CHAPTER 1:
ACCOUNTING AS INFORMATION SYSTEM
THE ACCOUNTANCY PROFESSION
Measures business activities, processes information into
reports and communicates the reports to decision makers.
AMERICAN ACCOUNTING ASSOCIATION
FINANCIAL STATEMENTS - report financial information
a) Accounting is about quantitative information.
b) Information is likely to be financial in nature.
c) Should be useful in decision making.
*To provide quantitative information to be useful in making
an economic decision.
COMPONENTS OF ACCOUNTING
1. Identifying = analytical
 Recognition or non-recognition of business
activities as “accountable” events
 When it has an effect on assets, liabilities, and
equity.
2. Measuring = technical
 Assigning peso amounts to the accountable
economic transactions and events
 The Philippine peso is the unit of measuring
accountable economic transactions.
 Historical cost - most common measurement
3. Communicating = formal
 Preparing and distributing accounting reports to
potential users of accounting information
 Why accounting has been called the ‘language of
business.’
CLASSIFICATIONS OF TRANSACTIONS
1. External transactions (exchange transactions) - involving
one entity and another entity
2. Internal transactions - involving the entity only (i.e.
production and casualty loss)
 Production - resources transformed into
transactions
 Casualty – sudden, unanticipated loss from natural
calamities
IMPLICIT IN THE ACCOUNTING PROCESS
1. Recording (journalizing) - systematically maintaining a
record of all economical business transactions after they
have been identified or measured.
2. Classifying - sorting or grouping of similar and interrelated
economic transactions; posting to the ledger
3. Summarizing - preparation of financial statements
about an entity to decision makers
OVERALL OBJECTIVE OF ACCOUNTING
To provide quantitative financial information about a
business that is useful to statement users in making economic
decisions
THE ACCOUNTANCY PROFESSION
BOARD OF ACCOUNTANCY - authorized by law to
promulgate rules and regulations affecting the practice of
the accountancy profession in the Philippines; preparing
and grading the Philippine CPA examination
3 MAIN AREAS OF PRACTICING ACCOUNTANCY
PROFESSION
1. Public accounting - render financial services to the
public
 Auditing - expressing an opinion as to the
fairness of financial statements
 Taxation - preparation of annual income tax
returns; determination of tax consequences
 Management advisory services - matters of
accounting, finance, business policies, etc.
2. Private Accounting - assisting management in
planning and controlling the entity’s operations
 Controller - highest accounting officer
3. Government Accounting - analyzing, classifying,
summarizing and communicating involving
government funds and property
CONTINUING PROFESSIONAL
DEVELOPMENT
Acquisition of knowledge, skill, proficiency and ethical and
moral values after initial registration of Certified Public
Accountant
*Exemption for renewal: age of 65
ACCOUNTING VS AUDITING
Broad sense, auditing is one of the areas of accounting
Limited sense, accounting is essentially constructive
*The work of an auditor begins when the work of the
accountant ends.
ACCOUNTING VS BOOKKEEPING
Bookkeeping = procedural; accounting = conceptual
Bookkeeping = how; accounting = why
ACCOUNTING VS ACCOUNTANCY
Accountancy – profession of accounting practice
FINANCIAL VS MANAGERIAL


Financial accounting – reporting to creditors and
investors
Managerial accounting – for internal users only
GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Rules, procedures, practice and standards followed in
financial statements
FINANCIAL REPORTING STANDARDS
COUNCIL
Accounting standard setting body by the Professional
Regulation Commission to assist Board of Accountancy
INTERNATIONAL ACCOUNTING
STANDARDS COMMITTEE
Independent private sector body, achieving uniformity in the
accounting principles
 Formulate and publish in the public interest
accounting standards
 For the improvement and harmonization of
regulations, accounting standards and procedures s