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◦ Philippine Financial Reporting Standards: “a service activity that provides
quantitative financial information about economic entities that is intended
to be useful in making economic decisions.”
GAAP (Generally Accepted Accounting Principles
- collection of commonly used accounting rules and standards for financial
Branches of Accounting
◦ Financial accounting - preparation of FS based on historical data-> internal
and external users
◦ Managerial accounting - preparation of FS based on historical and
estimated data-> internal users (management)
◦ Cost accounting – tracing, categorizing and summarizing manufacturing
costs to be used in planning control.
◦ Tax accounting – tax related matters
◦ Government accounting – allocation administration of government funds.
◦ Auditing – independent review of an entity’s FS.
◦ Accounting education – teaching accounting
◦ Accounting research – careful analysis of economic events to understand
impact on decisions and creation of new knowledge.
Users of Accounting Information
◦ Owners – whether earned or lost during a particular period of time.
◦ Management – evaluation of financial position and performance of a
business for economic decisions purposes.
◦ Investors – whether to increase or decrease investment
◦ Lenders – whether the borrowing entity will be able to pay amount loaned
◦ Suppliers – to know credit worthiness of an entity; whether continue or
not in providing goods on credit.
◦ Customers – whether there’s a continuous availability of products..
◦ Employees – job security
◦ Government – for taxation and regulation purposes
Forms of Business
◦ Sole Proprietorship – sole provider of capital, managing the business and
bearing risk of enterprise.
◦ Partnership – 2-15 partners
◦ Corporation – has separate legal personality from its owners; board of
directors==elected group from stakeholders.
Types of Business According to Activity
◦ Service Business – provide service
◦ Merchandising Business – buy and sell
◦ Manufacturing Business – buy, create and sell
Steps in the Accounting Cycle
*Accounting cycle – steps to be followed sequentially in producing FS.
1. Analyzing transactions (to determine effects to accounts)
2. Journalizing -> Journal “Book of Original Entry”
3. Posting -> Ledger “Book of Final Entry”
4. Unadjusted TB
5. Adjusting Entries
6. Adjusted TB
7. Preparation of FS
8. Closing Journal Entries
9. Post-Closing TB (serves as the base for next year’s accounting cycle
Basic Accounting Concepts
◦ Entity Assumption – transaction of business is separate from that of the
◦ Going Concern Assumption – business will continue for a long time
◦ Monetary unit Assumption – transactions must be measured in money
◦ Periodicity Assumption – activity can be divided into artificial period:
monthly, quarterly, annually
◦ Materiality concept – inclusions and omission of transaction
◦ Substance over form – economic substance not legal form
◦ Historical Cost Principle – value of A is recorded at its original cost