ACCOUNTING 5&6

• Accounting


  A service activity that provides quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decisions
• Definition of accounting by American Accounting Association


  • Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information
• Components of accounting definition by American Accounting Association

  • Identifying as the analytical component
  • Measuring as the technical component
  • Communicating as the formal component
• Not all business activities are accountable
• An event is accountable or quantifiable when it has an effect on assets, liabilities and equity
• Types of transactions

  • External transactions (exchange transactions)
  • Internal transactions
• External transactions


  Economic events involving one entity and another entity
• Examples of external transactions

  • Purchase of goods from a supplier
  • Borrowing money from a bank
  • Sale of goods to a customer
  • Payment of salaries to employees
  • Payment of taxes to the government
• Internal transactions


  Economic activities that take place entirely within the entity only, with no other parties involved
• Examples of internal transactions

  • Production
  • Casualty loss
• Measuring in accounting

  The accounting process of assigning peso amounts to the accountable economic transactions and events
• Financial statements without monetary amounts would be largely unintelligible or incomprehensible
• Measurement bases


  • Historical cost
  • Current value (fair value, value in use, fulfillment value, current cost)
• Communicating in accounting


  The process of preparing and distributing accounting reports to potential users of accounting information
• Identifying and measuring are pointless if the information cannot be communicated to potential users
• Aspects of the communication process

  • Recording/journalizing
  • Classifying
  • Summarizing
• Recording/journalizing


  The process of systematically maintaining a record of all economic business transactions after they have been identified and measured
• Classifying


  The sorting or grouping of similar and interrelated economic transactions into their respective classes, accomplished by posting to the ledger
• Summarizing


  The preparation of financial statements including the statement of financial position, income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows
• The overall objective of accounting is to provide quantitative financial information about a business useful to statement users particularly owners and creditors in making economic decisions
• Accounting is an information system that measures business activities, processes information into financial reports and communicates the reports to decision makers
• An accountant's primary task is to supply financial information so that the statement users could make informed judgment and better decision
• Financial reports tell us how well an entity is performing in terms of profit and loss and where it stands in financial terms
• Republic Act No. 9298 is the law regulating the practice of accountancy in the Philippines
• In the Philippines, in order to qualify to practice the accountancy profession, a person must finish a degree in Bachelor of Science in Accountancy and pass the Philippine CPA examination
• The Board of Accountancy is the body authorized by law to promulgate rules and regulations affecting the practice of the accountancy profession in the Philippines
• The Board of Accountancy is responsible for preparing and grading the Philippine CPA examination
• The Philippine CPA examination is a computer-based examination offered twice a year, in May and October, in authorized testing centers around the country
• Single practitioners and partnerships for the practice of public accountancy shall be registered certified public accountants in the Philippines
• The Securities and Exchange Commission shall not register any corporation organized for the practice of public accountancy
• Certified public accountants, firms and partnerships of certified public accountants, including partners and staff members are required to register with the Board of Accountancy and Professional Regulation Commission for the practice of public accountancy
• Main areas of practice for Certified Public Accountants

  • Public accounting
  • Private accounting (in corporations)
  • Government accounting
• Public accounting


  • Composed of individual practitioners, small accounting firms and large multinational organizations that render independent and expert financial services to the public
  • Offers three main services: auditing, taxation, and management advisory services
• Auditing


  The examination of financial statements by independent certified public accountant for the purpose of expressing an opinion as to the fairness with which the financial statements are prepared
• The Bureau of Internal Revenue requires audited financial statements to accompany the filing of annual income tax return
• Banks and other lending institutions frequently require an audit by an independent CPA before granting a loan to the borrower
• Creditors and prospective investors place considerable reliance on audited financial statements on making economic decisions
• Taxation services


  Includes the preparation of annual income tax returns and determination of tax consequences of certain proposed business endeavors
• The CPA not infrequently represents the client in tax investigations
• Management advisory services


  Services to clients on matters such as advice on installation of computer system, quality control, installation and modification of accounting system, budgeting, forward planning and forecasting