The term “business” means a systematized • Service Activity

effort of persons to create something and trade

• Quantitative Information
the same to earn a profit which in the end will
satisfy the community or the society • Financial in Nature
TYPES OF BUSINESS ORGANIZATION • Economic Entities
SERVICE - a business that provides work • Economic Decision
performed through the expertise by individual or
team for the advantage of its customers or AICPA – American Institute of Certified
clients. Public Accountants

MERCHANDISING - a business that acquires Art of recording, classifying and summarizing

finished goods and resells the same to in a significant manner and in terms of money,
consumers. transactions and events which are in part at least
of a financial character and interpreting the
MANUFACTURING - an entity that converts results thereof.
raw materials into finished goods and sells them
to consumers. • Recording Phase

FORMS OF BUSINESS ORGANIZATION • Classifying Phase

SOLE PROPRIETORSHIP - is an entity or • Summarizing Phase

business organization that is owned by one • Interpreting Phase
person. The owner manages, controls and
makes decision about the daily operations of the AAA – American Accounting Association
enterprise or business and perhaps other matters.
Process of identifying, measuring and
PARTNERSHIP - another form of business communicating economic information to permit
enterprise whereby at least two or more persons informed judgment and decision by users of the
agreed to combine their businesses or assets and information.
are willing to share or divide the profit between
• Identifying
or amongst them.
• Measuring
CORPORATION - another form of business
enterprise whereby at least two or more persons • Communicating
agreed to combine their businesses or assets and
are willing to share or divide the profit between ACCOUNTING as the LANGUAGE of
or amongst them. Business

What is ACCOUNTING? Accounting has its own set of terminology

ASC – Accounting Standards Council A means of communicating information

about a business
It is a service activity.
Like any other language, it is difficult to
The accounting function is to provide understand unless you have studied it
quantitative information, primarily financial
in nature, about economic entities, that is Users of Accounting Information
intended to be useful in making economic Primary Users
decision.
Investors
 • they are concerned with the risk inherent regulations and that it protects the
in investing and the returns. interests of the stakeholders who rely on
such information.
• assess the feasibility of making
investments in the company, • They need information to collect taxes
and other fees due to them. (Taxable
• they need to analyze before they provide
Income)
any financial resources to the company.
Public
• They need information such as the sales,
profit, return of investments, stability • a source of education for students of
and continuity of the company accounting and finance.
Lenders/Creditors • a source of valuable data for those
researching on organizational impacts
• determine the credit worthiness of the
on individuals and economy as a whole.
business.
• a source of information for the people
• The credit terms and standards are set on looking for job opportunities.
the basis of the financial health of a
business, so, it helps them to analyze by • a source of information about the future
using the accurate information of a particular enterprise.
accordingly.
Branches of Accounting
• Creditors include suppliers and lenders
Government Accounting
of finance, such as banks.
encompasses the processes of analyzing,
• They need information such as the
recording, classifying, summarizing and
ability to pay of the company.
communicating all transactions involving the
receipt and disposition of government funds and
property, and interpreting the results thereof.
Other Users
Financial Accounting
Employees
specific branch of accounting involving a
• Employees use the accounting process of recording, summarizing, and
information to find out the financial reporting the myriad of transactions resulting
health, amount of sales and profitability from business operations over a period of time.
of business to determine their job
security, the possibility of future Cost Accounting
remuneration, retirement benefits and
examines the cost structure of a business. It does
employment opportunities.
so by collecting information about the costs
• They need information such as the incurred by a company's activities, assigning
stability and profitability of the selected costs to products and services and other
company. cost objects, and evaluating the efficiency of
cost usage
Government
Management
• The accounting information is needed
for them to ensure that it is in is the practice of identifying, measuring,
accordance with the rules and analyzing, interpreting, and communicating
financial information to managers for the pursuit
of an organization's goals
Fund Accounting
EXPENSE RECOGNITION PRINCIPLE
refers to the management and allocation of
expense is recognized when it is incurred
revenue an organization acquires through
regardless when cash is paid.
donations, tax payments, grants and other public
and private sources ADEQUATE DISCLOSURE
demands full disclosure of all material matters
which can affect the financial statements and are
of the interest of users of accounting
Tax Accounting information. It requires the disclosure of
appropriate changes in financial statements
structure of accounting methods focused on
which can be more useful and not misleading to
taxes rather than the appearance of public
its
financial statements.
CONSISTENCY PRINCIPLE
Tax accounting is governed by the Internal
Revenue Code, which dictates the specific rules once you adopt an accounting principle or
that companies and individuals must follow method, continue to follow it consistently in
when preparing their tax returns. future accounting periods. Only change an
accounting principle or method if the new
Forensic
version in some way improves reported financial
utilizes accounting, auditing, and investigative results.
skills to conduct an examination into the
MATERIALITY PRINCIPLE
finances of an individual or business.
states that financial information is material to the
provides an accounting analysis suitable to be
financial statements if it would change the
used in legal proceedings
opinion or view of a reasonable person.
Underlying Assumption
Theories in Accounting GOING CONCERN ASSUMPTION
Basic Principles is an accounting term for a company that has the
HISTORICAL COST resources needed to continue
operating indefinitely until it provides evidence
a measure of value used in accounting in which to the contrary
an asset on the balance sheet is recorded at its
original cost when acquired by the company. Fundamental concepts

OBJECTIVITY PRINCIPLE ACCOUNTING ENTITY CONCEPT

is the concept that the financial statements of an a business or an organization and its owners are
organization be based on solid evidence treated as two separately identifiable parties

REVENUE RECOGNITION PRINCIPLE PERIODICITY CONCEPT

revenue is recognized when the earning process means that accountants will assume that a
is complete regardless when cash is received. company's complex and ongoing activities can
be divided up and reported in annual, quarterly India developed invested capital and dividend
and monthly financial statements. distribution.
STABLE MONETARY CONCEPT And also, during this time, financial accounting
and management accounting had been a
assumes that the value of the peso is stable over
necessity to report to management and investors
time and ignores the effect of inflation in the
respectively
accounting records
1701-1900
Appreciate the history of accounting
During the industrial revolution, accounting
2500 B.C.
really took off as industrial companies sought
Historical accounting records have been found in out to gain financing and maintain efficiency
ancient civilization like the Egyptians, Romans, through operations.
Greek empires as well as Ancient Arabia.
Shortly after, the first accounting organization
1000 B.C. was developed in New York in the year 1887
and in 1896 the title CPA was established.
The Phoenicians created an alphabet with
accounting so that they were not cheated through 1920-1940
trades with ancient Egyptians
GAAP was developed by American Institute of
500 B.C. CPA (AICPA) and the Financial Accounting
Standards Board (FASB)
Egyptians carried on with accounting records.
They even invented the first bead and wire 1941-present
abacus.
Many accounting standards have been
432 B.C. developed. (IAS and IFRS)

The auditing profession was born to double Business Trends

check storehouses as to what came in and out the
Edge-computing for Video
door. The reports were given orally, hence the
name “auditor” Bringing data storage and computer power
closer to the end user, reducing latency and load
1200-1493
and improving scalability in an effort to support
The first requirement for business to keep a better user experience. Ex. Video live
accounting records spread across many of the streaming.
Italian Republics in the 13th century.
Artificial Intelligence (AI)
1494
The simulation of human intelligence in
Luca Pacioli, the father of accounting, writes his machines that are programmed to think like
famous paper “Everything about Arithmetic, humans and mimic their actions.
Geometry and Proportion. The doble –entry was
Autonomous Vehicles
introduced.
Driverless vehicle where the vehicle is able to
1500-1700
operate itself and perform necessary functions
As time progressed, double-entry records had without human intervention, through ability to
large and small innovations added. The East sense its surroundings.
Retail Technology
The digital tools and innovation utilized by on outliers and exceptions, identifying the most
brick-and-mortar retailers and e-commerce at risk areas of the audit..
platforms in their in-store and supply chain
Accounting Software Solutions
operations. It usually powered by automation,
internet and AI A computer program that assists bookkeepers
and accountants in recording and reporting a
Decentralized Financing
firm’s financial transactions. Examples:
A block-chain-based form of finance that does QuickBooks, FreshBooks , Zoho Books, Oracle
not rely on certain central financial Netsuite, SAP and Peachtree.
intermediaries such as brokerages, exchanges or
Accountancy Profession
banks to offer traditional financial instruments,
and instead utilizes smart contracts on It has grown due to the increased complexity,
blockchains, the most common being Ethereum. size, and number of businesses and the frequent
changes in the tax laws.
Smart Home
Characteristics of Why Accountancy is
Convenient home setup where appliances and
considered a profession
devices can be automatically controlled remotely
from anywhere with an internet connection  determines its own standards of
using a mobile or other controlled device. (alert education and training.
owners if any motion is detected in the home  Licensing and admission boards are
when they are away. manned by members of the profession.
Accounting Trends  is often legally recognized by some form

Automated Accounting Operation

of licensure.
Takes the most manual elements of an  The practitioner is relatively free of lay
accountant’s work day and does them evaluation and control.
automatically. Also known as computerized  Most legislation concerned with the
accounting software. profession is shaped by that profession.
Cloud-based Accounting Technologies The Philippine Accountancy Act of 2004
Accounting software that is accessed via an An act regulating the practice of accountancy
internet browser or log in and is hosted online or in the Philippines, repealing for the purpose
“in the cloud”. presidential decree no 692, otherwise known as
Outsourcing Accounting Functions to experts the revised accountancy law, appropriating funds
therefor and for other purposes
Reassigning some part of accounting functions
to a third-party provider or a fully owned Article I., Section 3: OBJECTIVES
subsidiary in order to gain access to scarce This Act shall provide and govern:
skills, to cut cost, or obtain competitiveness. Ex.
Outsourcing payroll processing. • The standardization and regulation of
accounting education.
Data Analysis
• The examination of registration of
Data analysis or data analytics is the science of certified public accountants; and
drawing insights or conclusions from raw
information sources. It allows auditors to focus
 • The supervision, control, and regulation • Has not been convicted of any criminal
of the practice of accountancy in the offence involving moral turpitude.
Philippines.
Article III., Section 15:
Scope of Examination (as revised)
Article II., Section 5:
• Financial Accounting & Reporting
The Professional Regulatory Board of (FAR)
Accountancy and its Composition
• Advanced Financial Accounting &
• 1 Chairman Reporting (AFAR)
• six (6) members to be appointed by the • Auditing
President of the Philippines from a list
• Management Advisory Services
of three (3) recommendees for each
position and ranked by the Commission • Taxation
from a list of five (5) nominees for each
position submitted by the accredited • Regulatory framework for business
national professional organization of transactions
certified public accountant. Article III., Section 16:
Article II., Section 6: Rating in the Licensure
Qualifications of a members of the a candidate must obtain a general average of
Professional Regulatory seventy five percent (75%), with no grade lower
• Must be a natural-born citizen and a than sixty-five percent (65%) in any given
resident of the Philippines; subject.

• Must be a duly registered Certified In the event a candidate obtains the rating of
Public Accountant with at least ten (10) seventy-five percent (75%) and above in at least
years of work experience in any scope a majority of subjects as provided for in this Act,
of practice of accountancy; he/she shall receive a conditional credit for the
subjects passed:
• Must be a good moral character and
must not have been convicted of crimes Provided, That a candidate shall take an
involving moral turpitude; and examination in the remaining subjects within
two (2) years from preceding examination:
• Must not have any pecuniary interest,
directly or indirectly, in any school, Provided, further, that if the candidate fails to
college or university. obtain at least a general average of seventy-five
percent (75%) and a rating of at least sixty-five
Article III., Section 14: percent (65%) in each of the subjects
reexamined, he/she shall be considered as failed
Qualifications of applicants for examinations
in the entire examination.
• Is a Filipino citizen
Article III., Section 18:
• Is of good moral character
Failing Candidates to Take Refresher Course
• A Bachelor of Science in Accountancy
Any candidate who fails in two (2) complete
(BSA) degree holder
Certified Public Accountant Board
Examinations shall be disqualified from taking ______________________________________
another set of examinations unless he/she submit Conceptual Framework is a system of ideas
evidence to the satisfaction of the Board that and objectives that lead to the creation of a
he/she enrolled in and completed at least twenty- consistent set of rules and standards. Specifically
four (24) units of subject given in the licensure in accounting, the rule and standards set the
examination. nature, function and limits of financial
accounting and financial statements.
For purposes of this Act, the examination in
which the candidate was conditioned together The Conceptual Framework for Financial
with the removal examination on the subject in Reporting describes the:
which he/she failed shall be counted as one
• Objectives of General Purpose Financial
compete examination.
Reporting
Article I., Section 4:
• Concepts for General purpose Financial
Areas of Accounting Practice Reporting
Practice of Public Accountancy - shall With a sound conceptual framework in place the
constitute a person, be it his/her individual IASB(ASC or the FRSC) is able to issue
capacity, or as a staff member in an accounting consistent and useful standards. In addition,
or auditing firm, holding out himself/herself as without an existing set of standards, it isn’t
one skilled in the knowledge, science and possible to resolve any new problems that
practice of accounting, and as a qualified person emerge. The framework also increases financial
to render professional services as a certified statement users’ understanding of and
public accountant. confidence in financial reporting and makes it
easier to compare different companies’ financial
Practice in Commerce and Industry - shall
statements.
constitute in a person involved in decision
making requiring professional knowledge in the PURPOSE
science of accounting, or when such
Assist the International Accounting standards
employment or position requires that the holder
Board to develop IFRS (standards) that are
thereof must be a certified public accountant.
based on consistent concepts.
Practice in Education/Academe - shall
Assist preparers to develop consistent
constitute in a person in an educational
accounting policies when no standard applies or
institution which involve teaching of accounting,
when a standard allows a choice of policy.
auditing, management advisory services, fiancé,
business law, taxation and other technically Assist all parties to understand and interpret the
related subjects. Standards (PAS and PFRS)
Practice in Government - shall constitute in a As the purpose of financial reporting is to
person who holds, or is appointed to, a position provide useful information as a basis for
in an accounting professional group in economic decision making…
government or in an government-owned and/or
controlled corporation, including those a conceptual framework will form a
performing proprietary functions, where theoretical basis for determining how
decision making requires professional transactions should be measured (historical
knowledge in the science of accounting, or value or current value) and reported – ie how
where a civil service eligibility as a certified they are presented or communicated to users.
public accountant is a prerequisite. Qualitative Characteristics
 Fundamental Qualitative Characteristics
▪ Increases in Liabilities &
RELEVANCE Equity are recorded as credit
(on the right side of the
FAITHFUL REPRESENTATION
account), while decrease in
Enhancing Qualitative Characteristics assets are recorded as credits
(on the right side)
VERIFIABILITY
❑ For the Income Statement Accounts
COMPARABILITY
UNDERSTANDABILITY ▪ Increases in revenues are
TIMELINESS recorded as credits and
decreases are recorded as
What is a DOUBLE-ENTRY SYSTEM? debits
for every business transaction, it has an equal
▪ Increases in Expenses are
and opposite effects in at least two different
accounts recorded as debits and
decreases are recorded as
Accounting Equation credits
Assets = Liabilities + Capital Analyze business transactions
has two equal and corresponding sides known as This is the most important stage as all the
debit and credit following stages depend upon the accuracy with
ACCOUNT- In accounting, accounts are which the business transactions are identified
considered the basic device in summarizing and recorded. Analyzing transactions should
financial information. follow these basic steps:

It is used to keep track and have a detailed • a. Identify the transaction from source
record of the increase, decrease and balance of documents
each element that appears in the financial • b. Determine the element of financial
statements. statements (asset, liabilities, equity,
To debit an account means to enter an amount income, expenses) affected by the
on the left side of the account and to credit an transactions.
account means to enter an amount on the right • c. Determine the increase or decrease in
side of an account. each account
❑ For the Balance Sheet Accounts • d. Using the rules of debit and credit,
determine whether to debit or credit the
▪ Increases in assets are recorded account to record its increase or
as debits (on the left side of the decrease
account), while decrease in Source documents are proof of occurrence of
assets are recorded as credits business transactions. These original written
(on the right side) evidences contain information about the nature
❑ For the Balance Sheet Accounts and the amounts of the transaction.
 5. Credit- The amount for each account is
entered in this column
Types of Transactions
The Ledger
1.Source of Assets - An assets account increases
and a corresponding claims (liabilities or equity) a record or document that contains account
account increase summaries for accounts used by an entity and is
called the book of final entry.
2. Exchange of Assets- One asset account
increases and another asset account decreases. Chart of Accounts
3. Use of Assets - An asset account decreases • A listing of all the accounts and their
and a corresponding claims (liability or equity) account numbers.
account decreases
• Arranged in the financial statement
4. Exchange of Claims-One claims (liabilities order, that is, assets, liabilities, owner’s
or owner’s equity) account increases and another equity, income, and expenses.
claims (liabilities or owner’s equity) account
• Accounts should be numbered to permit
decreases.
indexing and cross indexing.
The Journal
• Each account listed must have a
An accounting journal is a chronological record corresponding ledger account
of all the financial transactions of a business. It’s
also known as the book of original entry. The Trial Balance proves the equality of debits
and credits.
Contents:
Steps in preparing the Trial Balance
1. Date of transaction- The year and
month are not rewritten for every entry  Calculate the Balances of Each of the
unless the year or month changes or a Ledger Accounts
new page is needed.  Record Debit or Credit Balances in Trial
Balance
2. Account Titles and Explanation-Debit  Calculate Total of The Debit Column
is entered at the extreme left of the first  Calculate Total of The Credit Column
line while ,  Check if Debit is Equal to Credit
Credit is entered slightly indented on
the next line. A brief description of the
transaction is usually made on the line What is an adjusting entry?
below the credit. Generally leave a line
an entry to record unrecognized income or
after every entry.
expense for the period.
3. P.R. (posting reference) - Used when
Why are adjusting entries necessary?
entries are posted, that is until the
amounts are transferred to the related Transactions take place over more than one
ledger accounts. This is also known as accounting period.
the account code
Accrual Basis of Accounting
4. Debit- The amount for each account is
entered in this column
suggests that revenue or expense is to be All assets acquired are subject to depreciation
recorded when they occur regardless when cash (except “Land”) because of the passage of time,
its use or the wear and tear of the assets.
is received or paid. Using the Straight Line Depreciation Method,
the value of an asset is reduced uniformly over
while Cash Basis of Accounting recognizes each period until it reaches its salvage value.
revenue or expense when cash is received or
paid, respectively. Annual Depreciation = Cost-SV

Rules in recoding adjusting entries? UL

Cash is never involved in adjusting entries Cost is the purchase price of the asset

Adjusting entries always involve either a SV (Salvage Value) is the value of the asset at
revenue account or an expense account the end of its useful life

adjusting entries involve one real account and UL (useful life) represents the number of years
one nominal account. in which the asset is expected to be used by the
company
real accounts are account titles found in the
balance sheet while the nominal accounts are Uncollectible Accounts
found in the income statement.
A doubtful debt is a receivable that might
Types of Adjustments become a bad debt at some point in the future.

Deferral Allowance for doubtful accounts is a contra

asset account which represents management’s
• Prepayments estimate of uncollectible accounts for the period.
• Purchase of Supplies Unearned Income/Revenue
• Depreciation - is money received by the company for a
service or product that has yet to be
• Uncollectible accounts estimate
provided or delivered.
• Unearned Revenue
- It is recorded as a liability because it
Accrual represents a debt owed to the customer

• Accrued Expense - When the company earned or partially

earned the revenue, adjustment must be
• Accrued Revenue made to reflect the earned portion.
What is a Deferral type of adjustment?
postponement of the recognition of expense
already paid but not yet incurred or
What is an accrual type of adjustment?
-postponement of the recognition of
revenue/income already collected but not yet -recognition of expense already incurred but not
earned. yet paid

Depreciation -recognition of revenue/income already earned

but not yet collected.
Accrued Expense selected adjusting journal entries made
in the immediately preceding period
- is an expense already incurred but no
payment has been made yet. - It is done at the beginning of the
accounting period.
- It is sometimes called accrued liability
and is classified as a current liability. - These are to be reversed: Accrued
Expense, Accrued Income, deferrals
- Examples include, taxes to be paid by
using Expense and income methods
the company, interest accrued for the
obligations and salaries of employees Deferrals are reversed only if the alternative
incurred. methods are used.
Accrued Income/Revenue Deferral expense:
- is a revenue/income that has been earned Asse method
but no cash has been received by the
Prepaid rent xx
company.
cash xx
- It means services have been provided or
goods have been delivered but no cash AJE:
has been received as at the end of the
accounting period
_______________________________________ Rent Expense xx

Closing Entries Prepaid Rent xx

- A closing entry is a journal entry that is

made at the end of the accounting period Deferral expense:
to transfer balances from a temporary
account to a permanent account. Expense method
- All Income statement accounts are Rent Expense xx
nominal or temporary accounts
cash xx
- Withdrawal account is also closed at the
AJE:
end of the year to the capital account.
Post-Closing Trial Balance
- After the journalizing and posting the Prepaid Rent xx
nominal accounts, it is time to prepare Rent Expense xx
the Post-closing Trial Balance.
- It is similar with the preparation of the
Trial Balance, the only difference is that
only the real accounts will be presented.
Reversing Entries
- A reversing entry is a journal entry that
is made at the beginning of the
accounting period which reverses