FABM REVIEWER MIDTERM

MODULE 1 – INTRODUCTION TO ACCOUNTING
Accounting – system that measures business activities,
processes given information into reports, and communicates
findings to a decision makers. Accounting can be called an art,
because it requires skillful implementation of methods and
techniques.
STATEMENT OF CASH FLOWS – provide information about the
entity’s cash inflows and outflows resulting from its operating,
investing, and financing activities.
CORE COMPETENCIES OF THE ACCOUNTANT
COMMUNICATION SKILLS

ACCOUNTING PROCESSSES INFORMATION INTO REPORTS LEADERSHIP SKILLS

RECORDING, CLASSIFYING, SUMMARIZING STRATEGIC AND CRITICAL THINKING SKILLS

RECORDING – is writing down and keeping records ABILITTY TO FOCUS

ABILITY TO INTERPRET CONVERGING INFORMATION

BOOKKEEPERS – record and maintain the transaction records.

FINANCIAL STATEMENTS – type of financial reports, are formal ADEPTNESS WITH TECHNOLOGY
records of the financial activities of a business or the persons
involved in the business.
CORE VALUES OF ACCOUNTANT
NATURE OF ACCOUNTING
 COMPETENCE
LANGUAGE BUSINESS – it is the tool used to communicate
 CUNTINUING EDUCATION AND LIFELONG LEARNING
financial information to various parties interested in the
 OBJECTIVITY
financial status of an economic entity.
 INTEGRITY
ECONOMIC ENITY – is an organization that uses resources to
achieve its goals and objectives.
FUNDAMENTAL PRINCIPLES OF ACCOUNTING
FOR-PROFIT ENTITY – mainly operates to generate income or
profit.  INTEGITY
 OBJECTIVITY
NONPROFIT ENTITY – carries out charitable operations that do
 PROFESSIONAL COMPETENCE AND DUE CARE
not necessarily generate income.
 CONFIDENTIALLY
HISTORY AND ORIGIN OF ACCOUNTING  PROFESSIONAL BEHAVIOR
 TECHNICAL STANDARDS
LUCA PACIOLI – an Italian Mathematician and a friend of  PROFESIONAL SKEPTISM
Leonardo Da Vinci. Introduce the double – entry bookkeeping.
MODULE 2 – BRANCHES OF ACCOUNTING
FUNCTIONS OF ACCOUNTING IN BUSINESS
THE ACCOUNTANCY PROFESSION
STATEMENT OF FINANCIAL POSITIONS – this type of financial
statement is also called the balance sheet.  MASTERY OF A SPECIFIC INTELLECTUAL SKILL
THROUGH TRAINING AND EDUCATION
STATEMENT OF COMPREHENSIVE INCOME – this financial  COMPLIENCE AND ADHERENCE OF CPAs TO A
statement is also known as the profit and loss statement. COMMON CODE OF VALUES AND CONDUCT
ESTABLISHED BY THE PRC BOARD OF ACCOUNTANCY
STATEMENT OF CHANGES EQUITY – throughout the
organization’s existence, its capital changes as it receives  ACCEPTANCE OF DUTY TO SOCIETY AS A WHOLE
investments, generate income, or incurs losses.
SECTORS OF ACCOUNTING PRACTICE
1. PUBLIC PRACTICE – accountants provide different
business and accounting services to their clients.
 AUDITING – this is the common service offered by
CPAs.
 TAX PREPARATION – this involves providing help
to clients in complying with their tax obligations.
 MANAGEMENT CONSULTANCY – this involves
guiding business organization to help improve
their management procedures.
2. COMMERCE AND INDUSTRY
3. EDUCATION
4. GOVERNMENT
5. NONPROFIT
MAJOR BRANCHES OF ACCOUNTING
FINANCIAL ACCOUNTING – is primarily concerned with
recording, preparing, and presenting business transactions in
the form of financial statements to provide business owners a
picture of the financial performance.
COST ACCOUNTING – records and measures product cost only.
MANAGEMENT ACCOUNTING – is to provide reports and
information about business transactions to internal users.
OTHER FIELDS OR AREAS OF ACCOUNTING
TAX ACCOUNTING – is a special type of accounting that
focuses on taxes rather than on financial statements.
GOVERNMENT ACCOUNTING – is concerned with systematic
collecting, recording, summarizing, analyzing, and interpreting
of financial transactions related to the expenditures.
AUDITING – records are carefully examined to determine their
accuracy and fairness.
TWO TYPES OF AUDITING:
EXTERNAL AUDITING – refers to the examination of financial
records and statements in order to give an opinion as to the
compliance of a business organization’s accounting processes
with GAAP.
INTERNAL AUDITING – refers to the evaluation of the
adequacy and efficiency of the internal control structure of a
company by examining its policies and procedures.
ACCOUNTING EDUCATIONS – employs accountants as educator
and researchers.
FIDUCIARY ACCOUNTING – involves evaluation and handling of
accounts that are managed by an individual who has been
entrusted with guardianship and custody of a business owned
by another individual.
 RECEIVERSHIP – this refers to the removal of control of
the business or property from its owner.
 TRUST ACCOUNTING – this involves the administration
and management of funds by a trustee.
 ESTATE ACCOUNTING – refers to the presentation and
management of financial accounts by a person
administering the properties of an individual who has
passed away.
FORENSIC ACCOUNTING – The word forensic means that it has
something to do with the finding evidence that can be
presented in a court or can be used in the legal system.
FUND ACCOUNTING/ GRANT ACCOUNTING – Nonprofit
organizations, churches, and, in some instances, the
government, receive funds that have specific conditions or
requirements for compliance before they fully released to the
recipient entity.
ACCOUNTING RESEARCH – is a type of academic research that
focuses on the study of the effects of economic events on
accounting processes.
INTEGRATION OF INFORMATION TECHNOLOGY IN
ACCOUNTING
ADVANTAGE AND COMPUTERIZED ACCOUNTING
 SPEED
 ACCURACY
 EFFICIENCY
 ACCOUNTING DOCUMENT PRODUCTION
 UP-TO-DATE INFORMATION
 AVAILABILITY OF INFORMATION
 STAFF MOTIVATION REDUCED FRUSTRATION
MODULE 3 – USERS OF FINANCIAL INFORMATION
USERS – to provide information that is useful to parties inside
and outside the business or corporation.
EXTERNAL USERS – people outside the company
 CREDITORS
 INVESTOR
 GOVERNMENT AND TAX AUTHORITIES
  REGULATORY AGENCIES
 CUSTOMERS AND CONSUMERS
 LAWMAKERS AND ECONOMIC PLANNERS
 FUNDING AGENCY
TYPES OF FINANCIAL STATEMENTS
1. STATEMENT OF FINANCIAL POSITIONS – this presents the
entity’s assets, liabilities, and capital as of a given date.
2. STATEMENT OF COMPREHENSIVE INCOME – this shows
the financial performance of a business for a certain
period.
3. STATEMENT CHANGES IN EQUITY – tells how much of the
company’s net income.
4. STATEMENT OF CASH FLOWS – shows the sources or
inflows and uses or outflows of cash for a specific period
of time.
INTERNAL USERS – people within the company.
 OWNER
 MANAGERS
 EMPLOYEES AND TRADE UNIONS
TYPES OF INFORMATION NEEDED BY THE INTERNAL USERS
1. AUDITED FINANCIAL STEMENT – These validated financial
statements verify the accuracy of data presented.
2. INCOME TAX RETURNS -- the information from income
tax returns allows managers and owners to determine if
their taxes have been properly paid by the company and
examined by the BIR.
3. PURCHASE AND COST REPORTS – this data used as bases
in calculating the profit or loss of the company for a
period of time.
MODULE 4 – ACCOUNTING CONCEPTS AND PRINCIPLES
IASB – International Accounting Standards Board
IFRS – Financial Reporting Standards
ASSUMPTION OF GOING CONCERN – accountants prepare the
financial statements with the notion that the organization will
continue to exist in the future, unless evidence shows otherwise.
ACCOUNTING ENTITY CONCEPT – recognizes an economic or
business entity as an indivual accounting entity, separate from its
owners, managers, and employees.
MONETARY UNIT CONCEPT – business activities that are financial
in nature are recorded with the corresponding amounts
expressed in the country’s currency.
TIME PERIOD OD PERIODICITY CONCEPT – tells that the
business entity’s indefinite time of existence is divided into
time periods or accounting periods with equal lengths.
ACCRUAL BASIS – tells that revenue or income is recognized
when it is earned regardless of when cash was collected.
 REVENUE RECOGNITION PRINCIPLE – revenue or
income is the flow of asset from the sale goods and
services. Usually earned over time and may not be
received immediately.
 EXPENSE RECOGNITION PRINCIPLES – a good example
of the application of this principle is in telephone bills.
Subscriber received the bills with a specific future date
for payment.
 MATCHING PRINCIPLES – caused and effect
relationship between revenue and expenses.
- Materiality Concept
- Objectivity or Reliability Concept
- Cost Concept
- Conservatism Concept.
MODULE 5 – ACCOUNTING EQUATION
ASSET – refers to goods, services, and other resources that the
business entity acquired and have control over.
LIABILITIES – entity’s payable
CAPITAL – refers to the amount of equity of the business
owners.
EQUITY – is the resulting amount when the total assets are
subtracted from the total liabilities.
CAPITAL = ASSETS – LIABILITIES
LIABILITIES = ASSETS – CAPITAL