ACCOUNTING ENVIRONMENT AND FRAMEWORK - Delectus Personae (partnership is based on
trust and confidence. Being a partner is
HISTORY OF ACCOUNTING personal in nature.
Earliest bookkeeping records were used to track Examples: professional firms such as auditing firm, law firm
pyramids and places being constructed especially in
Babylonia (present-day Iraq) and Egypt. They recorded 2 TYPES OF PARTNERSHIP:
the number of slaves, materials used and number of
days for the work to be finished. General
15th Century - records were also kept at the trading ports Limited
of Greece where the number of days spent for a trading ADVANTAGES:
voyage were listed, together with the number and value
of cargoes loaded and unloaded for a particular voyage. - Easy to manage and attract clients
Servants are trusted by their merchant-masters for their - More efficient because of division of
asset and liabilities. responsibilities
1st accounting book written by Cotrugli in Naples - Additional source of income
Modern Double Entry Bookkeeping System – written by - Registered to Securitiesand
an Italian Mathematician Frater Luca Pacioli in his book Exchange Commission (SEC) but less
Summa de Aritmetica prepared in 1994. requirements
Bookkeeping in the Philippines – introduced by the - General Professional Partnership is not subjected
Spaniards and bookkeeper called Tenedor de Libro. to income tax
ACCOUNTING PROCESS DISADVANTAGES:
1. Analysing Business Transaction - No indefinite life
2. Recording Journal - Unlimited Liability
3. Classifying Entries in Ledger - Difficulty of transferring ownership
4. Preparing Unadjusted Trial Balance - Limitation in Raising Capital
5. Adjusting Entries (Journal and Ledger) 3. CORPORATON
6. Adjusted Trial Balance - Business Economic Entity (can conduct
7. Worksheet (optional) business by itself, enter into contracts, buy and
8. Preparing Financial Statements sell properties and stocks)
9. Closing Entries - Shareholders/Stockholders (owner of stock
10. Post-Closing Trial Balance corporation)
11. Reversing Entries - Board of Directors (BOD)(manages the
business and elected by shareholders)
FORMS OF BUSINESS - Incorporators (originally form the business)
1. SOLE PROPRIETORSHIP - *Incorporators can be stockholders but not all
- Managed by one person stockholders can be incorporators
- Registered to Department of Trade and - Old Law (it must be 5 to 15 incorporators)
Industry - Republic Act 11232 – The Revised Corporation
Code (allows one person to form a corporation
Examples: beauty parlours, dress shops, barbershops, bakers depending on the intentions)
- Juridical Person
ADVANTAGES: - By laws (policies and rules)
- Small amount of capital is needed - Two tier tax
- Can be managed easily by the proprietor ADVANTAGES:
- The owner gets all the profit
- Easy to form - More capital
- Can afford to hire experts
- Old Law (legal life of 50 years which can be renewed by
DISADVANTAGES: the SEC)
- Revised Corporation Code (unlimited life)
- Difficult to expand - More stable
- Indefinite life - Higher profits
- Unlimited liability - Limited Liability
2. PARTNERSHIP - Ease in transferring ownership
- Owned by two or more persons called partners
who contribute money, property and talent DISADVANTAGES:
into a common fund - Time and cost formation
- Purpose is to share profits among the partners - Subjected to more legal and tax requirements
- They signed an agreement - Abuse of power by the BOD that can affect the
- No maximum number of persons corporation
- Juridical Person (has its own personality under
the law)
NOTE: Cooperatives is not considered as business because its 1. Owner or Investor (The one who puts in capital)
intention is to help or for the benefit of their members and not to 2. Manager (responsible for running the business)
earn profits. 3. Lender or Creditor (assesses the paying ability of the
business borrower)
4. Supplier (offers goods or merchandise)
TYPES OF BUSINESS OPERATIONS 5. Government (investigates tax returns and assesses
truthfulness of the reported profit)
1) SERVICE BUSINESS - Provides service to their clients 6. Employee (assess the ability of the business to grant the
through the use of their skills demands of employees)
7. Customer (assesses the company’s ability to
Examples: beauty parlour, travel agency, internet shop, school, continuously supply the goods at the right price and
airlines, etc. right quality)
2) MERCHANDISING BUSINESS - Buys and sells good ACCOUNTING INFORMATION SYSTEM
Examples: shoe store, bookstore, drugstore, etc. 2 CLASSIFICATIONS
3) MANUFACTURING BUSINESS - Buy raw materials, - Measurement System (Processing Phase) (involves
processes this into finished goods and then sells to their analysing, measuring, recording, classifying and
customers summarizing)
Examples: shoe factories, food processors, etc. - Communication System (Reporting and Communicating
Phase) (involves the presentation of formal reports)
TYPES OF BUSINESS ACTIVITIES
PRINICPLES
1. OPERATING ACTIVITES
- Related to earnings of income by selling goods or For the AIS to be effective and efficient, five principles must be
services and by incurring expenses followed.
- Classified under Current Assets and Current Liabilities 1. Control Principle – firm must have good internal control.
2. INVESTING ACTIVITIES Internal Control – enumerated the methods and
- Acquisition of properties in land, furniture, machineries procedures necessary to monitor the activities of the
and equipment business and ensure the efficient operation.
- Classified under Non-Current Assets 2. Cost Benefit Principle – prescribes that the advantages
3. FINANCING ACTIVITIES enjoyed from installing the system must outweigh its
- Classified under Non-Current Liabilities and Owner’s cost.
Equity 3. Relevance Principle – information must be reported
ACCOUNTING - LANGUAGE BUSINESS OF THE BUSINESS promptly and the information must be useful to the
users to reach a conclusion and make a decision.
ACCOUNTING STANDARD COUNCIL 4. Comparability Principle – system designed to fir the
unique characteristics of the company.
- Accounting is a service activity which provides 5. Flexibility Principle – company’s system should allow for
quantitative information primarily financial in nature, unexpected changes.
about economic entities that is intended to be useful in
making economic decisions. TRANSACTION
COMMITTEE ON ACCOUNTING TERMINOLGY OF THE AMERICAN - an activity or event taking place in business which is
OF CERTIFIED PUCLIC ACCOUNTANTS expressed in terms of money
- Accounting is the art of recording, classifying and INPUT DEVICE
summarizing in a significant manner and in terms of
money, transactions and events which are in part at least - instrument used to record the data captured in the
of a financial character and interpreting the results documents
thereof. - data input can be manual or computerized, called a
journal entry.
AMERICAN ACCOUNTING ASSOCIATION
RECORDS
- Accounting is a process of identifying, measuring and
communicating economic information to permit - books of accounts that must be maintained by the
informed judgement and decisions by the users of accounting department
information. JOURNAL
USERS OF FINANCIAL INFORMATION - a book in which records/accounts are being recorded
Users of financial statements are called stakeholders. A LEDGER
stakeholder is a person or entity who has “stake” or interest in the
business. - it is a book where the data is organized and classified
into related groups and stored
These are the other stakeholders of the business.
METHODS
- procedure of processing captured data from the - CPAs who offers their services to the public for a fee
documents such as bookkeeping, auditing, accounting tax and
- accounting information is processed in a meaningful financial planning
manner by journalizing, classifying Auditor (external) – one who make an independent
examination or review of the financial records and
COMPONENTS OF ACCOUNTING renders an opinion as to the fairness of presentation of
1. IDENTIFYING FS
- Analytical component - Providing assurance services and quality of information
- Recognition or non-recognition of accountable events Tax Consultant – skilled in preparing tax returns in giving
- has an effect on assets, liabilities and equity advice concerning tax consequences on economic or
- economic Activities (external and internal transactions financial decisions made by a taxpayer
2. MEASURING Management Consultant – advices management on
- technical component many delicate issues such as analysis, design, review and
- assigning of peso amounts installation of an accounting information system, etc.
- historical cost (generally used), current cost, realizable II. Private Accounting/Industry Accounting
value, present value - Another filed where more accountants are employed
- They are employed as financial accountant, controller (as
*Assets should not be recorded more than its recoverable amount the highest position), budget officer, internal auditor,
electronic data processing head or cost accountant
3. COMMUNICATING III. Government Accounting
- formal component - Concern about the public funds
- preparing and distributing accounting reports to IV. Research and Education
potential users - Another career field where the accountant assumes
- language of business the role of researcher, teacher and reviewer
COMMUNICATION PROCESS AREAS OF ACCOUNTING
Recording/Journalizing
1. Basic Accounting or Bookkeeping
- Systematic maintenance of record through the use of
- activity of recording, classifying and summarizing
journal or journal entries
business transactions in a systematic manner.
- Single Entry or Double Entry
- procedural aspect of accounting
Classifying
- groupings or sorting through the use of general ledger in 2. Financial Accounting
their respective accounts - preparation and interpretation of financial statements
Summarizing intended for external users
- through financial reports/financial reports 3. Cost Accounting
Accounting Products: - deals with recording, classifying and summarizing the
- Statement of Financial Position (Balance Sheet) details of materials, labour and overhead necessary to
- Statement of Comprehensive Income/Other produce and sell a product or service
Comprehensive Income 4. Management Accounting
- Statement of Cash flows - deals with financial and non-financial information
- Statement of Changes in Equity primarily for managers and other internal users to assist
- Notes to Financial Statements them in planning, directing and controlling the affairs of
business
FINANCIAL REPORTS
- Accounting information are used to:
a) INCOME STATEMENT 1) evaluate performance, 2) determine, analyse and
- also called profit/loss; statement of earnings control cost and behaviour to achieve target profit, 3)
- reports the financial performance of the business prepare operating and capital budgets, and 4) design
- records the revenue and expenses incurred and install accounting info system
b) STATEMENT OF OWNER’S EQUITY 5. Auditing
- explains the activities for a period of time that caused - deals with the independent verification and examination
the owner’s equity to change of the accounting records for the purpose of giving
4 Activities: Investment, withdrawal/ recovery of capital, credibility to the FS
profit or loss 6. Government and Non-Profit Accounting
c) STATEMENT OF CASHFLOW - uses Fund Accounting
- shows what caused the change in cash - deals with the administration or use of public
- 3 kinds of Activities: Financing (investment of the owner community funds
and cash loan), investing (acquisition and sale of - more on how the funds are used to service the people
properties) and operating (revenues and expenses) rather than to earn profit
d) STATEMENT OF FINANCIAL POSITION
7. Tax Accounting
- formerly called Balance Sheet
- deals with tax matters affecting firms such as
- shows how healthy or robust the enterprise
partnership & corporation, etc.
CAREER OPPORTUNITES 8. Forensic Accounting
I. Public Accountancy
- new discipline which integrates accounting,
auditing, and investigative skills
- forensic accountant works as fraud examiner
- done by tracking down or reviewing financial
reports, papers and electronic trials
PROFESSIONAL REGULATORY BODIES
REPUBLIC ACT 9298 – PHILIPPINE ACCOUNTANCY ACT OF 2004
- enumerates the objectives of the profession and other
salient points including professional requirements for a
CPA to be accredited and allowed to practice.
PROFESSIONAL REGULATORY COMMISSION (PRC)
- government body in charge of regulating and licensing
the practice of a profession like accounting, medicine,
engineering, nursing, etc.
- FUNCTIONS: 1) maintaining and enforcing professional
examinations, 2) promulgating and implementing
standards and ethics in the practice of a profession, 3)
providing legal and other regulatory services and 4)
acting on valid complaints by suspending and revoking
license of an erring professional
BOARD OF ACCOUNTANCY (BOA)
- REPUBLIC ACT 3105 regulated on March 17,1978
- head of accountancy
- to set up and promulgate a set of professional standards
and ethics in the practice of the accounting profession
- composed of a chairman and six members appointed by
the President of the PH
- constantly monitors the practice of accountancy in the
PH
PUBLIC ACCOUNTANCY
- requires minimum of 3 years of meaningful experience
in any areas of public practice including taxation,
partnership or sole proprietorship, but not corporation
CONTINUING PROFESSIONAL DEVELOPMENT (CPD)
- units/ hours required for the renewal of license and
accreditation
- 15 units for renewal of license
- 120 units for renewal of accreditation
- CPD Act of 2007 gives the require units for one to renew
the Professional Identity Card
PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
(PICPA)
- first stablished in 1929
- considered the integrated national professional
organization of certified public accountants
- have the basic authority of setting up and implementing
rules vital to the accounting profession
SECURITIES AND EXCHANGE COMMISSION (SEC)
- established on October 26, 1936 under C.A. 83
- it is tasked to safeguard public interest specially
investors in the capital market