Ave Maria College

SENIOR HIGH SCHOOL DEPARTMENT

School ID No. 402686 Gov’t Permit No. 0059 s. 2015
SS ABM G113- FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

LESSON 1: ACCOUNTING IN ACTION: AN INTRODUCTION

A. THE ACCOUNTANCY PROFESSION AND ITS DEVELOPMENT

1. The Accountancy Profession

Accountancy is not only one of the modest, less expensive but also the most prestigious profession in the land
today. Since it existed way back in 1923, it hardly gained recognition among the professions unlike medicine,
engineering and law. Accountancy is least known and unpopular because of the nature of services it accorded to
its clients which is handled with much needed "confidentiality". Aside from this, the profession becomes the
most feared of and dreaded of all, because it maintained the highest mortality rate among courses that require
board examinations.

Despite of the mortality rate problem, accountancy emerged as the most sought-after profession with the
tremendous growth and development of business in the country today. From a dismal 43 registered certified
public accountants in 1923 to approximately 128,000 as of today, the records of the Professional Regulation
Commission (PRC) showed.

The accountancy profession demands a quality of high standards performance at all times to the public it served.
Be it in government service, in commerce and industry or in the academe which requires integrity, competence,
due care and diligence in the performance of duty which are embodied in the Code of Ethics for CPAS. Much
more in public practice where the CPA should maintain a high degree of independence in mental attitude on
matters concerning the impartiality of financial reports and maintain secrecy of confidential information
because credibility of the profession is at stake in the performance of the "attest" function.

It is a welcome development to note that Accountancy is the first among the professions here in the Philippines
to be included under the World Trade Organization's (WTO) policy of liberalization of services. This means
that Filipino accountants will be freely competing with other accountants from other parts of the world in the
global field of accounting practice.

2. What Is an Accountant?

A Certified Public Accountant or a Professional Accountant is a holder of a baccalaureate degree in Bachelor

of Science in Accountancy (BSA), who has taken and passed the difficult and competitive licensure
examination for Certified Public Accountants and carries the title as "C.P.A. ", vested by the laws of the
Republic to practice Public Accounting in general under the supervision of the Professional Regulation
Commission.

The course in BS Accountancy replaces all business courses majoring in the subjects of accounting under the
old curriculum. So, those who have taken and passed the said examination are included in the above definition
of the profession.

In the past, has been the practice of private companies especially in areas where there are only few CPAS to
hire commerce-accounting graduates (under board) and offered the position as accountant or
bookkeeper/accountant although they are not, in the real sense of the word. This created confusion and misled
the public of what really is the role of a bookkeeper and a professional accountant.

At present, the Board of Accountancy employs strictness in the implementation of the standards and regulations
of the practice wherein it requires the registration of staff and partners of a CPA firm or we have to comply with
the accreditation requirements with both the Professional Regulation Commission and Board of Accountancy
before we can be allowed to practice public accountancy.

3. Basic Professional Values and Ethics

In general, the accountants should be able to recognize and understand ethical issues in order to achieve the
objectives of the accountancy profession which are as follows:

 Integrity- A professional accountant should be straightforward and honest in performing professional

services.

 Objectivity- A professional accountant should be fair and should not allow prejudice or bias, conflict of
interest or influence of others to override objectivity.

 Professional Competence and Due Care- A professional accountant should perform professional
services with due care, competence and diligence and has a continuing duty to maintain professional
knowledge and skill at a level required to ensure that a client or employer receives the advantage of
competent professional service based on up-to-date developments in practice, legislation and techniques.

 Confidentiality- A professional accountant should respect the confidentiality of information acquired

during the course of performing professional services and should not use or disclose any such
information without proper and specific authority or unless there is a legal or professional right or duty
to disclose.

 Professional Behavior- A professional accountant should act in a manner consistent with the good
reputation of the profession and refrain from any conduct which might bring discredit to the profession.
The obligation to refrain from any conduct which might bring discredit to the profession requires
professional organizations to consider, when developing ethical requirements, the responsibilities of a
professional accountant to clients, third parties, other members of the accountancy profession, staff,
employers, and the general public.

 Technical Standards- A professional accountant should carry out professional services in accordance
with the relevant technical and professional standards.

Professional accountants have a duty to carry out with care and skill, the instructions of the client or employer
insofar as they are compatible with the requirements of integrity, objectivity and, in the case of professional
accountants in public practice, independence. In addition, they should conform with the technical and
professional standards of the following:

 Board of Accountancy (BOA)/Professional Regulation (PRC);

 Financial Reporting Standards Council (FRSC);
 Relevant Legislation; Securities and Exchange Commission (SEC);
 Auditing and Assurance Standards Council (AASC)
 4. Core Competencies Framework for Accountants

It has been a problem in the past on how to bridge the gap between clientle companies' needs and what our
graduates from the academe can offer. A competency-based approach to the preparation of professionals offers
a systematic and effective way of bridging this gap.

A competency-based approach to education is one where the competencies, and skill sets required of a newly
admitted professional are identified through a formal process and are later validated by business and industry
and subject matter experts. Such identified competencies (or learner outcomes) have predetermined
performance measures for assessing skill acquisition.

The government has undertaken efforts to improve the entry-level qualification requirements for the Filipino
CPAS by releasing the well-defined set of competencies, Core Competency Framework for Entry to the
Philippine Accountancy Profession. The core competencies for accountants identify the knowledge, skill, and
professional values that new CPAs need to have in order to successfully face the challenges of today's changing
environment and the future.

The strategic goal is to produce technically competent and ethical professional accountants ready to compete
internationally. Hence, the higher education structure (which includes the curriculum and course syllabi) should
develop the following minimum core competencies:

Knowledge

The CPAS knowledge must cover:

General Knowledge- Of emphasis here are gaining an understanding of the different cultures in the world and
developing an international perspective. It is generally believed that the traits that will make our Filipino CPAS
prominent in the global marketplace are:

 competency in the English language (the lingua franca of business)

 adaptability to Western business practices
 level of training and
 good capabilities in dealing with foreign partners

Organizational and Business Knowledge- In addition to the core knowledge in areas such as economics,
quantitative methods and business statistics, organization behavior, marketing and operations management, the
CPA must be conversant of international business and have an understanding of how the global business system
works. He should also have an appreciation of the importance of ethics and corporate governance in business.
The CPA must demonstrate competence in the following:
 administrative capability and efficiency
 decision modeling
 risk analysis and management
 measurement
 industry and sector perspective

Information Technology (IT) Knowledge- This includes not only being conversant with IT concepts for
business system but sound knowledge on internal control in computer-based systems, development standards
and practices for business systems, management of the adoption, implementation and use of IT, evaluation of
computer business systems, and managing the security of information.

Accounting Knowledge- This 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 management accounting, recent tax laws, business and commercial laws. It also includes knowledge
of corporate finance and the Philippine capital markets, professional ethics and environmental accounting and
reporting. The CPA should demonstrate competence in the following:

 Basic Accounting and Preparation of Financial Statements, the Accounting Profession 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
 Auditing - Fundamentals
 Auditing Advanced Concepts
 Business Finance and Financial Management

Skills

The skills to be develop include:

Intellectual- This set of skills includes the ability to carry out abstract logical thinking and understand critical
thinking. It also includes creative thinking or the generation of new ideas; visualization or "seeing things in the
mind's eye", and reasoning skills or the discovery of a rule or principle underlying the relationship between two
or more objects and applying it when solving a problem. The CPA must demonstrate the following skills:
 Analysis
 Problem solving
 Strategic/critical thinking

Interpersonal- This involves developing the ability of CPAs to work in groups and being a team player. It
includes the skills to participate as member of a team and contributing to group effort; teaching others new
skills; working to satisfy clients' expectations; negotiation skills and working with diversity or working well
with men and women from diverse backgrounds. The CPA must demonstrate attributes such as:
 Being a team player
 Persuasion, confidence and diplomacy
 Discreetness, open mind and patience
 Capability for work and ability to respond well to pressure

Communication- This refers to active listening skills and the ability to communicate effectively one's points of
view, both orally and in writing, at all organization levels; being able to justify one's position, deliver powerful
presentations and to persuade and convince others. The CPA must demonstrate skills such as the ability to:
 verbally and/or in writing explain financial/statistical/administrative
matters/policies/procedures/regulatory matters/audit results at a level appropriate to the audience.
 ask clear, concise and relevant questions to obtain desired information to perform a task.
 Negotiate effectively.

Values

Values must concentrate on:

Professional Ethics- Since the objective of the accountancy profession are to work in accordance with the
highest standards of professionalism, to attain the higher level of performance and generally to meet the public
interest, the need for CPAS to conform to the ethical standards of the profession become vital. These include
integrity, objectivity and independence, professional competence and due care, confidentiality, and professional
behavior.

Moral Values- Beyond ethical rules, there is a need for CPAS to be able to discern between what is morally
right or wrong.

B. NATURE AND SCOPE OF ACCOUNTING

Definition of Accounting
The Accounting Standard Council (ASC) in its old Statement of Financial Accounting Standards (SFAS) No. 1
defines accounting as follows:
"It 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 decisions."
The American Accounting Association (AAA) which comprises primarily of accounting educators who
sponsored the Accounting Education Change Commission which currently is new and innovative ways to
enhance accounting education define accounting as follows:
“It is the process of identifying, measuring and communicating economic information to permit informed
judgments and decisions by users of the information."
The time-honored and widely accepted definition of accounting is the one formulated by the Committee on
Accounting Terminology of the American Institute of Certified Public Accountants (AICPA) which is the
largest organization of practicing accountants made the definition of accounting as follows:
"It is an art of recording, classifying, 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."
The definition made by the Committee on Accounting Terminology of the all CPA stands the test of time and
still holds true because it is tailored to fit exactly the elaboration of the steps of accounting process. The
definition mentions the four (4) functions of accounting which are recording, classifying, summarizing, and
interpreting. These are being outlined below:

Recording this is the function of accounting which involves the routine and mechanical process of writing
down the business transactions and events in the books of accounts in a chronological manner called
Journalizing.
Before business transactions and events could be recorded, firstly, they should be identified, analyzed and
measured. By identifying, we mean, there should be a basis of determining whether such were business
transactions or not. As a rule, only transactions with financial bearing to the business are recognized. By
analyzing we mean, that there should be a "dual effect". Normally the value received and the value parted with
of the transactions. By measuring, we mean the assigning of monetary values involved in a transaction. In the
Philippines, we used the peso as the common financial denominator.

Classifying this is the function of accounting which involves sorting or grouping of similar transactions and
events into their respective kind and classes. This is actually the process of transferring the entries from the
journal to the ledger called "Posting".
Summarizing this is the function of accounting which involves the completion of the financial statements and
the accounting requirements as well. This starts from striking of a trial balance, plotting down of adjusting
entries in the worksheet and the preparations of closing entries, post-closing trial balance and reversing entries.

Interpreting this is the function of accounting which involves the "and analytical and interpretative works. It is
then, that when financial statements are analyzed, interpreted and is communicated to those interested parties
where these could be of great help to management as a basis for making a sound decision.

Why Is Accounting Considered the "Language Of Business"?

The business and the owner or management are being separated and the financial statements became the "bridge
of communication" between them. We noticed that the financial statements prepared by the accountant were
used by the business as a tool to communicate to the owner or management and various users/decision-makers
who are interested about these activities such as investors, employees, lenders, suppliers, government agencies,
etc.

BRIDGING COMMUNICATION
through Financial Statements

Business Two Way Communication Various Users

Brief History of Accounting

Accounting has a long history. Some scholars claim that writing arose in order to record accounting
information. Account records, date back to the ancient civilizations (circa 4000BC) of China, Babylonia,
Greece, Egypt, and Mesopotamia. The rulers of these civilizations used ustri to keep track of the cost of labor
and materials used in building structures like he great pyramids (Horngren, Harrison and Robinson 1995).

Accounting developed as a result of the information needs of merchants in the city-states of Italy during the
1400s. In that commercial climate a monk named Luca Pacioli, a mathematician and friend of Leonardo da
Vinci, published the first known description of double-entry bookkeeping entitled Summa de Arithmetica,
Geometria, Proportioni et Proportionalite (Everything about Arithmetic, Geometry and Proportion), published
in Venice in November 1494. This book contained primarily principles of mathematics and incidentally set of
accounting procedures (Horngren, Harison and Robinson 1995).
The pace of accounting development increased during the Industrial revolution (1760-1840) as the economics of
developed countries began to mass-produce goods. Until that time, merchandise was priced based on manager’s
hunches about cost, but increased competition required merchants to adopt more sophisticated accounting
system.

During the early twentieth century, the growth of corporations especially those in the railroad and steel
industries, spurred the development of accounting. Corporate owners were no longer necessarily the managers
of their business. Managers had to create accounting systems to report to the owners how well their business
were doing.

Government played a role in leading more development in the field of accounting when it started using the
income tax. Accounting supplied the concept of income. Also, government at all levels has assumed expanded
roles in health, education, labor and economics planning. To ensure that the information that it uses to make
decisions is reliable, the government has required strict accountability in the business community.

At the beginning of the third millennium, there would still be a lot of developments in the field of accounting.
The great challenge of globalization and the effects of new technologies (e.g super computers, robotic)

C. BRANCHES/ FIELDS OF ACCOUNTING

A. Financial Accounting- a specialized branch of accounting that keeps track of a company’s financial
transactions. Using standardized guidelines (eg, the Philippine Financial Reporting Standards in the
Philippines of Generally Accepted Accounting Principles) the transactions are recorded, summarized
and presented in a financial report or financial statement. These statements that are prepare include
the (1) income statements; (2) statement of changes in equity; (3) statement of financial position; (4)
statement of cash flow; and (5) notes to financial statements.
B. Management Accounting- it defines management accounting as “a profession that involves
partnering in management decision making, devising, planning and performance management
systems, and providing expertise in financial reporting and control to assist management in the
formulation and implementation of an organization’s strategy.
C. Government Accounting- is somewhat different from commercial accounting. This branch of
noncommercial accounting takes into account collection of taxes, computation of National Income,
fixing a Gross National Products target, ascertaining the Balance of Payments, among others.
Government accounting has its own accounting system in which budgets and encumbrances form
parts of the accounts and assets which are restricted from specific purposes.
D. Auditing- the branch of accounting where the tasks include the review of a firm’s accounting
systems and financial statements to confirm that all these follow the Generally Accepted Accounting
Principles (GAAP) and prescribed standards. This reviewing/checking function is necessary for the
benefit of the business owners as well as for the government for taxation purposes. The auditing is
done by an independent auditor who is Certified Public Accountant. The objective of this task is to
provide an opinion on the sufficiency of financial and other control measures within the firm which
is communicated through an audit report. Audit is also conduced to evaluate and improve
effectiveness of the company’s risk management, control, and government processes.
 E. Tax Accounting- the branch of accounting that focuses on tax matters. This includes all
undertakings concerning tax computation, filing tax returns, and planning for future tax obligations.
F. Cost Accounting- a branch of accounting in which costs incurred by the firm in accomplishing its
objective or executing its various activities are collected, recorded, and classified.
G. Accounting Education- this is the branch of accounting more incline to the preparation for a
professional career in accountancy. Two elements may be considered when describing this-
experience and education. “Experience” is considered to be the practical accounting work and
“education” as comprising general together with the technical studies. In this description, the focus
would be the idea of learners learning, and learning is done through different activities directed in
gaining experience and expertise in preparation of a CPA career.
H. Accounting Research- this branch of accounting that is responsible for the development and
discovery if accounting concepts and practices. Accounting research is conducted by both
accounting education and practicing accountants. Academic accounting researches center different
areas of the accounting profession using a more scientific method in the study.

D. COMPETITIVE CAREER OPPORTUNITIES IN ACCOUNTING

1. Classification of Accounting Field

A. Public Accountants- are those who serve the general pubic and collect professional fees for their
work such as what doctor and lawyers do. Their works include auditing, income tax planning, and
preparation and management consulting. Those public accountants who have certain professional
requirements are designated as Certified Public Accountants.
B. Private Accountants- work for single business, e.g., PLDT, Meralco, Jollibee and among others.
Charitable organizations, educational institutions, and government employed private accountants.
Some accountants would pursue a career in education and research.

Ave Maria College

 SENIOR HIGH SCHOOL DEPARTMENT
School ID No. 402686 Gov’t Permit No. 0059 s. 2015
SS ABM G113- FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

NAME: ____________________________________________ SCORE: _____________

GRADE & STRAND: ________________________________ DATE: ______________

Activity No. 1- My Accounting Insights: A Photo Essay of Diverse Financial Practices in the Philippine
Industries

Instruction:

1. Think of at least five companies that operate within the Philippines;

2. From the five companies, select only three companies and it should not come from the same industry;
3. Explain their type of industries;
4. Identify and explain the branches of accounting being used by these companies; and
5. Prepare a 5–10-minute report to be presented in class documenting your research.
6. You may use a short size bondpaper.

Example:

“JOLLIBEE FOODS CORPORATION”

A. Industry: Fast Food

Jollibee Foods Corporation is a multinational fast-food chain based in the Philippines. It is one of
the largest and most successful fast-food chains in the country and has expanded its operations
globally. The company is not only engaged in selling fast food but has also diversified its menu
to cater to a wide range of tastes, including local Filipino flavors as well as international
offerings.

B. Accounting Branch:
1 Cost Accounting: Jollibee uses cost accounting to track and manage the costs associated with
producing its menu items. This includes the costs of raw materials, labor, and overhead. Cost
accounting helps the company determine the profitability of each menu item and identify areas
where cost efficiencies can be achieved.
2 Managerial Accounting: In the fast-food industry, managerial accounting is crucial for decision-
making. Jollibee uses managerial accounting to analyze and interpret financial information for
internal use. This includes budgeting, forecasting, and performance analysis. Managerial accountants
at Jollibee provide valuable insights to management for strategic planning, cost control, and
improving overall operational efficiency.