INTRODUCTION TO ACCOUNTING
DEFINITION
 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 decision (ASC).
 Accounting is the process of identifying,
measuring, and communicating economic
information to permit informed judgments
and decisions by users of the information.
 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
at least of financial character and
interpreting the results thereof (ASC).
IMPORTANT ACTIVITIES
• Recording - recognition and non-recognition
of "accountable" events; analysis and
measurement
• Classifying - according to accounting
elements;
• Summarizing footing and cross-footing;
• Interpreting - communicating financial
results
BASIC PURPOSE OF ACCOUNTING
The basic purpose of accounting is to provide
quantitative information about a business,
that is useful to statement users in making
economic decisions.
ACCOUNTING AS A LANGUAGE OF BUSINESS
ACCOUNTING AREA AND REPORTS PREPARED
Managerial Reports Management
Financial Reports Stakeholders
Tax Reports Taxing Agencies
Special Reports Regulatory Agencies
BUSINESS
 Engages in buying and selling
 Concern is how to best use its resources
 Primary reason is to earn profit
BUSINESS RISK
The higher the risk, the higher the return
Anything riskier had the potential for much
greater returns than safer options
MINIMIZE BUSINESS RISK
1. Careful planning and control
2. Making a business plan
3. Adequate knowledge
4. Right form of business and right type
of operation
LEGAL FORMS OF BUSINESS ORGANIZATION
Sole or Single Proprietorship - a small service-
type business and retail establishments
managed by the manager who is also the
proprietor or owner.
Partnership - An agreement between two or
more persons who bind themselves to
contribute money, property, or industry into a
common fund with the intention of dividing
profits among themselves.
Corporation - an artificial being created by
operation of law having the right of succession
and the powers, attributes, and properties
expressly authorized by law or incident to its
existence.
SOLE PROPRIETORSHIP DISADVANTAGES

ADVANTAGES  Complexity in organization and

regulation.
 Easy to organize
 Only the Board of Directors and other
 Small capital is required
authorized officers can bind the
• Can be easily managed by the proprietor
corporation in contracts
• The owner gets all the profits from the
 Shareholders have limited access and
business
control over management and operations
• The owner and not the business is being
 Possibility of double taxation
taxed

DISADVANTAGES

 Difficult to expand
 Limited resources
 Limited specialization in business
management
 All losses are borne by the owner
 Unlimited liability

PARTNERSHIP

ADVANTAGES

 Better management because of the

presence of two or more participants
 Possibility of bigger resources TYPES OF BUSINESS ACTIVITIES
 Tax-exempt if professional partnership.
 Operating – earning profit by selling
DISADVANTAGES goods & services
 Investing - acquisition
 Conflicts or quarrels between or among  Financing - loans
the partners
 Unlimited liability USERS OF INFORMATION
 All partners may be held liable for the
1. Government
action of one partner
2. Managers
 Possibility of double taxation
3. Suppliers
CORPORATION 4. Customer
5. Creditor
ADVANTAGES 6. Employees
 Limited Liability 7. Investors
 Power of succession
 Greater source of capital
 Continuity
 Higher amount of profit
 OPC
 THE CONCEPTUAL FRAMEWORK OF
FINANCIAL REPORTING
PURPOSE
 assist the Philippine Accounting Standards
Board (Board) to develop PFRS Standards
(Standards) that are based on consistent
concepts;
 assist preparers to develop consistent
accounting policies when no Standard applies
to a particular transaction or other event, or
when Standard allows a choice of accounting
policy; and
 assist all parties to understand and interpret
the Standards.
SCOPE
1. Objective of financial reporting
2. Qualitative characteristics of useful
financial information
3. Financial statements and the reporting
entity
4. The Elements of the Financial Statements
5. Recognition and derecognition
6. Measurement
7. Presentation and disclosure
8. Concepts of capital and capital
maintenance
OBJECTIVE OF FINANCIAL REPORTING
The objective of general-purpose financial
reporting is to provide financial information
about the reporting entity that is useful to
existing and potential investors, lenders, and
other creditors in making decisions about
providing resources to the entity.
FINANCIAL INFORMATION
Profitability – result of operation, level of
income earned
Liquidity - availability of cash, short-term
payables, current obligations
Solvency – availability of cash for financial
commitments when they fall due
Relevance – capacity of information’s to
influence decisions
a. Materiality – based on good
judgement (professional, expertise)
b. Predictive Value – helps user increase
likelihood of correctly predicting
outcome of effects
c. Feedback Value – information
provides feedbacks about previous
evaluation
Faithful Representation – actual effects of
transactions should be properly presented
a. Completeness – accountant shall
disclose the material text known
b. Neutrality – free from bias
c. Free from error – no commission
ENHANCING ATTRIBUTES
 Comparability (between & across
entities) and Consistency (application
of accounting method between
period)
 Understandability
 Verifiability
 Timeliness
ACCOUNTING ASSUMPTIONS
 Business Entity Concept – separate to
owners
 Going Concern – continuing
indefinitely of operations
 Periodicity – divided into periods
 Monetary Unit – stated in terms of
unit measures (€)
THE ACCOUNTANCY PROFESSION
BACHELOR'S DEGREE PROGRAMS IN
ACCOUNTING
1. Bachelor of Science in Accountancy
 Assurance and Audit Services
 Requires passing of the CPALE
2. Bachelor of Science in Internal Auditing
 Audit of Systems and Operations
3. Bachelor of Science in Accounting
Information System
4. Bachelor of Science in Management
Accounting
ACCOUNTING COURSES
1. Financial Accounting and Reporting
2. Intermediate Accounting
3. Cost Accounting
4. Management Accounting
5. Auditing
6. Government and Non-Profit
Accounting
7. Tax Accounting
8. Forensic Accounting
CAREER OPPORTUNITIES IN ACCOUNTING
PRACTICE IN PUBLIC ACCOUNTING
 Be it his/her individual capacity, or as a
partner or as a staff member in an
accounting firm
 holding out himself/herself as one skilled
in the knowledge, science and practice of
accounting, and as a qualified person to
render professional services as a certified
public accountant; or offering or
rendering, or both, to more than one
client on a fee basis
PRACTICE IN PRIVATE ACCOUNTING
 One who is involved in decision making
requiring professional knowledge in the
science of accounting, as well as the
accounting aspects of finance or taxation
 One who represents his/her employer
before government agencies on tax and
other matters related to accounting
 One when such employment or position
requires the holder to be a CPA
employment of incumbents to this
position.
PRACTICE IN EDUCATION/ACADEME
 One who is in an educational
institution which involve teaching of
accounting, auditing, management
advisory services, accounting aspect
of finance, business law and taxation,
and other related subjects
PRACTICE IN GOVERNMENT
 One who holds or is appointed to, a
position in an accounting professional
group in government or in a
government-owned and/or
controlled corporation, including
those performing proprietary
functions, where decision making
requires professional knowledge in
the science of accounting
ETHICS AND THE ACCOUNTING PROFESSION
 Integrity
 Independence
 Confidentiality
 Competence
 Objectivity
PHILIPPINE ACCOUNTANCY ACT OF 2004 (RA 9298)
OBJECTIVES
 Accounting Education – standardization
and regulation
 Certified Public Accountants - examination
for registration
 Practice of Accountancy - supervision
control and regulation
PROFESSIONAL REGULATORY BODIES
1. Professional Regulation Commission (PRC)
 Maintaining and enforcing professional
examination
 Promulgating and implementing
standards and ethics in the practice of a
profession
 Providing legal and other regulatory
services such as hearing formal
complaints
 Acting on valid complaints by suspending
and revoking the license of an erring
professional
2. Board of Accountancy (BOA)
 To prescribe and adopt the rules and
regulations necessary for carrying out the
provisions of the Accountancy Act of
2004.
 To supervise the registration, licensure
and practice of accountancy in the
Philippines.
 To administer oaths in connection with
the administration of this Act.
 To adopt an official seal of the Board.
 To monitor the conditions affecting the
practice of accountancy in the
Philippines.
3. PHILIPPINE INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS (PICPA)
ACPAPP - Association of Certified Public
Accountants
ACPACI - Association of Certified Public
Accountants in Commerce Industry
GACPA - Government Association of
Certified Public Accountants
NACPAE - National Association of Certified
Public Accountants in Education
4. Securities and Exchange Commission (SEC)
5. Bangko Sentral ng Pilipinas (BSP)
6. Bureau of Internal Revenue (BIR)
STANDARD SETTING BODIES
1. Financial Reporting Standards Council
(FRSC)
2. Auditing and Assurance Standards
Council (AASC)
EDUCATION TECHNICAL COUNCIL
 Assist the PRBOA in carrying out its
powers and functions
 Further assist the PRBOA in the
attainment of the objective of
continuously upgrading the accountancy
education in the Philippines to make
Filipino CPAs globally competitive.
EXAMINATION, REGISTRATION AND
LICENSURE
Qualifications of Applicants for Examination:
1. Is a Filipino citizen.
2. Is of good moral character.
3. Is a holder of the degree of Bachelor
of Science in Accountancy conferred
by a school, college, academy or
institute duly recognized and/or
accredited by CHED or other
authorized government offices.
4. Has not been convicted of any
criminal offense involving moral
turpitude.
Rating in the Licensure Examination :
Passing - a weighted general average of
seventy five percent (75%), with no grade
lower than sixty five percent (65%) in any
given subject.
Conditional – a weighted average of
seventy five percent (75%) and above in at
least majority of subjects.
 Failed - a weighted average of below Cash or Check Vouchers – used when cash
seventy-five (75%). is paid or when check is issued.

Check – a negotiable instrument used as a

substitute for cash, the payment for which
is drawn against the entities or individual’s
BOARD SUBJECTS current account.

1. FINANCIAL ACCOUNTING AND Statement of Account – a bill

REPORTING represented to a customer for a service
2. ADVANCED FINANCIAL rendered or for a merchandise given for
ACCOUNTING AND REPORTING which payment is demandable.
MANAGEMENT SERVICES
Delivery Receipt – a document that is
3. AUDITING
typically signed by the receiver of a
4. REGULATORY FRAMEWORK FOR
shipment to indicate that they have in fact
BUSINESS TRANSACTIONS
received the item being shipped and have
5. TAXATION
taken possession of it.
THE ACCOUNTING CYCLE
1. Transaction Analysis JOURNAL
2. Recording (Journals)
3. Posting (Ledgers)  Book of Original Entry
4. Trial Balance  Where debits and credits of each
5. Worksheet & Adjustments account are recorded
6. Financial Statements chronologically day by day
7. Closing Entries  Simplest form is the “two-column
8. Post-Closing Entries general journal”
9. Reversing Entries  Entry made is called “Journal
Entry”

BUSINESS PAPERS = SOURCE PAPERS
Invoice – issued by a seller when a
merchandise is given to a client or
customer.
Billing Statement – issued by the seller
when a service is performed to a client or
customer.
Invoice & Billing Statement = Sales
Transaction
Collection Receipt / Official Receipt -
issued by the seller to the buyer as written
evidence of receipt of payment.
Billing statement << >> Official Receipt
Sales Invoice << >> Collection Receipt
POSTING (LEDGERS)
 Book of Final Entry
 Shows all the changes that took
place for a particular account
 The process of transferring from
journal to the ledger is called
“posting”
POSTING (T-ACCOUNTS)
 Account – a basic summary device
 Normal balance side
(assets, owner’s withdrawal, expenses =
debit) (liabilities, owner’s equity, income =
credit)
TRIAL BALANCE = SUMMARIZING MUST BE
BALANCE