Accounting b.

Methods an organization uses to obtain

 is a system that measures business activities, financial resources
processes that information, and communicates it to 2. Investing Activities
decision-makers. a. Use capital from financing activities to
 Quantifies business communication acquire resources used in the
 The language of business transformation process
b. Long-term resources
As a service activity
 That provides quantitative financial information of An efficient business is one that provides goods
economic entities that are mainly useful in making and services at low-cost relative to their selling price.
economic decisions. An effective business is one that is successful in
As an information system providing goods and services demanded by the
 Measures, processes, communicates financial customers.
information about economic entities.
3. Operating Activities
a. Use of resources to market goods and
Chapter 2 services
e.g., Research and development
Types of Business
1. Services PURPOSE AND PHASES OF ACCOUNTING
2. Trader
3. Manufacture  Business transactions are economic activities in the
4. Raw Materials business.
5. Infrastructure  Recording historical events is a significant function
6. Financial of accounting.
7. Insurance  Accounts are produces to aid management in
planning, control, and decision making to comply
Forms of Business Organization with regulations.
1. Sole Proprietorship
a. Single owner, also the manager Accounting info must be used to express in terms of a
b. tend to be small service type common financial denominator – money
c. receives all profit
d. absorbs all losses Money – serves as a medium of exchange
e. solely responsible for debts – measure of value
f. distinct from the proprietor
2. Partnership a. Recognition issue – to decide when the
a. Two or more owners transaction occurred.
b. Each partner is personally liable for the b. Valuation issue – what value to place in the
debts transaction.
c. Partnership is a separate organization c. Classification issue – how the components of
from the owners the transaction should be classified.
3. Corporation
a. Owned by stockholders 1. To measure
b. Artificial created by law 2. To classify
c. Have right to succession o Classification reduces the effects of
d. Stockholders are not personally liable numerous transactions into useful
for the corporation’s debts groups or categories
e. Separate legal entity from the owners 3. To summarize
o Summarization of financial data is
ACTIVITIES IN BUSINESS ORGANIZATIONS achieved through the preparation of
financial statements.
1. Financing Activities 4. To interpret/ analyzed
a. Obtain resources used to produce
goods and services
 o 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.
Double-entry bookkeeping system
o For every debit (debet dare-should give) there
exist a credit (debet habere-should receive)
The memorandum
o the book where all transactions are recorded in
the currency in which they are conducted, at the
time they are conducted.
The Journal
o is the merchant’s private book.
o In one currency
o Chronological order
o Narrative form
The Ledger
o Alphabetical listings of all the business’s
accounts along with the running balance of each
particular account.
TWO MAIN SPECIALIZATIONS OF ACCOUNTING
1. Financial Accounting – concerned with the
supply of information to the owners of an entity
2. Management Accounting – which is concerned
with supply of information to the managers of an
entity.
FUNDAMENTAL CONCEPTS OF ACCOUNTING
1. Entity Concept
a. the owner and the business is separate.
2. Periodicity/Time Period Principle
a. financial statements should be divided
into specific time intervals
b. one accounting period (one year)
c. allows users of obtain timely information
to serve as basis on making decisions
about future activities
3. Stable Monetary Unit Concept
a. The use of single monetary unit where
the account should be reported.
4. Going Concern
a. It is assumed that the business will
continue in operation for the foreseeable
future.
GAAP (Generally Accepted Accounting Principles)
o The guidelines that are followed by accounting
practices.
o Encompass the conventions, rules and
procedures necessary to define accepted
accounting practice at a particular time.
o The acceptance of a principle depends on the
three criteria: relevance, objectivity, feasibility.
BASIC PRINCIPLES OF ACCOUNTING
1. Objectivity Principle
a. Accounting records are based on the most
reliable data available so that they will be
accurate and useful as possible
b. Financial statements should have supported
evidence.
2. Historical Cost
a. Acquired assets should be recorded at initial
price of purchase not what the management
thinks they are worth as of reporting date.
3. Revenue Recognition Principle
a. Revenue is to be recognized in the
accounting period when goods are
delivered, or services are rendered or
performed.
4. Expense Recognition Principle
a. Expenses should be recognized in the
accounting period in which goods and
services are used up to produce revenue
and not the entity pays for those goods and
services.
5. Adequate Disclosure
a. All relevant information that would affect the
user’s understanding and assessment of the
accounting entity should be disclosed or
recorded in the financial statements.
6. Materiality
a. Financial reporting is only concerned with
the information that is significant enough to
affect evaluations and decisions.
7. Consistency Principle
a. The firm should use the same accounting
method from period to period to achieve
comparability over time
b. Changes are permitted if justifiable and
disclosed in the financial statements.
THE SCOPE OF ACCOUNTANCY
1. Practice of Public Accounting
2. Practice in Commerce and Industry
3. Practice in Education/Academe
4. Practice in Government
 management accounting, recent tax laws
ACCOUNTING STANDARDS IN THE PHILIPPINES and business and commercial laws.
b. The CPA should demonstrate competence
November 18, 1981 in the following:
o The Philippine Institute of Certified Public i. Basic accounting
Accountants (PICPA) created the Accounting ii. Advanced Financial Accounting
Standards Council (ASC) to establish and Practices
improve accounting standards that will be iii. Advanced Financial Reporting
generally accepted in the Philippines. Principles
iv. Management Accounting Basic
PICPA – Philippine Institute of Certified Public Concepts
Accountants v. Management Accounting –
ASC – Accounting Standards Council information for planning, decision-
IASB – International Accounting Standards Board making and control
FASB – Financial Accounting Standards Board vi. Taxation, business and commercial
FRSC – Financial Reporting Standards Council laws
vii. Auditing – fundamentals
Republic Act No.9298 – Philippine Accountancy Act of viii. Auditing – Advanced Concepts
2004 ix. Business Finance and Financial
Management
CPA’s KNOWLEDGE CPA’s SKILLS

1. General Knowledge 1. Intellectual

a. Gaining an understanding of the different
cultures in the world and developing an
international perspective.
b. It is generally believed that the traits that will
make our Filipino CPAs Prominent in the
global marketplace are:
i. Competency in the English
language
ii. Adaptability to western business
practices
iii. Level of trainability
iv. Good capabilities in dealing with
foreign partners.
2. Organizational and Business Knowledge
a. CPA must be conversant of international
business and have an understanding of how
the global business system works.
3. Information Technology (IT) Knowledge
a. Conversant with IT concepts for business
systems and sound knowledge on internal
control in computer-based systems…
4. Accounting Knowledge
a. Includes core knowledge related to
accounting and related areas and must
include proficiency in the international
accounting and auditing standards, cost
management and the latest concepts in
a. Set of skills includes the ability to carry
out abstract logical thinking and
understand critical thinking
b. Includes creative thinking or the
generation of new ideas
c. Visualization or seeing things in the
mind’s eye
d. Reasoning skills or the discovery of a
rule of principle underlying the
relationship between two or more
objects and applying it when solving a
problem.
e. The CPA must demonstrate the
following skills:
i. Analysis
ii. Problem solving
iii. Strategic/critical thinking
2. Interpersonal
a. Developing the ability of CPAs to work
in groups and being a team player
b. Skills to participate as member of a
team and contributing to a group effort
c. Negotiation
i. Being a team player
ii. Persuasion, confidence and
diplomacy
iii. Discreetness, open mind and
patience
iv. Capability for work and ability to
respond well to pressure
3. Communication
 a. Active listening skills and the ability to
communicate effectively one’ point of
view, both orally and writing
i. Verbally and writing explain
results at a level appropriate to
the audience
ii. Ask clear, concise and relevant
questions to obtain desired
information to perform a task
iii. Negotiate effectively

CPA’s VALUES

1. Professional Ethics
a. To conform to the ethical standards of
the profession
i. Integrity
ii. Objectivity
iii. Independence
iv. Professional competence and
due care
v. Confidentiality
vi. Professional behavior
2. Moral Values
a. Discern between what is morally right or
wrong.

ROLE OF ETHICS IN BUSINESS

Ethics
o Is concerned with right and wrong and how
conduct should be judged to be good or bad

Business Ethics tells what is right or wrong in a business

situation, while professional ethics tells the same thing
regarding a profession