1.

Accounting
a. Information system that identifies, records and communicates the economic events
of an entity to interested users (‘language of business’)
i. Identifying - involves selecting economic activities relevant to a particular
entity
ii. Recording - consists of keeping a systematic, chronological diary of events,
measured in pesos and centavos, and events are classified and summarized
iii. Communicating - information are accumulated, totaled and reported in a
standardized way so as to make the financial information meaningful
b. 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.

2. Users
a. Internal users - include managers and employees
b. External users - include investors and creditors such as suppliers and banks

3. Luca Pacioli
a. Italian Renaissance mathematician
b. In 1494 text Summa de Arithmetica, Geometria, Proportione et Proportionalite,
described a system to ensure that financial information was recorded efficiently and
accurately (‘double entry bookkeeping’)

Double-entry bookkeeping is based on the principle of dual aspect concept and

principle of balance. Two effects are to be made - 1. value received and 2. value
parted with

4. Bookkeeping vs. Accounting

a. Bookkeeping - involves only the recording of economic events
b. Accounting
i. Financial accounting - provides information to internal and external users
ii. Managerial accounting - concerned primarily with providing information to
internal users

5. Ethics - standards of conduct by which actions are judged as right or wrong, honest and
dishonest, fair or not fair
a. Integrity - should be honest in performing services
b. Objectivity and Independence - should be impartial and independent
c. Professional Competence and Due Care - should have qualifications and technical
skills
d. Confidentiality - refrain from disclosing confidential information, except when
authorized or legally obligated to do so
e. Professional Behavior - should have discipline and honorable behavior

6. Generally accepted accounting principles (GAAP) - accounting rules that indicate how to
report economic events
a. Philippine Financial Reporting Standards
i. Philippine Financial Reporting Standards (PFRS)
ii. Philippine Accounting Standards (PAS)
iii. Philippine Interpretations
b. Philippine Financial Reporting Standards for Small and Medium-sized Entities

To achieve the goals of the business, internal users would need more detailed accounting
financial information. Internal reports (product of managerial accounting) are usually
prepared for the use of internal users. It does not need to comply with GAAP.

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 External reports (product of financial accounting) are usually prepared for external users.
Preparation is governed by GAAP. Examples are the financial statements.

7. Fields of accounting profession and potential accounting careers

a. Public accounting - offers expert service to the general public
i. Auditing - examination of the financial statements by a certified public
accountant (CPA) in order to express an opinion as to the fairness of
presentation
ii. Taxation
b. Private (or managerial) accounting - accountant is employed by the entity
(‘Controller’)
i. General accounting
ii. Budgeting
iii. Accounting information systems
iv. Tax accounting
v. Internal auditing
c. Not-for-profit accounting
i. Accounting for entities needing financial reporting and control (e.g., hospitals,
schools)
ii. Government accounting

8. Types of business organizations

a. As to ownership
i. Proprietorship (sole proprietorship) - business owned by one person
1. Owner is often the manager
2. Often small service-type businesses and retail stores
3. Relatively small amount of capital
4. Personally liable for all debts of the business
5. No legal distinction between the owner and business, but accounting
books are separately kept (‘economic entity assumption’)
ii. Partnership - business owned by at least two persons associated as partners
1. Unlimited personal liability for the debts of the business
2. Often service-type businesses (e.g., law and auditing firms)
3. ‘Mutual agency’ - acts of the partners bind the partnership
iii. Corporation
1. Organized as a separate legal entity under corporation laws
2. Ownership is divided into transferrable shares
3. Limited liability for shareholders
4. Continuous life
5. No mutual agency
6. Ability to acquire capital
7. Separation of ownership and management
8. Compliance to government regulations
9. Heavy taxation
b. As to activity
i. Service
ii. Merchandising
iii. Manufacturing

9. Financial statements - structured representation of the financial position and financial

performance of an entity; objective is to provide information about the financial position,
financial performance and cash flows of an entity that is useful to a wide range of users in

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 making economic decisions; also show the results of the management’s stewardship of the
resources entrusted to it
a. Statement of Financial Position (‘Balance Sheet’)
b. Income Statement (‘Profit or Loss’)
c. Statement of Comprehensive Income
d. Statement of Changes in Equity
e. Statement of Cash Flows
f. Notes to Financial Statements

10.RA 9298 (‘Philippine Accountancy Act of 2004’) - law regulating the practice of
accountancy
11.Professional Regulation Commission (PRC)
12. Board of Accountancy (BOA) - authorized by law to promulgate rules and regulations
affecting the practice of accountancy
13.Philippine Institute of Certified Public Accountant (PICPA)

1. Accounting entity - entity is separate from its owners (for fair presentation)

2. Monetary unit
a. Quantifiable - should be stated in terms of a unit of measure (Philippine peso)
b. Stability of peso - purchasing power of peso is stable and any instability is
insignificant (account for peso, not for changes in purchasing power)

3. Cost - assets should be recorded at cost (reliable)

4. Reliability (objectivity) - quality of information is free of error and bias

5. Going concern - entity is viewed as continuing in operations indefinitely in the absence of

evidence to the contrary

6. Materiality - determining if an item is important enough to likely influence the decision of a

user

7. Disclosure - events that make a difference to users should be disclosed

8. Time period - indefinite life of the entity is subdivided into time periods or accounting

9. Accrual - income is recognized when earned regardless of when cash is received; expense
is recognized regardless of when cash is paid

10.Income recognition - income is recognized in the accounting period in which it is earned

11. Matching (expense recognition) - efforts (expense) should be matched with

accomplishments (income)

12. Consistency - uniform application of accounting methods from period to period; retain the
presentation and classification of items in the financial statements from one period to the
next
(comparability - uniform application of accounting methods among entities in the same
industry)

13.Conservatism (prudence) - when in doubt, choose the least likely to overstate asset and
income

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