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