FAR MIDTERMS

• Business


  An organization engaged in the trade of goods, services or both to consumers, generally to earn profit and increase the wealth of the owners
• Types of Business According to Nature

  • Service Company
  • Merchandising Company
  • Manufacturing Company
• Service Company


  Generates profits by charging a fee in exchange of service
• Merchandising Company


  Referred to as a trading business or a retail company, buys goods from suppliers and sells them to customers at a profit without any alteration or modification
• Manufacturing Company


  Referred to as a production company, buys a type of goods called raw materials from suppliers and these raw materials are then converted into finished goods
• Types of Business as to Legal Forms

  • Sole Proprietorship
  • Partnership
  • Corporation
• Sole Proprietorship


  Has only one owner called proprietor
• Sole Proprietorship


  • Sole control over the operations
  • Easy to establish
  • No sharing of profits
  • Taxed as personal income
  • Able to discontinue operations at will
  • Unlimited personal liability
  • Does not have second opinion
  • No sharing of losses
  • Difficulty in raising investment
  • Life of business dependent on owner
• Partnership


  An agree between two or more persons known as partners through a contract of co-partnership
• Partnership


  • Has second opinion
  • Easy to establish
  • More investment capital
  • Taxed as partners personal income
  • Partners share in loss
  • Prone to encounter disagreement
  • Unlimited personal liability
  • Partners share in profit
  • Life of business is limited
  • Changes in ownership requires dissolution
• Corporation


  An artificial being created by law, organized by incorporators and people who invest in corporation is called stockholders
• Corporation


  • Stockholders have limited liability
  • Can raise the most investment capital
  • Life of business is unlimited
  • Ownership is easily transferable
  • Earnings are taxed twice; income tax and dividend tax
  • Difficult to establish as it is expensive
  • Closely regulated by government agencies
• Accounting


  Accounting is describe as the language of business as it delivers information and it seeks to communicate a variety of ideas to different users of financial information
• Accounting Agencies


  • Accounting Standards Council (ASC)
  • American Institute of Certified Public Accountants (AICPA)
  • American Accounting Institute
  • International Accounting Standards (IAS)
  • Board Of Accountancy (BOA)
  • Financial Reporting Standards Council (FRSC)
• Accounting Standards Council (ASC)


  "Accounting is a service activity."
• American Institute of Certified Public Accountants (AICPA)

  "Accounting is art of recording, classifying and summarizing."
• American Accounting Institute


  "Accounting is the process of identifying, measuring and communicating."
• Board Of Accountancy (BOA)


  Granted the right to issue, suspend, revoke and reinstate Certified Public Accountant (CPA) certificates
• Financial Reporting Standards Council (FRSC)

  Tasked to improve and establish accounting standards that will be generally accepted in the Philippines
• Processes of Accounting


  • Identifying
  • Measuring
  • Communicating
• Identifying


  Company must identify economic events relevant to its business because not all transactions ca be accounted
• Measuring


  Measuring those events in order to provide a history of its financial activities, can be described as quantifying an economic event
• Communicating


  Communicate the collected information to the users of financial information through the use of financial statements
• Origin of accounting can be tracked as early as 8500 BC in the Middle East Region through the use of clay tablets
• During 15th Century, systematic recordkeeping was developed by Friar Luca Pacioli and wrote a book "Summa de Artihmetica, Geometria, Proportioni et Proportionalita"
• Luca Pacioli


  The father of Double-Entry Bookkeeping
• History of Accounting in the Philippines

  • Accountancy law was first passed in 19223 through Republic Act No. 3105
  • It was revised in 1967 through Republic Act No. 5166
  • In 1975, the Accountancy Act was revised under Presidential Decree No. 692
  • In the late 1990's the application of accounting standards shift from American SAF to IAS
  • In 2004 up to present, the practice of accountancy is now Republic Act No. 9298
• Generally Accepted Accounting Principles (GAAP)


  The set of rules, principles, standards, conventions and underlying assumptions that are used when preparing the financial statements, serves as a guide for individuals in accounting profession
• Philippine Financial Reporting Standards (PFRS)

  The set of accounting standards issued by FRSC, includes Philippine Accounting Standards (PAS), Philippine Financial Reporting Standards (PFRS), and Interpretations Published by the Philippine Interpretations Committee (PIC)
• Conceptual Framework


  A system of ideas and objectives that lead to the creation of a consistent set or rules and standards
• Purpose of Conceptual Framework

  • Assist the FRSC to develop PFRS that are based on consistent concepts
  • Assist Preparers to develop consistent accounting policies
  • Assist all parties to understand and interpret the standards
• Conceptual Framework provides concepts and guidance that underpin the decision the Board makes when developing standards, it is not a standard and does not override any standards or any requirements
• Accounting Cycle


  1. Transaction are analyzed and recorded in the journal

  2. Transaction are posted to the ledger

  3. An unadjusted trial balance is prepared

  4. Adjustment data are assembled and analyzed

  5. An optional end-of-period spreadsheet is prepared

  6. Adjusting entries are journalized and posted to the ledger

  7. An adjusted trial balance is prepared

  8. Financial statements are prepared

  9. Closing entries are journalized and posted to the ledger

  10. Post closing trial balance is prepared
• Process of adjusting accounts and preparing financial statements is one of the most important in accounting
• Unadjusted Trial Balance (UTB)


  Verifies the total of the debit balance to the total of credit
• Unequal trial balance = an error has occurred
• Errors must be found and corrected at the end of the period
• Adjusted Trial Balance (ATB)

  Illustrate the effect of the adjusting entries on the unadjusted accounts
• Many accountants prepare such spreadsheet called work sheet; it allows the manager and accountant to see the effect of the adjustment on the financial statements
• Income Statement is prepared directly from the Adjusted Trial Balance