top management but only
involved in preparation of FS

-The essence therefore of accountants is decision-usefulness

-Accounting is the language of business

 it serves as the connection to different processes, and different departments in the

business because there is always a quantitative need for information

PRACTICES OF ACCOUNTANCY

1. PRACTICE IN PUBLIC - Auditor (his work starts after the work of an accountant the
accountant has no right to say with 100 percent accuracy his/her own work; an auditor must
be a CPA) the auditor will inspect if the accountant is in accordance the GAAP (Generally
Accepted Accounting Principles) he will make the Audited Financial Statements

 Taxations- helps in tax avoidance in a legal way

 Management advisory- the CPAs who give advice to the start-up businesses
 it is the certified financial statement of the Auditor

2. PRACTICE IN COMMERCE AND INDUSTRY (or private accounting)- the CPAs in private
accounting. non-CPA’s can be bookkeepers, but junior and senior accountants must be
CPAs

3. PRACTICE IN EDUCATION- CPAs who teach accountancy programs. BS in

Accountancy
4. PRACTICE IN GOVERNMENT- the CPAs in government from COA (Commission on
Audit) pinakapowerful, DBM (Department of Budget and Management), dumadaan dito. BOT
(Bureau of Treasury) naglalabas ng pera. Meron din sa NBI

 mataas ang salary sa government

 sa public (SGP the biggest auditing firm in the PH) (maraming overtime) naman ay
experiences
 pinakamababa ang salary sa education (kung love niyo ang accounting para
makacontribute)
 Only CPA or practiced accounting can operate in the PH
 It is in the Philippine Accountancy Act of 2004 RA 9298
BRIEF HISTORY OF ACCOUNTING

Fra Luca Pacioli the "Father of Accounting"

 the Father of double-entry recording system

 His book is Summa di Arithmetica....

Prior to 1981, GAAP is based on US-GAAP. But now, it is based on IFRSs (International
Financial Reporting Standards)
BRANCHES OF ACCOUNTING

2 Major Branches (Financial and Management Accounting)

-FINANCIAL ACCOUNTING- the product is general-purpose FS (kahit internal or external

magagamit)

 External users- he/she is outside the business, they do not have direct access to FS
(e.g creditors, investors, government, public, supplier, etc...)
 Internal users- the people inside the business who has direct access to the FS (e.g
management, and employees)

-MANAGEMENT ACCOUNTING- tailored only for management (only for internal users, i.e
management and employees)

 Owners pwedeng internal kapag sole or partner, pero kapag corporate ay external
users.
 As a general rule, owners are external users.

-GOVERNMENT ACCOUNTING

-AUDITING - you will give the credit to the accountant, you will approve the FS. you will
provide opinions.

 Independent Auditor's Report most common form of such opinions

 Businesses with gross quarterly revenues of 150,000 PHP

-TAX ACCOUNTING- preparations of tax returns,

 provides tax advice

 All businesses are required to file tax returns, but not all taxpayers
 Some taxpayers may require the professional advice of a tax practitioner regarding
the management of taxes.
 substituted filing- the company will be the one to pay the tax assigned by the
government

-COST ACCOUNTING- Analyses of costs of products or services

-ACCOUNTING EDUCATION - for teaching, only CPA's can teach accounting subjects
-ACCOUNTING RESEARCH- accounting research, magkasama karaniwan ang accounting
education

Internal Users- those who are directly involved in managing the business
e.g

 business owners
 board of directors
 managerial personnel

External Users- who don’t have direct access to FS

e.g

 existing and potential investors

 lenders
 government agencies
 public

{ASSIGNMENT WHO IS THE FIRST FILIPINO CPA?}