FINANCIAL ACCOUNTING 3.

COMMUNICATING - Formal

AND REPORTING 1 IDENTIFYING

CHAPTER I- The Accountancy Profession - the recognition and non recognition of

business activities as accountable events.

ACCOUNTING
NOT ACCOUNTABLE - events that cannot be
quantified or expressed in terms of s unit
- Accounting is a service activity. of measure.

The accounting function is to provide ACCOUNTABLE/QUANTIFIABLE - events that has

quantitative informantion, primarily an effect on assets, liabilities, and equity.
financial in nature, about economic entities,
that is intended to be useful in making
economic decisions. (ASC) ECONOMIC ACTIVITY - subject matter of
accounting

- Accounting is the art of recording,

classifying, and summarizing in a - measurement of economic
significant manner and in terms of money, resources and economic obligations.
transactions and events which are in part at
least of a financial character and
interpreting the results thereof. (CATAICPA) TRANSACTIONS - economic activities of an
entity.

- Accounting is the process of identifying,

measuring, and communicating economic EXTERNAL TRANSACTIONS - economic activities
information to permit informed judgment and that involve ONE entity AND ANOTHER entity.
decision by users of the information. (AAA)

INTERNAL TRANSACTIONS - economic events

- Accounting is an information system that involving ONE ENTITY ONLY.
measures business activity, processes
information into reports and communicates
the report to decision makers. (FASB)
EXAMPLES OF EXTERNAL TRANSACTIONS:

1. Purchase of goods from supplier

3 IMPORTANT POINTS IN THE DEFINITION OF
ACCOUNTING 2. Borrowing money from a bank

3. Sale of goods to a customer

1. Accounting is about QUANTITATIVE 4. Payment of salaries to employees

INFORMATION. 5. Payment of taxes to the government
2. The information is likely to be FINANCIAL
IN NATURE.
EXAMPLES OF INTERNAL TRANSACTIONS
3. The information should be USEFUL IN
DECISION MAKING. 1. Production - resources are
transformed into products.

2. Casualty Loss - sudden and

COMPONENTS OF ACCOUNTING: unanticipated loss

1. IDENTIFYING - Analytical “Not all business activities are

2. MEASURING - Technical accountable”
“Only economic activities are emphasized and
recognized in accounting”
“Sociological and psychological matters are
beyond the province of accounting”
MEASURING
- assigning of peso amounts to the
accountable economic events
PHILIPPINE PESO - unit of measuring
accountable economic transactions
“If accounting information is to be useful,
it must be expressed in terms of a common
financial denominator”
“FS without monetary amounts would be largely
unintelligible or incomprehensible”
MEASUREMENT BASES:
1. Historical cost
2. Current cost
3. Present Value
4. Realizable Value
COMMUNICATING
- the process of preparing and
distributing accounting reports to potential
users of accounting information.
-the reason why accounting has been
called the “UNIVERSAL LANGUAGE OF BUSINESS”
IMPLICIT ASPECTS IN COMMUNICATION PROCESS:
1. Recording - journalizing; maintaining a
record
2. Classifying - sorting or grouping; posting
to the ledger
3. Summarizing - preparation of financial
statements
Ledger - group of accounts; A,L,E,E,I
FINANCIAL STATEMENTS
- key product of accounting; documents
that report financial information about an
entity to decision makers
FINANCIAL REPORTS
- tells us how well an entity is
performing in terms of PNL and where it stands
in financial terms
ACCOUNTANT’S PRIMARY TASK: supply financial
information so that the statement users could
make informed judgment and better decision.
DECISION-USEFULNESS
- essence of accounting
RA 9298 (PHILIPPINE ACCOUNTANCY ACT OF 2004)
- law regulating the practice of
accountancy in the Philippines.
BOARD OF ACCOUNTANCY
- body authorized by law to promulgate
rules and regulations affecting the practice
of the accountancy profession in the
Philippines.
- responsible for preparing and grading
the Philippine CPA examination.
LIMITATION OF PUBLIC PRACTICE:
1. Single practitioners and partnerships for
the practice of public accountancy shall be
registered certified public accountants in
the Philippines.
2. A certificate of accreditation shall be
issued to CPAs in public practice
3. The SEC shall not register any corporation
organized for the practice of public
accountancy.
MAIN AREAS IN THE ACCOUNTANCY PROFESSION:
1. Public accounting
2. Private accounting
3. Government accounting 7. Advice on mergers and consolidation

PUBLIC ACCOUNTNG PRIVATE ACCOUNTING

- composed of individual practitioners, - includes maintaining the records,

small accounting firms and large producing financial reports, preparing the
multinational organizations that render budgets and controlling and allocating the
independent and expert financial services to resources of the entity.
the public.

COTROLLER - highest accounting officer in an

THREE KINDS OF SERVICES: entity.

1. Auditing

2. Taxation MAJOR OBJECTIVE OF PRIVATE ACCOUNTANT: to

assist management in planning and
3. Management Advisory Services controlling the entity’s operation.

AUDITING - primary service offered by most GOVERNMENT ACCOUNTING

public accounting practitioners
- external auditing; examination of
FS by independent Certified Public
Accountant for the purpose of expressing
an opinion as to the fairness with which
the FS are prepared.
- encompasses the process of analyzing,
classifying, summarizing and communicating
all transactions involving the receipt and
disposition of GOVERNMENT FUNDS and PROPERTY
and interpreting the results thereof.

- attest function of independent

CPAs FOCUS OF G.ACC - the custody and
administration of public funds.
USERS: BIR; Banks; Crdeitors and Investors.

TAXATION
1. BIR
- preparation of annual TR and
determination of tax consequences of certain 2. COA
proposed business endeavors
3. DBM

4. SEC
MANAGEMENT ADVISORY SERVICES
5. BSP
- used generally to refer to services to
clients on matters of accounting, finance,
business policies, organization procedures, RA 10912
product costs, distribution and many other
phases of business conduct and operations. - law mandating and strengthening the
continuing professional development program
for all regulated professions, including the
INCLUSIONS/EXAMPLES: accountancy profession.

1. Advice on installation of computer system

2. Quality control CONTINUING PROFESSIONAL DEVELOPMENT

3. Installation and modification of - refers to the inculcation and

accounting system acquisition of advance knowledge, skill,
proficiency and ethical and moral values
4. Budgeting after the initial registration of the CPA for
assimilation into professional practice and
5. Forward planning and forecasting lifelong learning.
6. Design and modification of retirement - rises and enhances the technical skill
plans and competence of the CPA
CPD Credit Units GAAP - accounting rules, procedures and
practices
- refer to the CPD CREDIT HURS required
for the renewal of CPA license and - represent the rules, procedures,
accreditation of a CPA to practice the practice and standards followed in the
accountancy profession every three years. preparation and presentation of FS

120 CPD credit units in a compliance period Basis: Experience, Reason, Custom, Usage,
of 3 years. Practical Necessity.

EXEMPTION: upon reaching the age of 65 years OVERALL PURPOSE OF ACCOUNTING STANDARDS: to
old. identify proper accounting practices for the
preparation and presentation of FS

AUDITING
FINANCIAL REPORTING STANDARDS COUNCIL
- analytical in nature; starts when
accounting ends - the accounting standard body created by
the PRC upon recommendation of BOA to assist
the BOA in carrying its powers and functions
AUDITOR- examines the FS to ascertain whether under RA 9298.
they are in conformity with generally
accepted accounting principles
APPROVED STATEMENTS: PAS & PFRS

Philippine Interpretations Committee

BOOKKEPPING - procedural; development and
maintenance of accounting records; how of - role is to prepare interpretations of
accounting; a procedural element of PFRS to provide timely guidance on financial
accounting as arithmetic is a procedural reporting issues not specifically addressed
element of mathematics. in current PFRS.

ACCOUNTANCY - profession of accounting

practice

ACCOUNTING - reference to a particular field

of accountancy such as public accounting,
private accounting and government
accounting.

FINANCIAL ACCOUNTING - recording of business

transactions and the eventual preparation of
FS; focuses on general purpose reports known
as FS intended for internal and external
users; emphasizes reporting to creditors and
investors

MANAGERIAL ACCOUNTING -accumulation and

preparation of financial reports for
internal users only; emphasizes developing
accounting information for use within an
entity.