LA VERDAD CHRISTIAN COLLEGE

LECTURE FOR FUNDAMENTALS OF

FINANCIAL ACCOUNTING
JANUARY 9, 2023
LA VERDAD CHRISTIAN COLLEGE
GAAP (Generally Accepted Accounting Principles) encompasses the
conventions, rules and procedures necessary to define accepted accounting
practice at a particular time.
Accounting principles which should be met:
1.Relevance - it results in information that is meaningful and useful to those
who need to know something about a certain organization
2.Objectivity – resulting information is not influenced by personal bias or
judgement of those who furnish it. It connotes reliability, trustworthiness and
verifiability which means that there is some way of finding out whether the
information is correct.
3.Feasibility – extent that it can be implemented without undue complexity or
cost .
Basic Principles that Accountants must rely upon in order that information
will be useful to the users of financial statements:
1. Historical cost - acquired assets should be recorded at the actual cost and
not at what management thinks that they are worth at reporting date.
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2. Revenue recognition principle - revenue should be recognized in the
accounting period when goods are delivered or services are rendered or
performed.
3. Expense recognition principle - expenses should be recognized in the
accounting period in which goods and services are used up to produce
revenue and not when the entity pays for those goods and services
4. Materiality - information should be significant enough to affect
evaluations and decisions depends the size and nature of the item.
5. Adequate disclosure - relevant information that will affect the users’
understanding and assessment of the entity should be disclosed in the financial
statements.
6. Objectivity - accounting records and statements are based on the most
reliable data which should be accurate, useful , supported by documented
evidences and not based on whims and opinions.
7. Consistency - entities should use the same accounting method from period
to period to achieve comparability. However , changes are permitted if
justifiable and disclosed in the financial statements .
LA VERDAD CHRISTIAN COLLEGE
SCOPE OF PRACTICE OF ACCOUNTANCY
1.Practice of public accountancy – to render professional service as a CPA or
render the following services : audit or verification of financial transactions
and accounting records; preparation, signing or certification for clients of
reports of audit of financial statements which are to be used for publication ,
credit purposes, to be filed with government agency or in courts or other legal
purposes .
2.Practice in Commerce and industry - person involved in decision making
requiring professional knowledge in the science of accounting or when such
employment or position requires that the holder thereof must be a CPA
3.Practice in Education/Academe- person in an educational institution which
involve teaching of accounting, auditing , management and advisory
services , business law and taxation and other related subjects.
4.Practice in government – position in an accounting professional group in
gov’t or gov’t controlled corporation when decision making requires
professional knowledge in accounting or where a civil service eligibility as a
CPA is a prerequisite.
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The CPA’s knowledge must cover the following:
1. General knowledge – competency in English language , adaptability to western
business practices, level of trainability and good capabilities in dealing with foreign
partners
2. Organizational and business knowledge - competence in administrative capability
and efficiency, decision modelling, risk analysis and management,
measurement and industry and sector perspective
3. Information technology – not only being conversant with IT concepts for business
system but sound knowledge on internal control in computer based systems,
development standards and practices, implementation and use of IT, evaluation of
computer business system and managing the security of information.
4. Accounting knowledge- competence in the following: basic accounting and
financial statement preparation and international accounting standards; advanced
financial accounting practices, advanced financial reporting principles, management
accounting – basic concepts, management accounting-information for planning,
decision making and control, taxation, business and commercial laws, fundamentals of
auditing and advanced concepts, business finance and financial management .
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The CPA’s skills to be developed are the following:
1. Intellectual - skills in analysis, problem solving , ability to carry out strategic and
critical thinking
2. Interpersonal - team player, with persuasion, confidence , diplomacy, discreetness,
open mind and patience, capability to work and ability to respond well to pressure
3. Communication – skills in verbal and written communication, can explain financial,
statistical , administrative matters at a level appropriate to the audience, ask clear,
concise and relevant questions to obtain desired information to perform a task and can
negotiate effectively.
The CPA should have the following values :
1.Professional ethics – to be able to work in the highest standards of professionalism ,
to conform with the ethical standards of the profession which are integrity, objectivity,
independence, professional competence and due care, confidentiality and professional
behaviour
2.Moral values - be able to discern between what is morally right or wrong.
LA VERDAD CHRISTIAN COLLEGE
Code of Ethics for Professional Accountants in the Philippines
1.Approved by the Phil. Institute of Certified Public Accountants (PICPA) and the
Professional Regulation Commission (PRC) and has been adopted by the Board of
Accountancy (BOA) as part of the rules and regulations of the BOA for the practice of
accountancy profession.
2.Note that this code is based on the revised code of ethics for professional
accountants developed by the International Federation of Accountants
(IFAC)
PICPA - one and only accredited and registered national professional organization of
registered and licensed CPAs which is a non profit corporation recognized by the BOA
and approved by the PRC.
PRC (Board of Accountancy) – supervise , controls and regulates the practice of
accountancy with authority and distinction with the tasks of standardizing and
regulating accounting education , conducting examinations for CPAs and maintaining
the rules of the practice and raising the standards to the very high level of excellence.
IFAC – international body representing all the major accountancy bodies in the world
to develop the high standards of professional accountants and enhance the quality of
services they provide.
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A professional accountant is required to observe the fundamental principles
of the Code of Ethics:
1.Integrity - should be honest in all professional and business relationships
which implies fair dealings and thruthfullness. No misleading or false
statement, statements are not done recklessly or no omissions or vague
information which will be misleading.
2.Objectivity – should not allow bias, conflict of interest or undue influence
of others to override business judgements
3.Professional competence and due care - should maintain professional
knowledge and skills to ensure that the client or employer receives
competent professional service . Exercise sound judgment in the performance
of service through attainment of continuing education and training .
4.Confidentiality- should respect the confidentiality of information and
should not disclose without proper authority to third parties unless there is a
legal or professional right to disclose
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5. Professional behaviour – should comply with relevant laws and regulations
and should avoid any action that discredits the profession. Should not
exaggerate claims for the services that they can offer, the qualifications they
possess or make unsubstantiated comparisons to the work of others.

Branches of Accounting :
1.Auditing – most significant service to the public which involves
independent examination of the fairness and reliability of the reports that
management submits to users outside the entity. The job of external auditors is
to protect the interests of the users of the financial statements . There are also
internal auditors who are employees of the entity but are independent of
accounting and other departments who perform routine tasks and checking of
accounting procedures and records.
2.Bookkeeping – collection of basic financial data , recording the data in the
books of accounts and ensuring the accuracy of each entry.
3.Financial Accounting - focus on recording of business transactions and
periodic preparation of reports on financial position and results of operation.
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4. Financial Management – setting of financial objectives , making plans ,
obtaining the finance needed to achieve the plans and and safeguarding the
financial resources of the entity.
5. Management Accounting - incorporates cost accounting data and adapts
them for specific decisions which management may be called upon to make.
6. Taxation- preparation of tax returns and the considerations of tax
consequences of proposed business transactions or alternative courses of
action.
7. Government accounting - identification of the sources and uses of
resources consistent with the provisions of city, municipal , provincial or
national laws. There is a need for the proper custody and disposition of these
funds since government collects and spends amount of public funds annually.
LA VERDAD CHRISTIAN COLLEGE
Distinction between Revenues and Receipts

This Year
Cash
Transactions Amount receipts Sales Revenues

1 Cash sales made this year 200,000.00 200,000.00 200,000.00

2 Credit sales made last year; cash received this year 300,000.00 300,000.00 -

3 Credit sales made this year; cash received this year 400,000.00 400,000.00 400,000.00

Credit sales made this year; cash to be received next

4 year 100,000.00 - 100,000.00

Total 1,000,000.00 900,000.00 700,000.00

LA VERDAD CHRISTIAN COLLEGE
ABC CO.
TRIAL BALANCE
AS OF DECEMBER 31, 2021
DEBIT CREDIT
CASH 31,000.00
ACCOUNTS RECEIVABLE 83,000.00
MERCHANDISE INVENTORY 627,000.00
PREPAID INSURANCE 54,000.00
OFFICE SUPPLIES 68,000.00
OFFICE EQUIPMENT 370,000.00
ACCUMULATED DEPRECIATION 50,000.00
ACCOUNTS PAYABLE 58,000.00
CAPITAL 517,000.00
WITHDRAWALS 87,000.00
SALES 2,675,000.00
SALES RETURNS AND ALLOWANCES 26,000.00
SALES DISCOUNT 23,000.00
PURCHASES 1,512,000.00
PURCHASES RETURNS AND ALLOWANCES 14,000.00
PURCHASES DISCOUNT 19,000.00
TRANSPORTATION IN 38,000.00
SALARIES EXPENSE 327,000.00
ADVERTISING EXPENSE 61,000.00
RENT EXPENSE 26,000.00
TOTALS 3,333,000.00 3,333,000.00

Additional information:
a. Merchandise inventory as of Dec. 31. 2018 was P532,000
b. Insurance coverage with premiums of P18,000 has expired /incurred durng the year
c. Depreciation for the year amonted to P25,000
d. Office supplies remaining at year end amounted to P15,000
e. Salaries of P9,000 have accrued as of Dec. 31, 2021

Required:
1. Prepare the worksheet
2. Prepare the income statement & balance sheet
3. Prepare the closing entries and post closing trial balance.