ACCOUNTING
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which is one part of the accounting
American Accounting Association –
process.
accounting is the process of identifying,
measuring, and communicating economic
information to permit informed judgment
NATURE OF ACCOUNTING
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and decisions by users of the information.
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something can be performed.
American Institute of Certified Public
– it is a behavioral knowledge
Accountants – accounting is the art of
recording, classifying and summarizing in
involving creativity and skill.
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Systematic – accounting has a definite
a significant manner, and in terms of
technique and its proper application
money, transactions and events which are
requires a particular skill and expertise.
in part at least of financial character, and
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Art – refers to the design of how
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Process – is a systematic series of
interpreting the results thereof.
actions directed towards a particular
Accounting Standards Council – sees
outcome.
accounting as a service activity, it
– accounting performs specific
functions to provide qualitative
actions such as identifying, measuring,
information, primarily financial in nature,
and communicating financial
about economic entities, that is intended
information.
to be useful in making economic
– follows logical steps in the
decisions.
accounting cycle like recording,
FUNCTIONS OF ACCOUNTING
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classifying, and summarizing financial
To fulfill the stewardship function of the
transactions, and communicating the
management (owners)
results after.
To help interested users come up with
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Information System – is a set of
informed decisions
interrelated components that work
To support daily operations.
together to achieve a common
purpose.
DIFFERENCE BETWEEN BOOKKEEPING &
ACCOUNTING
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Accounting - is broader as it includes
the bookkeeping function
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Bookkeeping - is just confined with the
recording of monetary transactions,
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CPAs are needed in the government.
Including government-owned
corporations (GOCCs)
ACCOUNTING EDUCATION
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accountants
PUBLIC ACCOUNTING
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Certified Public Accountant (CPA)
refers to those who passed the
licensure examination for accountants
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the accountant performs or offers to
perform any activity that will result to
the issuance of an attest report that is
in accordance with professional
standards.
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usually works in a firm offering its
services to various clients.
PRIVATE ACCOUNTING
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involves setting up systems of
recording business transactions that
responsible for training future
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As per Commission on Higher
Education (CHED) Memorandum Order
(CMO) No.27, Series 2017, a CPA in
accounting education should possess
the educational qualifications,
professional experience, classroom
teaching ability, computer literacy,
scholarly research productivity, and
other attributes that are essential for
the conduct of a professional
accounting program.
ACCOUNTING RESEARCH
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events on the process of
are aggregated into financial
accounting and the effects of
statements
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reported information on economic
private accountant is a salaried
events.
employee who deals with the
company’s day-to-day accounting
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hired or employed by a company
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transaction
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accounting profession
it is the system used in government
offices to record and report financial
reveals how public funds have been
generated and utilized
academic accounting research
deals with all areas of the
GOVERNMENT ACCOUNTING
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normally used in both academic
and public practice
needs
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research on the effects of economic
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accounting research in public
practice is more on solving
problems for a client or group of
clients
It is important because it can lead to consistent
accounting standards, and it prescribes the
INTERNAL USERS
are those who make decisions on behalf of the
organization, they include:
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Managers/Management
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Employees/labor unions
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Owners
nature, function, and limits of financial accounting
and financial statements.
PURPOSE OF CONCEPTUAL FRAMEWORK
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assist FRSC in developing PFRSs and its
review of existing PFRSs;
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assist FRSC in promoting harmonization
EXTERNAL USERS
of regulations, accounting standards, and
are those who make their decisions based on the
procedures relating to the presentation of
company’s financial statements. They are the
financial statements by providing a basis
following:
for reducing the number of alternative
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Potential investors
accounting treatments permitted by
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Creditors and potential creditors
PFRSs;
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Customers
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assist preparers of financial statements in
DIRECT USERS
applying PFRSs and in dealing with topics
are those with direct interest over the company.
that have yet to form the subjects of
They use financial information to protect their own
PFRSs
stake in the entity. They include owners,
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assists in forming an opinion as to
management (directors and officers), employees,
whether financial statements comply with
tax authorities, suppliers, creditors and
PFRSs;
customers.
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INDIRECT USERS
are those who represents the direct users. They
assist users tin interpreting financial
statements; and
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use financial information to provide advice to and
provide interested parties with information
about PRFSs formulation by FRSC.
protect the interest of direct users. They include
SCOPE OF THE CONCEPTUAL
regulatory agencies or registration authorities,
FRAMEWORK
financial analysts and advisors, stock exchange,
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the objective of the financial reporting
lawyers, reporting agencies, trade associations,
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the qualitative characteristics of useful
and labor unions
The conceptual framework of accounting set out
financial information;
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the definition, recognition and
the agreed concepts that underlie the preparation
measurement of the elements from which
of and presentation of financial statements for
financial statements are constructed; and
external users.
the concept of capital and capital
maintenance.
Qualitative characteristics are the qualities and
attributes that make accounting information useful
to the users thereof.
FUNDAMENTAL QUALITATIVE
CHARACTERISTICS
Relevance – relevant financial information is
capable of making a difference to the decisions
made by users.
a. Predictive value – if it is helpful in
making predictions about ultimate
outcomes of past, present, and future
events.
b. Confirmatory value – if it helps to
confirm or correct prior expectations
Materiality – business transactions that may affect
the decision of a user of financial information.
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This principle allows an accountant to
violate another accounting principle if an
amount is insignificant.
Faithful Representation – represents what really
existed or happened. Accounting information
must be complete, neutral, and free from error.
a. Completeness – all necessary information
is fully disclosed in financial statements.
b. Verifiable – it assures users that
information represents faithfully what it
purports to represent.
Timeliness – information is available to
decision-makers at the time it is needed.
Understandability – the quality of information
enables users to perceive its significance.
2 Main Types of Partnership
SOLE PROPRIETORSHIP
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is a business that is owned by only one
1.General partnership – where each
individual
partner is a general partner with unlimited
it is the simplest and least costly form of
liability.
ownership among other forms of business
2.Limited partnership – with limited
common to small business entities like
partners and at least one general partner.
grocery store, repair shop and beauty
Limited partners enjoy limited liability to the
parlor
extent only of their capital contribution.
Advantage
Disadvantage
Advantage
Disadvantage
Full control of
Unlimited liability – the
Increase potential
Unlimited liability of one
operations
owner is legally obliged to
from two or more
or all owners
pay all business debts
different strengths
Easy to start, easy to
Limited life – the business
Easy to form with
Limited life – the business
dissolve
ceases to operate if the
proper agreements on
ceases to operate if one
owner dies, becomes
its formation
of the partners dies,
All profits go directly to
physically or mentally
becomes physically or
incapacitated or is
mentally incapacitated, or
imprisoned
is imprisoned
Difficulty in raising capital
the owner
Less regulations to
High possibility of dispute
corporations
and conflicts between
partners.
Less regulations
The government taxes
the owner and not the
business
CORPORATION
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required to have 5 to 15
incorporators (those who originally
formed the corporation)
PARTNERSHIP
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is a business that is owned by two or
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the owners (members) have limited
more individuals pooling their resources
liability and limited involvement
together as a common fund.
from the operations.
The profit of the business is divided
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The board of directors, who are
among the partners’ agreement.
elected by the owners themselves,
The written agreement between or among
will take control of the corporation’s
partners is called articles of co-partnership
activities.
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The existence of the corporation is
evidenced by articles of
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COOPERATIVE
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is a business that is owned by a group of
incorporation and by-laws that are
individuals who also serve as benefactors
duly approved by SEC.
to the business endeavor.
by-laws contain provisions for
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internal administration of
corporations.
usually requires at least 15 members to
function.
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Members can become part of the
cooperative by purchasing shares.
Advantage
More sources of funds
Disadvantage
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a set of by-laws and articles of
More regulations to be
followed
Easy to transfer
Profit is taxed at the
ownership
corporate tax rate
Liability of owners is
Costly to incorporate
limited
Similar to corporations, a cooperative has
cooperation.
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The by-laws contain rules and regulations
governing the operation of a cooperative.
Advantage
Disadvantage
Unlimited life. The
Difficulty in obtaining
Unlimited commercial
Shareholders are taxed
change of members
capital through investors.
life
again when profits are
does not dissolve the
Cooperative has a
distributed to them
business
“one-member-one-vote”
philosophy. Big investors
may choose to invest their
money in other firms
where their voting power
is equal to their ownership
instead.
Democratic
Lack of members and
organization.
participation. The
Social equality of
cooperative may not fully
members is the most
function if members do
important component
not involve themselves in
of cooperatives. It
the routine business
ensures that it serves
operation.
its members’ needs
MONETARY UNIT ASSUMPTION
ECONOMIC ENTITY ASSUMPTION
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It assumes that only transactions that
it assumes that all of the business
can be expressed in terms of money
transactions are separate from the
are recorded.
business owner’s personal transactions.
TIME PERIOD ASSUMPTION
Any personal transactions of its owner
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should not be recorded in the company
accounting book and vice versa, unless
financial statements are prepared at
equal time intervals.
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The assumption requires a business to
the owner’s personal transaction involves
complete the whole accounting process
investing or withdrawing resources from
of a business over a specific operating
the business.
time period.
ACCRUAL BASIS ASSUMPTION
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It requires that all business
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monthly, quarterly or annually
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for the annual accounting period, it may
transactions and other events are
recognized in the accounting records
follow a calendar or fiscal year.
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when they occur, rather that when the
cash or equivalent is received or paid.
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Calendar year is a twelve-month period
that ends on December 31.
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Fiscal tear is a twelve-month period
It is assumed that revenue is recorded
that may or may not end on December
in the period it is earned, regardless of
31.
the time the cash is received or
collected, same is true for expense;
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expense is recognized and recorded at
the time it is incurred (used/consumed),
regardless of the time that cash is paid
GOING CONCERN ASSUMPTION
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a business entity is assumed to remain
in existence for an indeterminate period
of time.
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The basic accounting principles are detailed
accounting rules and guidelines that entities must
follow when measuring, recording, and reporting
financial data.
Cost Principle
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This assumes that a company will
cost refers to the amount spent (cash
or cash equivalent) when an item was
continue to exist long enough to carry
originally obtained, whether that
out its objectives and commitments and
purchase happened last year or ten
will not liquidate in the foreseeable
years ago; amounts are not adjusted
future.
upwards for inflation.
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Historical cost amounts
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All assets acquired should be valued
and recorded based on the actual cash
equivalent or original cost of
acquisition, not the prevailing market
Objectivity Principle
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value or future value.
Requires business transactions to have
some form of impartial supporting
evidence or documentation
Full Disclosure Principle
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It entails that bookkeeping and financial
the accountant should include
recording be performed with
sufficient information to permit the
independence that is free of bias and
stakeholders to make an informed
prejudice
judgment about the financial
condition and performance of the
enterprise.
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If certain information is important to
Other Principles:
Cost-Benefit Relationship
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Derived from providing certain
an investor or lender using the
accounting information should exceed
financial statements, that
the cost of providing that information.
information should be disclosed
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The difficulty in cost-benefit analysis is
within the statement or in the notes
the costs and the benefits are not
to the statement.
always evident and measurable.
Matching Principle
Conservatism or Prudence Principle
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Expenses matched with revenues
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In the given accounting period, the
valuation of business transactions,
revenue recorded should have its
the amount recorded should be the
corresponding expense recorded, in
lower rather than the higher value.
order to show the true profit of the
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business.
Conservatism directs the
accountant to choose the
Revenue Recognition Principle
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states that given two options in the
alternative that will result in less
States that revenues are recognized as
effect in net income and/or less
soon as goods have been sold
asset amount.
(delivered to the customers) or service
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Similar to materiality principle,
has been rendered, regardless of when
conservatism is a modified
the money is actually received.
constraint that allows the
accountant to violate another
accounting principle if there are
alternatives to be selected.
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Helps the accountant break a tie
while remaining unbiased and
objective