ACCOUNTING FUNDAMENTALS

The World of Accounting

INTRODUCTION

The word account in everyday language is often used as a substitute for an explanation or a report of certain actions or events. If you are
an employee, for example, you may have to explain to your employer just how you have been spending your time, or if you are a manager,
you may have to report to the owner on how the business is doing. In order to explain or to report, you, of course, have to remember what
you were doing or what happened. As it is not always easy to remember, you many need to keep some written record. In effect, such
records can be said to form the basis of a rudimentary accounting (or reporting) system.

Accounting has evolved, as in the case of medicine and law, in response to the social and economic needs of society. As business and
society become more complex accounting develops new concepts and techniques to meet the ever-increasing needs for financial
information. Without such information, many complex economic developments and social programs may never have been undertaken.

In a market economy, information helps decision-makers make informed choices regarding the allocation of scarce resources under their
control. When decision-makers are able to make well-informed decisions, resources are allocated in a way that better meets the needs
and goals of those within the market.

Accounting is relevant in all walks of life, and it is absolutely essential in the world of business. Accounting is the system that measures
business activities, processes that information into reports and communicates the results to decision-makers. For this reason, accounting is
called the language of business.

The task of learning accounting is very similar to the task of learning a new language. It is complicated by the fact that many words used in
accounting mean almost but not quite the same thing as the identical words mean in everyday, non-accounting usage. Some words in
accounting are really used in a different sense.

Accountants are the scorekeepers of business. Without accounting, a business couldn't function optimally; it wouldn't know whether it's
making a profit, and it wouldn't know its financial situation. Also, a sound understanding of this language will bring about a better
management of the financial aspects of living. Personal financial planning, education expenses, car amortization, business loans, income
taxes and investments are based on the information system that we call accounting.

DEFINITIONS OF ACCOUNTING

Accounting 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 (Statement of
Financial Accounting Standards No. 1, "Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises"
(Manila: Accounting Standards Council, 1983), par. 1).

Accounting is an information system that measures, processes and communicates financial information
about an economic entity (Statement of Financial Accounting Concepts No. 1, "Objectives of Financial Reporting by Business
Enterprises" (Norwalk, Conn.: Financial Accounting Standards Board, 1978), par. 9).

Accounting is the process of identifying, measuring and communicating economic information to permit
informed judgments and decisions by users of the information (American Accounting Association, "A Statement of
Basic Accounting Theory" (Evanston, lll: American Accounting Association, 1966), par. 1; Accounting Principles Board, Statement No. 4,
"Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises" (New York: AICPA, 1970), par, 40).

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 in character, and interpreting
the results thereof (American Institute of Certified Public Accountants, "Review and Resume", Accounting Terminology Bulletin No.
1 (New York: AICPA, 1953), par. 9).

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The Method of Venice

Luca Pacioli, a Franciscan friar and a celebrated mathematician is generally associated with the introduction of double-entry
bookkeeping. In 1494 he published his book, Summa de Arithmetica, Geometria, Proportioni et Proportionalita or
"Everything about Arithmetic, Geometry, Proportions and Proportionality," which includes, Particularis de Computis et
Scripturis or "Details of Calculation and Recording," describing double-entry bookkeeping. His treatise reflected the practices
of Venice at the time, which became known as the Method of Venice or the Italian method. Therefore, he did not invent
double-entry bookkeeping, but rather described what were prevalent accounting practices of the day.

Although Pacioli made no claim to developing the art of bookkeeping, he has been regarded as the father of double-entry
accounting. He stated that the purpose of bookkeeping was "to give the trader without delay information as to his assets and
liabilities." Pacioli also advised the computation of a periodic profit and the closing of the books. He said, "It is always good
to close the books each year, especially if you are in a partnership with others. Frequent accounting makes for long
friendship.”

This Italian bookkeeping prospered with the development of the commercial republics of Italy and the use of the double-
entry method in the fourteenth century.

Goethe, the famous German poet and dramatist, referred to double-entry bookkeeping as "one of the finest discoveries of
human intellect." Werner Sombart, an eminent economist-sociologist, believed that "double-entry bookkeeping is born of
the same spirit as the system of Galileo and Newton."

Pacioli's Double-Entry Bookkeeping

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Modern bookkeeping systems are still based on principles established in the 15 century, although they have had to be
adapted to suit modern conditions.

Why has a recording system devised in medieval times lasted for so long? There are two main reasons:
1. It provides an accurate record of what has happened to a business over specified period of time; and
2. Information extracted from the system can help the owner or the manager operate the business much more
effectively.

In essence, the system provides the answers to three basic questions which owners want to know:
1. What profit has the business made?
2. How much does the business owe?
3. How much is owed to it?

A traditional bookkeeping system did not have to deal with situations where owners were separated from managers. It was
designed largely to supply summarized information only to the owner-managers of a business who knew in detail from their
own experience what was going on. The system was not intended to cope with frequent day-to-day reporting remote from
production or trading operations.

As a result, Pacioli's system had to be adapted for modern business practice so that it can satisfy the demand for information
from two main sources:
1. from owners, who want to know from time to time how the business is doing; and
2. from the managers, who need information in order to help plan and control it.

Owners and managers do not necessarily require the same information and so based on this accounting has developed into
two main specializations:

1. Financial Accounting, which is concerned with the supply of information to the owners of an entity; and
2. Management Accounting, which is concerned with the supply of information to the managers of an entity.

While it is useful to classify accounting into these two broad categories, accountants are now involved in supplying
information to a wide range of other interested parties, such as customers, employees, governments and their agencies,
investors, lenders the public and suppliers and other trade creditors.
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ACCOUNTING AND THE NON-ACCOUNTANT

It is true that in many organizations there is now a large proportion of paperwork. It can get out of hand, but usually there is
a reason behind it all. A great deal of information that is collected may, for example, be required by law. Some entities have
a statutory obligation to publish, i.e. to make available for public inspection, a certain amount of information about their
affairs. This process requires a considerable amount of material to be collected about an entity's activities before it can be
summarized in a form suitable for publication. In the previous section, we referred to this process as financial accounting. As
a manager, it may be somewhat tiresome for you to be become involved in financial accounting, but if the entity is to comply
with the law you have no option.

However, unless you are at a very senior level in the entity, it is unlikely that as a non-accountant you will be directly
involved in the detailed preparation of the financial accounts. You may have to supply some information, but you will
probably not be involved to any great extent. Until you become a senior manager, the type of information that you have to
provide is more likely to be needed for management accounting purposes.

There are two main reasons why you should study accounting:

1. To make sure that you follow legal requirements. As we have seen, some organizations are required by law to
disclose publicly information about their activities. The required information is inevitably complex, it is normally
written in a strange technical language, and it is often presented in a highly prescribed format. The responsibility for
complying with the law rests ultimately with the senior management of the organization. While the accountant may
help with the detailed preparation of the accounts, the overall responsibility cannot be delegated to them. It follows
that any non-accountant who aspires to be a senior manager cannot avoid having to know something about this
process; and

2. To help you do a better job. Larger organizations almost certainly have some form of detailed internal information
supply. You may be involved in both supplying and receiving it. Its purpose is to help you and other managers do
your respective jobs much more efficiently and effectively. It is supposed to help you plan your department's
activities, to monitor and to control them, and to provide additional information about decisions you have to take
about your department's affairs. This will often be translated and reported to you in financial terms (although you
will also receive some non-financial information). It will not mean anything and you will not be able to use it if you
do not understand it. Furthermore, you certainly will not have been able to contribute to the development of the
information system so that it is of particular benefit to you.

Characteristics of the Accountancy Profession

Accountancy qualifies as a profession because it possesses the following attributes:

 All members of the accountancy profession are Certified Public Accountants, which means that they have earned a
Bachelor of Science in Accountancy degree and have passed the CPA Licensure Examinations.

 CPAs have their own body of language. They use terminology peculiar to the profession (e.g. debits and credits).

 CPAs adhere to a Code of Ethics. This code upholds the CPA’s responsibility to serve the public with competence and
integrity. The public, in return, expresses its confidence to CPAs by relying on the financial statements they audit.

 Like other professions, CPAs are members of a national organization, the PICPA, whose role is to ensure the continued
improvement of the accountancy profession to meet the demands of the times.

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Scope of Practice

Republic Act No. 9298, known as the Philippine Accountancy Act of 2004 was signed into law by President Gloria Macapagal-
Arroyo on May 13, 2004. This law repealed Presidential Decree No. 692, the Revised Accountancy Law, which was enacted
May 5, 1975. The new law provides that the practice of accountancy shall include, but not be limited to, the following:

1. Practice of Public Accountancy - shall constitute in a person, be it his/her individual capacity, or as a partner or as a
staff member in an accounting or auditing firm, holding out individual himself/herself as one skilled in the knowledge,
science and practice of accounting, and as a qualified person to render professional services as a certified public
accountant (CPA); or offering or rendering, or both, to more than one client on a fee basis or otherwise, services such
as:
 the audit or verification of financial transaction and accounting records; or
 the preparation, signing, or certification for clients of reports of audit, balance sheet, and other financial, accounting
and related schedules, exhibits, statements or reports which are to be used for publication or for credit purposes, or
to be filed with a court or government agency, or to be used for any other purpose; or
 the design, installation, and revision of accounting system; or
 the preparation of income tax returns when related to accounting procedures or
 when he/she represents clients before government agencies on tax and other matters related to accounting or
renders professional assistance in matters relating to accounting procedures and the recording and presentation of
financial facts or data.

2. Practice in Commerce and Industry - shall constitute in a 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 certified public accountant.

3. Practice in Education/Academe - shall constitute in a person in an educational institution which involve teaching of
accounting, auditing, management advisory services, finance, business law, taxation, and other technically related
subjects: Provided, That members of the Integrated Bar the Philippines (IBP) may be allowed to teach business law and
taxation subjects.

4. Practice in Government - shall constitute in a person who holds, or is appointed to, a position in an accounting
professional group in government or in a government-owned and/or corporation, including those performing
proprietary functions, where decision making requires professional knowledge in the science of accounting, or where a
civil service eligibility as a certified public accountant is a prerequisite.

Code of Ethics for Philippine CPAs

A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest.
Therefore, a professional accountant's responsibility is not exclusively to satisfy the needs of an individual client or
employer. In acting in the public interest a professional accountant should observe and comply with the ethical requirements
of the Code. A professional accountant is defined as “an individual who holds a valid certificate issued by the Board of
Accountancy (Certified Public Accountant), whether he/she be in public practice, industry, commerce, the public sector or
education." Some portions of the Code of Ethics are as follows:

Fundamental Principles
A professional accountant is required to observe the following fundamental principles:

Integrity - A professional accountant should be straightforward and honest in all professional and business
relationships. Integrity also implies fair dealing and truthfulness.

A professional accountant should not be associated with reports, return communications or other information where
they believe that the information:
 Contains a materially false or misleading statement;
 Contains statements or information furnished recklessly; or
 Omits or obscures information required to be included where such omission or obscurity would be misleading.
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 Objectivity - A professional accountant should not allow bias, conflict of interest or undue influence to override
professional or business judgments.

Professional Competence and Due Care - A professional accountant has a continuing duty to maintain professional
knowledge and skill at the level required to ensure that a client or employer receives competent professional service
based on current developments in practice, legislation and techniques.

Competent professional service requires the exercise of sound judgment in applying professional competence and skill
in the performance of such service. Professional competence may be divided into two separate phases:

 Attainment of professional competence.

 Maintenance of professional competence.

Diligence encompasses the responsibility to act in accordance with the requirements of an assignment, carefully,
thoroughly and on a timely basis. A professional accountant should take steps to ensure that those working under the
professional accountant's authority in a professional capacity have appropriate training and supervision.

Confidentiality - A professional accountant should respect the confidentiality of information acquired a result of
professional and business relationships and should not disclose any such information to third parties without proper
and specific authority unless there is a legal or professional right or duty to disclose. Confidential information acquired
as a result of professional and business relationships should not be used for the personal advantage of the professional
accountant or third parties.

Professional Behavior - A professional accountant should comply with relevant laws and regulations and should avoid
any action that discredits the profession.

In marketing and promoting themselves and their work, professional accountants should not bring the profession into
disrepute. Professional accountants should be honest and truthful and should not: make exaggerated claims for the
services they are able to offer, the qualifications they possess, or experience they have gained; or make disparaging
references or unsubstantiated comparisons to the work of others.

ROLE OF ETHICS IN BUSINESS

Ethics is concerned with right and wrong and how conduct should be judged to be good or bad. It is about how we should
live our lives and, in particular, how we should behave towards other people. It is therefore relevant to all forms of human
activity.

Business ethics tells what is right or wrong in a business situation, while professional ethics tells the same thing regarding a
profession. Ethical conflicts can arise, however, when what might be best for the entity is wrong morally or professionally.

Ethical Dilemma
Ethical dilemma, by definition, is a situation in which there is no obvious right or wrong decision but rather a right or right
answer.

Business is a good source of ethical dilemmas because its primary purpose is to make a profit. It is a constant search for
potential advantage over others such that business persons are under pressure to do whatever yields such advantage. It is
fundamental that business consciously apply ethical rules in its decision process to avoid potentially undesirable situations.

There are no easy answers to ethical dilemmas. When we are attempting to solve an ethical dilemma, we follow a process of
ethical reasoning. We look at the information available to us and draw conclusions based on that information in relation to
our own ethical standards. An individual must have a well-developed conscience and must do what the conscience tell is
right. Individual factors, organizational relationships and opportunity interact to determine ethical decisions in business. In
its simplest way, an ethical problem can be solved in three basic steps: analyze the consequences, analyze the actions, and
make a decision.
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Sometimes when faced with limited information and therefore, without any alternatives, the "sleep-test ethics" can be help.
In Defining Moments, by Joseph Badaracco Jr., sleep test is supposed to tell people whether or not they have made a morally
sound decision. A person who made a right choice can sleep soundly after making the decision. It anchors its belief on the
idea that people should rely on their personal insights, feelings and instincts when faced with a difficult problem. It is the
ethics of intuition

ACCOUNTING STANDARDS IN THE PHILIPPINES

Accounting standards are authoritative statements of how particular types of transaction and other events should be
reflected in financial statements. Accordingly, compliance with accounting standards will normally be necessary for the fair
presentation of financial statements.

Accounting Standards Council (ASC)

On November 18, 1981, the Philippine Institute of Certified Public Accountants (PICPA created the Accounting Standards
Council (ASC) to establish and improve accounting standards that will be generally accepted in the Philippines.

The standards would generally be based on the following: existing practices in the Philippines; research or studies by the
Council; locally or internationally available, literature on the topic or subject; and statements, recommendations, studies or
standards issued by other standard-setting bodies such as the International Accounting Standards Board (IASB) and the
Financial Accounting Standards Board (FASB).

The statements and interpretations issued by the Council represent generally accepted accounting principles in the
Philippines. Accounting principles become generally accepted if they have substantial authoritative support from the
relevant parties interested in the financial statements-the preparers and users, auditors and regulatory agencies.

Financial Reporting Standards Council (FRSC)

Per Section 9(A) of the Rules and Regulations Implementing Republic Act No. 9298 otherwise known as the Philippine
Accountancy Act of 2004, the Financial Reporting Standards Council (FRSC) shall be the new accounting standard setting
body thus replacing the Accounting Standards Council (ASC).

International Accounting Standards Committee (IASC) and International Accounting Standards Board (IASB)
The International Accounting Standards Board (IASB) is an independent private sector body. Its objective is to achieve
convergence in the accounting principles that are used by businesses and other organizations for financial reporting around
the world.

Effective April 1, 2001, the International Accounting Standards Board (IAS8) assumed accounting standard setting
responsibilities from its predecessor body, the International Accounting Standards Committee (IASC). The International
Accounting Standards Committee was formed in 1973 through an agreement made by professional accountancy bodies from
Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland, and the United States
of America.

Statements of International Accounting Standards issued by the Board of the International Accounting Standards Committee
(1973-2001) are designated International Accounting Standards" (IAS). The International Accounting Standards Board
announced in April 2001 that its accounting standards would be designated "International Financial Reporting Standards"
(IFRS)

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BRANCHES OF ACCOUNTING

The work that accountants now undertake ranges far beyond that of simply summarizing information in order to calculate
how much profit a business has made, how much it owes, and how much is owed to it. Although this work is s till very
important, accountants have gradually got involved in other types of work. Of course, other information specialists (such as
market researchers and operational analysts) have also been drawn into the preparation of management information, and at
one time some observers expected accounting to be taken over by these newer and mores scientifically-based disciplines.
However, this has not happened. There are three main reasons:

1. Financial information supply to external users still has a dominant influence on internal management information;
2. Other information specialists have been reluctant to become involved in detailed accounting matters; and
3. Accountants have been quick to absorb new methods and techniques into their work.

The main branches of accounting and their brief descriptions are discussed below.

Accountancy and Accounting

Accountancy is a profession whose members are engaged in the collection of financial data, the summary of that data,
and then the presentation of information in a form which helps recipients take effective decisions.

Auditing
Auditing forms a most important branch of accountancy. Once accounts have been prepared, they may have to be
checked in order to ensure that they do not present a distorted picture. The checking of accounts and the reporting on
them is known as auditing. Businesses have their accounts audited as a legal requirement.

Auditors are usually trained accountants who specialize in checking accounts rather than preparing them. If they are
appointed from outside the organization, they are usually referred to as external auditors. Corporate external auditors
are appointed by the shareholders, and not by the management. The auditor's job is to protect the interests of the
shareholders; they answer to them, and not to anyone in the entity. By contrast, internal auditors are employees of the
entity. They are appointed by, and answer to, the entity's management.

Internal auditors perform routine tasks and undertake detailed checking of the entity's accounting procedures, whereas
external auditors are likely to go in for much more selective testing. Nonetheless, they usually work very closely
together, although the distinction made between them still remains important.

It might occur to you that because internal auditors are employees of the entity they must have much less
independence than external auditors. In practice, however, even external auditors have limited independence. This is
because the directors of an entity usually recommend the appointment of a particular firm of auditors to the
shareholders. It is rare for shareholders to object to the directors' recommendation, and so if the directors are in
dispute with the auditors they can always hint that they are thinking of appointing another firm. The auditors can
always appeal directly to the shareholders, but they are not usually successful.

Bookkeeping
Bookkeeping is a mechanical task involving the collection of basic financial data. The data are first entered in special
records known as books of account, and then extracted and summarized in the form of a profit and loss account and a
balance sheet. This process normally takes place once a year, but it may occur more frequently. A profit and loss
account shows whether the business has made a profit or loss during the year, i.e. it measures how well the business
has done. A balance sheet lists what the entity owns (its assets), and what it owes (its liabilities) as at the end of the
year.

The bookkeeping procedures usually end when the basic data have been entered in the books of account and the
accuracy of each entry has been tested. At that stage, the accounting function takes over. Accounting tends to be used
as a generic term covering almost anything to do with the collection and use of basic financial data. It should however,
be more properly applied to the use to which the data are put once they have been extracted from the books of
account. Bookkeeping is a routine operation, while accounting requires the ability to examine a problem using both
financial and non-financial data.

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Cost Bookkeeping, Costing, and Cost Accounting
Cost bookkeeping is the process that involves the recording of cost data in books account. It is, therefore, similar to
bookkeeping except that data are recorded in very much greater detail. Cost accounting makes use of those data once
they have been extracted from the cost books in providing information for managerial planning and control.
Accountants are now discouraged from using the term 'costing unless it qualified in some way, i.e. by referring to some
branch of costing (such as standard costing), but even so you will still find the term 'costing' in general use.

The difference between a bookkeeping/accounting system and a cost bookkeeping/cost accounting system is largely
one of degree. A cost accounting system contains a great deal more data, and thus once the data are summarized there
is much more information available to the management of the entity. Cost accounting now forms one of the main sub-
branches of management accounting.

Financial Accounting
Financial accounting is the more specific term applied to the preparation and subsequent publication of highly
summarized financial information. The information supplied is usually for the benefit of the owners of an entity, but it
can also be used by management for planning and control purposes. It will also be of interest to other parties, e.g.
employees and creditors.

Financial Management
Financial management is a relatively new branch of accounting that has grown rapidly over the last 30 years. Financial
managers are responsible for setting financial objectives, making plans based on those objectives, obtaining the finance
needed to achieve the plans, and generally safeguarding all the financial resources of the entity. Financial managers are
much more heavily involved in the management of the entity than is generally the case with either financial or
management accountants. It should also be noted that the financial manager draws on a much wider range of
disciplines (such as economics and mathematics) and relies more extensively on non-financial data than does the more
traditional accountant.

Management Accounting
Management accounting incorporates cost accounting data and adapts them for specific decisions which management
may be called upon to make. A management accounting system incorporates all types of financial and non-financial
information from a wide range of sources.

Taxation
Taxation is a highly complex technical branch of accounting. Accountants involved in tax work are responsible for
computing the amount of tax payable by both business entities and individuals. It is not necessary for either companies
or individuals to pay more tax than is lawfully due, and so it is quite in order for them to minimize the amount of tax
payable. If tax experts attempt to reduce their clients' tax liabilities strictly in accordance with the law, this is known as
'tax avoidance'. Tax avoidance is a perfectly legitimate exercise, but tax evasion (the non-declaration of sources of
income on which tax might be due) is a very serious offense. In practice, the borderline between tax avoidance and tax
evasion can sometimes be a fairly narrow one.

Other Aspects
The main branches of accounting described above cannot always be put into such neat categories. Accountants in
practice (that is, those who work from an office and offer their services to the public) usually specialize in auditing,
financial accounting or taxation. Most accountants working in commerce, industry or the public sector employed as
management accountants, although some may deal specifically auditing, financial accounting, or taxation matters.

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Name:____________________________________________
Section:___________________________________________

True or False

1. A management accounting system incorporates all types of financial information from a wide range of sources.
2. Cost accounting makes use of data from the cost books of account in providing information for managerial planning and
control.
3. Management accounting is concerned with the supply of information to owners of an entity while financial accounting
to managers
4. Internal auditors perform routine tasks and undertake detailed checking of the entity’s accounting procedures.
5. Bookkeeping procedures usually start when the basic data have been entered in the books of account and the accuracy
of each entry has been tested.
6. Accounting has evolved in response to the social and economic needs of society.
7. A CPA's practice is limited to the practice of public accountancy and practice in commerce and industry, in
education/academe and in government.
8. Learning accounting is like learning a new language in the sense that words used in accounting mean the same as they
are used in everyday, non-accounting sense.
9. Double-entry bookkeeping is a discovery of science.
10. Financial accounting information is for the exclusive benefit of the owners of an entity.
11. Accounting principles become generally accepted even with little support from relevant parties interested in the
financial statements.
12. One reason why one should study accounting is to ensure that he follows legal requirements.
13. Some entities are required by law to publish information about their affairs.
14. Corporate external auditors are appointed by the management.
15. In the whole society, there is a need for credibility in information and information systems.

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Name:____________________________________________
Section:___________________________________________

Multiple Choice

1. A professional accountant should be fair and should not allow prejudice or bias conflict of interest or influence of others to
override objectivity.
a. professional behavior c. integrity
b. objectivity d. none of the above

2. Which statement is false?

a. Accounting is the language of business.
b. Accountants are the scorekeepers of business.
c. Accounting is dispensable in the world of business.
d. None of the above

3. Which incorporates cost accounting data and adapts them for management decisions?
a. Management accounting c. Cost Accounting
b. Financial accounting d. Taxation

4. A mechanical task involving the collection of basic financial data

a. Bookkeeping c. Auditing
b. Accountancy d. Taxation

5. Which is not an attribute of accounting?

a. It is a service activity.
b. It provides qualitative information
c. It is an art of recording, classifying, summarizing and interpreting.
d. none of the above

6. A profession whose members collect and summarize financial data, and present information so users may take effective
decisions
a. Auditing c. Bookkeeping
b. Taxation d. Accountancy

7. The preparation and subsequent publication of highly summarized information

a. Auditing c. Financial management
b. Financial accounting d. Management accounting

8. Accountancy qualifies as a profession because

a. CPAs adhere to a Code of Ethics and are members of the PICPA.
b. CPAs have their own body of language.
c. all its members are certified public accountants (CPAs).
d. all of the above

9. Pacil's double-entry bookkeeping has been adapted to suit modern times, it still is an effective recording system because
information extractedtells the owner/manager
a. how much the business owes.
b. how much is owed to the business.
c. what profit the business has made.
d. all of the above

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10. The checking of prepared accounts and the reporting on them is called
a. Auditing c. Bookkeeping
b. Taxation d. Accountancy

11. A professional accountant should be straightforward and honest in performing professional services.
a. professional behavior c. integrity
b. objectivity d. none of the above

12. Authoritative statements of how particular types of transaction and other events should be reflected in financial
statements
a. auditing standards c. both 'a' and 'b'
b. accounting standards d. none of the above

13. Its mandate is to supervise, control and regulate the practice of accountancy in the Philippines
a. Congress
b. Philippine Institute of Certified Public Accountants (PICPA)
c. Board of Accountancy (BOA)/Professional Regulation Commission (PRC)
d. Accounting Standards Council (ASC)/Financial Reporting Standards Council (FRSC)

14. A basic requirement to meet the objectives of the accountancy profession

a. quality of services c. confidence
b. professionalism d. all of the above

15. A CPA is engaged in public accountancy if he renders service to

a. prepare income tax returns
b. design, install, and revise of accounting system
c. audit or verify financial transactions and accounting records
d. all of the above

16. The process of recording cost data in the books of account is

a. Costing
b. Cost accounting
c. Cost bookkeeping
d. All of the above

17. A professional accountant should act in a manner consistent with the good reputation of the profession.
a. professional behavior c. integrity
b. objectivity d. none of the above

18. Setting financial objectives, making plans, obtaining finance, and safeguarding the financial resources of the entity
a. Auditing c. Financial management
b. Financial accounting d. Management accounting

19. A highly complex technical branch of accounting that involves the computation of tax payable by both business entities
and individuals is
a. Taxation
b. Cost Accounting
c. Financial accounting
d. Management accounting

20. A professional accountant should not be associated with reports, return communications or other information where they
believe that the information:
a. Contains a materially false or misleading statement
b. Contains statements or information furnished recklessly
c. Omits or obscures information required to be included where such omission or obscurity would be misleading.
d. All of the above
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