ACCOUNTING - 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.
(AICPA - American Institute of Certified Public Accountant)
- language of business
- end product is FINANCIAL STATEMENTS
PHASES OF ACCOUNTING:
*RECORDING
*CLASSIFYING
*SUMMARIZING
*INTERPRETING
GAAP - Generally Accepted Accounting Principles
FRSC - Financial Reporting Standards Council
IFRS - International Financial Reporting Standards
PFRS - Philippine Financial Reporting Standards
BASIC FINANCIAL STATEMENTS:
*STATEMENT OF FINANCIAL POSITION - balance sheet (elements: assets, liabilities, equity)
*STATEMENT OF COMPREHENSIVE INCOME - income statement (elements: revenues, expenses)
*STATEMENT OF CASH FLOWS - it shows the cash in flow and out flow to and from the company
*STATEMENT OF CHANGES IN EQUITY
USERS OF FINANCIAL STATEMENTS:
*INTERNAL USERS - investors, customers, creditors, lenders, government
*EXTERNAL USERS - management of the business, managers, owners, employees
BUSINESS - legally-recognized organizational entity existing within an economically free country designed to sell
goods and/or provide services to consumers, usually in an effort to generate profit.
PROFIT-ORIENTED ENTERPRISE - aims to earn income or profit through the provisions of goods and/or services to
consumers.
NON-PROFIT-ORIENTED ENTERPRISE - aims to achieve socio-civic or charitable aims.
FORMS OF BUSINESS ENTERPRISES/OPERATIONS:
*SERVICE - simplest form of business. These enterprises provides services to clients or customers in exchange for
fees, rent, interest or royalties.
*MERCHANDISING - purchase goods from suppliers and, without altering the state of the goods bought, sell the
same at a higher price than cost.
*MANUFACTURING - involves the most complex activities. These enterprises sells goods at a higher price than cost,
produces the goods that it sells to customers.
TYPES OF BUSINESS OWNERSHIPS/ORGANIZATIONS:
*SOLE PROPRIETORSHIP - most basic legal form of business. It has only one owner, the PROPRIETOR.
*PARTNERSHIP - association of two or more persons who bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves.
*CORPORATION - most complex form of business organization. A person who invests in a corporation is called a
SHAREHOLDER and his right is expressed in the number of shares he purchased, each evidenced by a CERTIFICATE
OF STOCK.
*COOPERTIVES - autonomous associations of persons united voluntarily to meet their common economic, social,
and cultural needs and aspirations through jointly owned and democratically controlled enterprises.
BOOKKEEPING - procedural or mechanical aspect of accounting. It involves the set-up, update, and maintenance
of accounting records.
ATTRIBUTES REQUIRED OF A PROFESSION:
*Mastery of a particular intellectual skill, acquired by training and education.
*Adherence by its members to a common code of values and conduct established by its administrating body,
including maintaining an outlook which is essentially objective.
*Acceptance of a duty to society as a whole (usually in return for restrictions in use of a title or in the granting of a
disqualification).
BASIC PURPOSE OF ACCOUNTING
*supply financial information to users of the information to help them make informed judgments and better
decisions

ACCOUNTANCY ACT OF 2004 (REPUBLIC ACT NO. 9298)

*standardization and regulation of accounting education
*examination for registration of certified public accountants
*supervision, control, and regulation of the practice of accountancy in the Philippines
PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY (article II of the act)
*agency tasked to enforce the provisions of the Philippine Accountancy Act of 2004
*granted the right to issue, suspend, revoke, or reinstate CPA certificates for the practice of the profession
*composed of 1 chairman & 6 members appointed by the President of the Republic of the Philippines
SECTORS OF ACCOUNTING PRINCIPLE:
*PUBLIC PRACTICE - individual practitioners, small accounting firms, medium sized and multinational accounting
firms that render independent professional accounting services to the public.
AUDITING - most common services being provided by CPAs. It involves the independent examination of
financial statements for the purpose of expressing an opinion on the fairness of these statements.
TAX SERVICES - includes the preparation of tax returns for various clients, provision of advice on tax
matters, and representation of clients in tax cases.
MANAGEMENT CONSULTING SERVICES - involves providing advisory/consulting services to clients on
matters of accounting, finance, business policies, organization procedures, budgeting, product costing, and the
conduct of operations.
*COMMERCE AND INDUSTRY - assist management in planning and controlling a company's operations.
- employed as vice-presidents for finance, chief accountant (controller), cost accountant, internal auditor, or budget
officer.
CONTROLLER - also known as comptroller, is the highest accounting officer in a business organization.
* EDUCATION - employs accountants as professors, reviewers, or researchers.
*GOVERNMENT - accountants may be hired as staff, auditor, budget officer, or consultant in government units.
FRIAR LUCA PACIOLI - father of double-entry bookkeeping
- wrote the book "SUMMA DE ARITHMETICA, GEOMETRIA, PROPORTIONI ET PROPORTIONALITA" - Everything
about Arithmetic, Geometry, Proportions and Proportionality
FIELDS OF ACCOUNTING:
*FINANCIAL ACCOUNTING - focuses on the preparation and presentation of general-purpose financial statements
with the aim of meeting most of the needs of external users.
*MANAGEMENT ACCOUNTING - concerned primarily with financial reporting for internal users.
*COST ACCOUNTING - measures a business's costs to help management in controlling expenses.
*TAX ACCOUNTING - aims to comply with the tax laws and maximizing the company's tax bill through legal means.
*GOVERNMENT ACCOUNTING - focuses on the proper custody, disposition, and accounting for public funds.
GAAP - comprises the accounting principles and processes, standards, and underlying assumptions that are used in
preparing financial statements
- not rigid or unchanging - accounting principles continue to evolve as a response to the changes in the financial
information needs of business stakeholders.
FRSC - official accounting standard setting body in the Philippines
- issues standards which constitute Philippine GAAP known as PFRSs
Philippine GAAP - based on basic accounting concepts and the Framework for the Preparation and Presentation of
Financial Statements.
BASIC ACCOUNTING CONCEPTS:
*BUSINESS ENTITY PRINCIPLE - business is considered distinct and separate from the owner(s) of the business.
ACCOUNTING ENTITY - organization that is accounted for as a separate economic unit.
*DUAL-EFFECT OF BUSINESS TRANSACTIONS - whenever a business transaction takes place accounting assumes
that the value received is equal to the value given up (for every value received, there is an equal value given up).
*MATCHING PRINCIPLE - profit or loss can only be measured if there is a proper matching of the income earned
and the expenses incurred within one accounting period.
- income that is recorded and reported in one accounting period should be matched by recognition of the expense
that directly or indirectly contributed to the generation of the income.
*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.
*CASH BASIS - income is recognized when cash is received, and expenses are recognized 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.

*PERIODICITY (TIME PERIOD CONCEPT) - assumes that the operating life of an enterprise may be conveniently
divided into time periods of equal length, called ACC0UNTING PERIOD.
*GOING CONCERN (CONTINUITY ASSUMPTION) - assumed that the enterprise has neither the intention nor the
need to liquidate or curtail materially the scale of its operations.
FRAMEWORK - sets out the concepts that underlie the preparation and presentation of financial statements for
external users.
- not a PFRS and hence does not define standards for any particular measurement or disclosure.
- requirements of the PFRS shall prevail over those of the framework.
SCOPE OF THE FRAMEWORK:
*Objective of financial statements
*Underlying assumptions in the preparation of financial statements
*Qualitative characteristics that determine the usefulness of information in financial statements
*Definition, recognition and measurement of the elements of the financial statements
*Concepts of capital and capital maintenance
FINANCIAL STATEMENTS - means by which the information accumulated in and processed by financial accounting is
communicated to users on a periodic basis.
- end-product of the financial accounting process.
COMPLETE SET OF FINANCIAL STATEMENTS:
*Statement of financial position or balance sheet
*Statement of comprehensive income
*Statement of changes in equity
*Statement of cash flows
*Notes to the financial statements
USERS OF FINANCIAL STATEMENTS:
*INVESTORS - providers of risk capital.
- concerned with the risk inherent in and return provided by, their investments.
- need information to help them determine whether they should buy, hold, or sell their investments.
*EMPLOYEES - interested in information about the stability and profitability of their employers.
- interested in information which enables them to assess the ability of the enterprise to provide remuneration,
retirement benefits, and employment opportunities.
*LENDERS - interested in information that enables them to determine whether their loans and the interest
attaching to them, will be paid when due.
*SUPPLIERS AND OTHER TRADE CREDITORS - interested in information that enables them to determine whether
amounts owing to them will be paid when due.
*CUSTOMERS - interested in information about the continuance of an enterprise especially when they have a longterm involvement with, or are dependent on, the enterprise.
*GOVERNMENT AND THEIR AGENCIES - interested in the allocation of resources and, therefore, the activities of
enterprises.
- require information in order to regulate the activities of enterprises, determine taxation policies and as the basis
for national income and similar statistics.
*THE PUBLIC - information about the trends and developments in the prosperity of the enterprise and the range of
its activities.
FINANCIAL POSITION - refers to the condition of a business, in monetary terms, as of a given date or point in time.
- provided in a statement of financial position or balance sheet.
- affected by the economic resources it controls, its financial structure, its liquidity and solvency, and its capacity to
adapt to changes in the environment in which it operates.
LIQUIDITY - availability of cash in the near future to cover currently maturing liabilities or obligations.
SOLVENCY - availability of cash over the long term to meet obligations when they fall due.
CAPACITY FOR ADAPTATION - ability of the enterprise to use its available cash for unexpected requirements and
investment opportunities.
PERFORMANCE OR PROFITABILITY - refers to whether a company is able to generate profit or incur a loss during a
particular accounting period.
- provided in a statement of comprehensive income.
INCOME STATEMENT - useful tool for evaluating management's stewardship of the resources of the enterprise.
- useful in assessing the in flow and out flow of cash.

CHANGES IN FINANCIAL POSITION - provides financial statement users with a basis to assess the ability of the
enterprise to generate cash and cash equivalents and the needs of the enterprise to utilize those cash flows.
STATEMENT OF CHANGES IN EQUITY - shows the balance of the owner's investment in the business at the
beginning of the accounting period, additional investments made by the owner, withdrawals (drawings) by the
owner for personal use, the profit or loss for the period, and the balance of the owner's investment at the end of
the accounting period.
STATEMENT OF CASH FLOWS - summarizes cash activity for the period, classified according to the nature of
activity.
- provides an explanation, in financial terms, how the cash of the enterprise increased or decreased compared to
the previous accounting period.
GENERAL-PURPOSE FINANCIAL STATEMENTS - financial statements that meet most of the needs of other users
INTERIM FINANCIAL STATEMENTS - shorter-period financial statements
UNDERLYING ASSUMPTIONS - refer to concepts which are assumed to have been applied in preparing financial
statements.
ACCRUAL BASIS
GOING CONCERN
ELEMENTS OF FINANCIAL STATEMENTS:
*ASSETS - resources owned and/or controlled by the enterprise.
- expected to provide future economic benefits to the enterprise.
- acquired by an enterprise as a result of a past transaction or event.
*LIABILITIES - present obligations of the enterprise arising from past events, which are to be settled in the future.
- refer to the debts of the business.
*EQUITY - claims.
- residual interest in the assets of the enterprise after deducting all its liabilities.
- refers to the claim of the owner(s) of the enterprise to the assets of the business after all the claims of creditors
have been settled or paid.
-arises from the original investment by an owner into the business.
*INCOME - refers to increase in economic benefits during the accounting period in the form of in flows or
enhancements of assets or decreases of liabilities that result in increase in equity, other than those a relating to
contributions from equity participants.
REVENUE - arises in the course of the ordinary activities of an enterprise.
GAIN - represent other items that meet the definition of income and may, or may not, arise in the course
of the ordinary activities of an enterprise.
*EXPENSES - refer to decreases in economic benefits during the accounting period in the form of out flows or
depletions of assets or incidences of liabilities that result in decreases in equity, other than those relating to
distributions to equity participants.
EXPENSES - arise in the course of the ordinary activities of the enterprise.
LOSSES - represent other items that meet the definition of expenses and may, or may not, arise in the
course of the ordinary activities of the enterprise.
RECOGNITION - process of incorporating in the statement of financial position or statement of comprehensive
income an item that meets the definition of an element and satisfies the criteria for recognition.
CRITERIA FOR RECOGNITION:
*It is probable that any future economic benefit associated with the item will flow to or from the enterprise.
*The item has a cost or value that can be measured with reliability.
MEASUREMENT - process of determining the monetary amounts at which the elements of the financial statements
are to be recognized and carried in the financial statements.
MEASUREMENT BASES:
*HISTORICAL COST - most commonly used measurement basis in accounting because it is deemed as the most
objective basis.
*CURRENT COST
*REALIZABLE (SETTLEMENT) VALUE
*PRESENT VALUE
QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS:
(Content)

*RELEVANCE - influences the economic decisions of users by helping them evaluate past, present, or future events,
or confirming or correcting, their past evaluations.
PREDICTIVE ROLE - used to make predictions of, say, future cash in flows or income in future periods.
CONFIRMATORY ROLE - used to confirm or correct the earlier expectations of a financial statement user.
MATERIALITY - omission or misstatement could influence the economic decisions of users taken on the
basis of the financial statements.
*RELIABILITY - free from material error and bias and can be depended upon by users to represent faithfully that
which it either purports to represent or could reasonably be expected to represent.
FAITHFUL REPRESENTATION - represent faithfully the transactions and other events it either purports to
represent or could reasonably be expected to represent.
- actual effects of transactions should be properly accounted for and reflected in the financial statements.
SUBSTANCE OVER FORM - transactions and other accountable events are accounted for and presented in
accordance with their substance and economic reality and not merely their legal form.
NEUTRALITY - free from bias.
PRUDENCE (CONSERVATISM) - inclusion of a degree of caution in the exercise of judgment needed in
making the estimates required under conditions of uncertainty, such that assets or income are not overstated and
liabilities or expenses are not understated.
COMPLETENESS - complete within the bounds of materiality and cost.
(Presentation)
*UNDERSTANDABILITY
*COMPARABILITY
INTRA-COMPARABILITY - compare the financial statements of an enterprise across accounting periods.
INTER-COMPARABILITY - compare the financial statements of different enterprises.
CONSTRAINTS ON RELEVANT AND RELIABLE INFORMATION:
*TIMELINESS - if there is undue delay in the reporting of information it may lose its relevance.
*COST-BENEFIT
*BALANCE BETWEEN QUALITATIVE CHARACTERISTICS - aim is to achieve an appropriate balance among the
characteristics in order to meet the objective of financial statements.
BUSINESS TRANSACTIONS - exchange of values involving two parties (EXTERNAL TRANSACTIONS) within the
enterprise (INTERNAL TRANSACTIONS).
- economic activity that causes increases and/or decreases in the elements of the financial statements.
SOURCE DOCUMENT - original record of a business transaction.
ASSETS = LIABILITIES + EQUITY (basic accounting equation)
ACCOUNTING EQUATION - most basic tool of accounting.
ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES (expanded accounting equation)
THE ACCOUNT - basic summary device of accounting.
- records the increases, decreases, and balances of each element of the financial statements.
PARTS OF AN ACCOUNT:
*Account Title
*Debit - left side
*Credit - right side
DOUBLE-ENTRY ACCOUNTING SYSTEM - dual effects of a business transaction is recorded.
*For every debit entry, there must be a corresponding credit entry. The accounting equation must always be
maintained.
*Each transaction affects at least two accounts.
*Total debits for a transaction must equal total credits.
*An account is debited when an amount is entered on the left side of the account and credited when the amount is
entered on the right side.
*The account type determines how increases or decreases in it are recorded. Increases are recorded on the side of
an account based on its position in the accounting equation.
T-ACCOUNT - simplified form of an account.
ACCOUNT BALANCE - difference between the total debits and the total credits of each account.
ACCOUNT BALANCES:
*DEBIT BALANCE - total debits are greater than the total credits.

*CREDIT BALANCE - total credits are greater than the total debits.
NORMAL BALANCE - usual balance of an account assuming proper accounting has been made.