ADAMSON UNIVERSITY
COLLEGE OF BUSINESS ADMINISTRATION
ACCOUNTANCY DEPARTMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
COURSE MODULES
MODULE 1 : INTRODUCTION TO ACCOUNTING
A. Introduction to Accounting
1. Definition of 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 a financial
character and interpreting the results thereof.
Accounting is a service activity. Its functions is to provide quantitative information,
primarily financial in nature that is intended to be useful in making economic
decisions (Accounting Standards)
2. Purpose of Accounting
Is to supply financial information to users to help them make informed judgments
and better decision.
3. Fields of Accounting
Financial accounting
Focused on the recording of business transactions and the periodic
preparation of reports on financial position and results of operations.
Management accounting
Provides CPA advice to the businesses.
Cost accounting
Deals with the collection, allocation and control of the cost of
producing
specific goods and services.
Tax accounting
Includes the preparation of tax returns and the consideration of the
tax
consequences of proposed business transactions.
Government accounting
Is concerned with the identification of the sources and uses of
resources consistent with the provisions of city, municipal, provincial or
national laws.
4. Role of Accounting in Business
Accounting provides information for managers to use in operating the business.
Provides information to other users in assessing the economic performance and
condition of the business.
5. Users of Accounting Information
Primary users:
Investors – the providers of risk capital
Lenders – users who are interested in information that enables
them to
determine whether their loans and the interest will be paid when due.
Creditors – users who are interested in information that enables
them to
determine whether amounts owing to them will be paid when due.
Secondary Users:
Customers – users who have an interest in information about the
continuance of an enterprise especially when they are greatly
dependent on the enterprise or a long-term involvement with the
enterprise.
Government and their agencies – users who are interested in the
allocation
of resources and, therefore, the activities of the enterprise. They also
require information in order to regulate the activities of enterprises,
determine taxation policies.
Employees – they are interested in information about the stability
and
profitability of their employers and enables them to assess the ability
of the enterprise to provide remuneration, retirement benefits and
employment opportunities.
The public – users who are interested in information about the
substantial
contribution of the enterprise to the local economy – number of people
they employ, patronage of local suppliers, etc. Financial statements
may assist the public by providing information about the trends and
developments in the prosperity of the enterprise.
6. Nature of Business Organizations
Service business
Merchandising business or Trading Concern
Manufacturing business
7. Legal forms of business ownership
Sole proprietorship
Partnership
Corporations
Cooperatives
( DISCUSS HERE THE ADVANTAGES & DISADVANTAGES OF THE FORMS OF BUSINESS )
8. Sectors of the Accounting Practice
Public practice – individuals/firms that render independent professional accounting
services to the public such as:
a) Auditing – most common service being provided by CPAs. It involves the
independent examination of financial statements in order to express an opinion
on the fairness of these statements.
b) Tax services – preparation of tax returns.
c) Management consulting services – provides advisory/consulting services to
clients on matters of accounting, finance, business policies, organizational
procedures, product costing, etc.
Commerce and Industry
Education
Government
Basic accounting concepts
Business entity principles – that the business is considered distinct and separate from the
owners of the business
Matching principles – income and expense
Accrual basis – income is recognized when it is earned regardless of when cash is received.
Expenses are recognized when incurred, regardless of when cash is paid.
Stable monetary unit – for a business transaction to be included in the accounting records
and financial statements of the enterprise, it must be expressed in terms of a uniform means
of measurement, the Philippine peso.
Periodicity – the time period concept
Going concern – the financial statements are prepared on the assumption that an enterprise
is a going concern and will continue in operation for the foreseeable future.
Accounting standards – the Philippine Financial Reporting Standards (PFRS) constitute the generally
accepted accounting standards observed in the Philippines and includes the following:
Philippine Accounting Standards (PAS)
Philippine Financial Reporting Standards (PFRS)
Philippine Interpretations developed by the Philippine Interpretation Committee. (PIC)
The Conceptual Framework for Financial Reporting
The preparation and presentation of financial statements sets out the concepts that underlie
the preparation and presentation of financial statements for external users.
The Conceptual Framework deals with:
The objective of financial reporting
The qualitative characteristics of useful financial information.
The definition, recognition and measurement of the elements from which financial
statements are constructed
Concepts of capital and capital maintenance
Qualitative Characteristics of Useful Financial Information
Are the traits that determine whether an item of information is useful to users and are
classified into:
Fundamental qualitative characteristics - These are the characteristics that make
information useful to users and consist of the following:
Relevance – information is relevant if it can affect the decisions of users.
Predictive Value – if it can be used as an input to processes employed by
users to predict future outcomes.
Case Illustration 1: Predictive Value
ABC Company’s management is preparing the annual company budget for 2023. One of
the relevant sources of information for making the budget would be information
contained in the prior period financial statements (Financial Statement of 2022).
Confirmatory Value – if it confirms or changes previous evaluations or earlier
expectations of a financial statement user.
Case Illustration 2: Confirmatory Value
ABC Corporation manufactures and sells two hair products, Product A and Product B. after
long and careful study, ABC management decided to introduce a new product, Product C,
effective January 1, 2023. The financial statements of ABC Corporation for 2023, if
properly prepared and presented, can be used to confirm, whether the decision to
manufacture and market Product C is in accordance with expectations
Faithful representation
Information is faithfully represented if it is factual, meaning it represents the actual
effects of events that have taken place – completeness , neutrality, free from material
error.
Enhancing qualitative characteristics
These characteristics support the fundamental characteristics. They enhance
the usefulness of information and consists of the following:
Comparability – that which enables the users to identify and understand
similarities in, and differences among items.
Verifiability – means that different and knowledgeable and independent
observers could reach a consensus, although not necessarily complete
agreement, that the depiction of a particular event is faithfully
represented.
Timeliness – means that information is available to decision-makers in
time to be capable of influencing their decisions.
Understandability – information is made understandable by classifying,
characterizing and presenting it clearly and concisely.
END OF MODULE 1