handout 1 other infos

• Accounting


  The "language of business" because it is practical and universal
• Accounting


  • Any income statement or balance sheet prepared according to GAAP will be readable and understandable by anyone from any other country who understands the basics of GAAP
  • Investors and executives worldwide understand income, expenses, and company value the same way
• Definitions of accounting

  • According to FRSC, accounting is a service that provides quantitative financial information about economic entities intended to be helpful in making economic decisions
  • According to AAA, accounting is the process of identifying, measuring, and communicating economic information to permit informed judgment and decisions by users of the information
  • According to AICPA, accounting is the art of recording, classifying, and summarizing money, transactions, and events that are, in part, at least of financial character and interpreting the results thereof
• Nature of accounting

  • Accounting is an art - a methodical approach that requires practical skills and knowledge
  • Accounting is a science - the observation and investigation of economic events using established methods to record and present financial data
  • Accounting is an ideology - a means of justifying the current social, economic, and political arrangements
  • Accounting deals with financial information and transactions - from classifying to recording to preparing financial statements
  • Accounting is an information system - it collects, processes, and communicates an entity's financial information
• Functions of accounting

  • Systematic recording of financial transactions through journalizing, posting, and final statement preparation
  • Safeguarding the business's property from unauthorized and undesirable use
  • Creating a system that satisfies legal requirements
  • Communicating a variety of transactions to owners, creditors, the government, employees, and others
• Specialized Accounting Fields


  • Practice of Public Accountancy (Public Accountant/Auditor)
  • Practice in Commerce and Industry (Private Accountant / Management Accountant)
  • Practice in Government
• Public Accountant/Auditor


  Accountants in public practice work in accounting firms or individually to provide audit, tax planning and preparation, and advisory services to their clients
• Private Accountant / Management Accountant


  Accountants in private accounting provide a staff function that supports the company by performing accounting- related tasks
• Government Accountants


  Government agencies need accounting information to help them plan, budget, forecast, and allocate government funds
• The Philippine Institute of Certified Public Accountants (PICPA) is the professional organization of accountants in the Philippines
• Generally Accepted Accounting Principles (GAAP)

  A common set of standards developed by the accounting profession to guide preparers of financial statements in recording and reporting financial information
• GAAP aids in the effective execution of the accounting procedure and in communicating the financial condition of the business
• Underlying Assumptions

  • Economic Entity or Business Entity Concept
  • Accrual Basis
  • Going Concern
  • Monetary Unit
  • Time-Period
  • Calendar Year
  • Fiscal Year
• Economic Entity or Business Entity Concept


  Assumes that all business transactions are separated from the owner's personal transactions
• Accrual Basis


  Requires that all business transactions and other events are recognized in the accounting records when they occur rather than when the cash or equivalent is received or paid
• Going Concern


  Assumes that a company will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future
• Monetary Unit


  Assumes that only transactions that can be expressed in terms of money are recorded. The economic activities of a Philippine entity are measured and reported in the Philippine peso
• Time-Period


  Requires a business to complete the whole accounting process of a business over a specific operating period. It may be monthly, quarterly, semi-annually, or annually
• Calendar Year


  A 12-month period that ends on December 31
• Fiscal Year


  A 12-month period that may or may not end on December 31
• Basic Accounting Principles

  • Cost Principle
  • Full Disclosure Principle
  • Matching Principle
  • Revenue Recognition Principle
  • Materiality Principle
  • Conservatism Principle
  • Objectivity Principle
• Cost Principle


  Cost refers to the amount spent when an item was originally obtained, whether that purchase happened last year or 10 years ago; amounts are not adjusted upward for inflation
• Full Disclosure Principle


  In preparing financial statements, the accountant should include sufficient information to permit the stakeholders to make an informed judgment about the enterprise's financial condition
• Matching Principle


  Expenses are required to be matched with revenues. The recorded revenue should have an equivalent expense to show the business's actual profit in a given accounting period
• Revenue Recognition Principle


  Revenues are recognized once goods are sold or a service is rendered, regardless of when the money is received
• Materiality Principle


  Business transactions that may affect the decision of a user of financial information are considered important or material and, thus, must be reported properly
• Conservatism Principle


  States that given two (2) options in the valuation of business transactions, the amount recorded should be the lower value rather than the higher value
• Objectivity Principle


  Requires business transactions to have impartial supporting evidence or documentation. It also entails that bookkeeping and financial recording be performed independently and without bias and prejudice