Reviewer in Accounting Plus

CHAPTER 1: ACCOUNTING AND ITS DEFINITION OF ACCOUNTING

ENVIRONMENT Accounting Standard Council (ASC)
- a service activity. Its function is to provide quantitative
Business
information, primarily financial in nature, about
- systematized effort of persons to produce goods and
services with the objective of making profit. economic entities, that is intended to be useful in making
economic decision.
TYPES OF BUSINESS - pertains to the operation
1. Service American Institute of Certified Public Accountants
- a business that provides work through expertise. (AICPA)
EX. salon, laundry, barbershop - the art of recording, classifying, summarizing, and
interpreting.
2. Merchandising
- buy and sell business
- acquires finished goods and resells the same to American Accounting Association
the customers. - process of identifying, measuring, and communicating.
EX. grocery, sari-sari store
Accounting as a language of business
3. Manufacturing - “serves as a tool to facilitate understanding financial
- converts raw material into finished goods.
information between and among users”.
EX. fast food chains, bakeries

major operation is what matter Role of Accounting in Business

- to provide new concepts and strategies in the creation
of reliable and accurate financial information.
Service Type Merchandising and
Manufacturing Financial Reporting
- essential for preparing and timely financial statements.
Service Revenue xx Sales xx
Budgeting and Planning
Less: Expense (xx) Less: Cost of Goods Sold
(xx) - budgets help business allocate resources effectively, set
financial goals, monitor performance.
Income: (Loss) xx Gross Profit xx
Decision Making
Less: Expense (xx)
- managers use financial reports to assess profitability,
Income: (Loss) xx evaluate performance against goals, and make strategic
decisions about pricing, production, investment, and
expansion.
FORMS OF BUSINESS ORGANIZATIONS -
pertains to the ownership
Tax Compliance and Planning
1. Sole Proprietorship - whether legal or illegal should be tax.
- business owned by one person called
proprietor. Financial Analysis
- pros: solo it profit
- helps management make informed decisions and
- cons: solo it liability
improve overall financial performance.
2. Partnership
- in a contract of partnership by two or more Compliance and Governance
persons bind their business and assets and divide - accountant ensure that financial transactions are
their profit. recorded accurately in accordance with Generally
Accepted Accounting Principles (GAAP) or
3. Corporation
International Financial Reporting Standards (IFRS). This
- complex type of business organization owned by
promotes transparency.
shareholders
- an artificial being created by the operation of
law.
Financial information about the company’s:
● resources and obligations
Aspects of a business:
● profitability
● systematically established
● capital
● provides goods or services
● cash flows
● earns profit
● satisfies the customers
Who will use this financial information?
1. Internal users
A business is organized for the purpose of earning
● Owners
profit but satisfy the customers.
- concerned about the overall well-being of the
business.
 Reviewer in Accounting Plus
- to assess the stability of their investment, Auditing
including returns. - refers to review, examination, verification of historical
data, records to ensure its fairness and reliability.
● Management
- concerned about the operation of the business. Cost Accounting
- assist in planning, controlling the business and - collecting, tracing, and collecting, tracing, and
identifying areas of improvement. categorizing manufacturing costs.

2. External users FUNDAMENTAL CONCEPTS

● Employees 1. Entity Concept
- concerned about the financial health and - a business is separate from its owner.
profitability of the business to determine their
job security, and job opportunities. 2. Stable Monetary Unit
- peso is stable
● Potential Investors
- concerned of the rewards and risks in investing 3. Periodicity Concept
in a business. - a business life is sub divided into time periods
- need information about the profitability and - usually prepared annually (1 year)
stability of the business and potential return of
investment. Calendar year - twelve months period that ends on
December 31
● Creditors Natural Business Year - a twelve month period that end
- concerned about the credit standing of the on any month
business and its ability to pay maturing
obligations. UNDERLYING ASSUMPTION
- include lender and supplier 1. Going Concern
- entity is viewed as if it will lived forever.
● Government
- to ensure that it is compliant with the existing BASIC PRINCIPLES
laws and regulations. 1. Consistency Principle
- accounting policies or methods used by the company
● Customers must be applied consistently from period to period to
- concerned to the stability and continuity of the achieve comparability of financial information.
business especially when they are solely
independent on the products and services. 2. Historical Data
- assets and liabilities are recorded and presented
● Public originally cost and no adjustment.
- concerned about the future of the particular
business and the job opportunities it provides. 3. Revenue Recognition Principle
- “expense is recognized in the financial records when
incurred regardless of when paid”.
- disregarded the cash flow, something is earned when
you already done.
BRANCHES OF ACCOUNTING
Tax Accounting 4. Objectivity Principle
- focused with the tax related matters such as the - accounting measurement and accounting reposts should
preparation of tax returns and identification of tax be objective, factual, and verifiable data.
consequences.
- includes computation of taxable income. 5. Materiality
- relates to the significance of transactions, balances and
Government Accounting errors to affect evaluation and decisions
- concerned with examining and identification of sources - defines the threshold or cutoff point after which
and uses of public funds. financial information becomed relevant to the decision
making needs of the users.
Financial Accounting - relative to the size and nature
- recording of business transaction and periodic - only those relevant should be considered
preparation of reports.
6. Adequate Disclosure
Management Accounting - requires a business to provide relevant information so
- preparation of financial reports to management used for that the users of the financial information are able to
making economic decision. make informed decisions about the business.
 Reviewer in Accounting Plus
HISTORY OF ACCOUNTING ● Article I., Section 4: SCOPE OF PRACTICE
1494: Luca Pacioli Public Practice
- rise of “double-entry” bookkeeping - a debit and - render service to client on a fee basis
credit value is entered for each transaction - accounting, auditing firm, consultation
- explained the rules of debit and credit in transaction, - no employer if you own the auditing firm
preparation of journal, ledger and trial balance.
- Father of Accounting and Bookkeeping and Father Practice in Commerce and Industry
of Double-Entry Accounting - shall constitute in a person involved in decision
- mathematics teacher of Leonardo Da Vinci making

1800 - professionalism of accountants began, first in the Practice in Education/Academe

United Kingdom and in the U.S - a person in an educational institution whic
1887 - created the American Association of Public involve teaching of accounting, auditing,
Accountants (AAPA) taxation, and others related.
1896 - first standardized test for accountants was given. Practice in Government
1957 - AICPA was formed - a person who holds or appointed to a position in an
1923 - accounting was recognized by the Philipine accounting professional group in government.
government as a profession through the Board of
Accounatncy (BOA), which passed the Accountancy Act ● Article II., Section 5: THE PROFESSIONAL
1923 REGULATORY BOARD OF
1929 - the Philippine Institute of Certified Public ACCOUNTANCY (BOA) AND ITS
Accountants (PICPA) was established COMPOSITION
1967 - passed the Accountancy Act 1967 - 1 chairman
1975 - Revised Accountancy Law 1975 - 6 members to be appointed by the president.
2004 - The Philippine Accountancy Act of 2004
replaced the Revised Accountancy Law 1975. ● Article II., Section 6: QUALIFICATION OF
MEMBERS OF THE PROFESSIONAL
Don Vicente Fabella first Filipino Accountant REGULATORY BOARD
- natural born citizen and a resident of the
CHAPTER 2: THE PROFESSION AND Philippines
ACCOUNTING - certified public accountant
- good moral character
Role of the Accountancy Profession - must not have any pecuniary interest, direct or
- promotes, develops and supports accountants indirectly, in any school
worldwide.
- protects the quality and integrity of accountants in their ● Article II., Section 14: QUALIFICATIONS
application of standards. OF APPLICANTS FOR EXAMINATION
- accountancy needs to be profession not only by - Filipino citizen
competent but also behave ethically. - good moral character
- holder of degree of BSA
CHARACTERISTICS OF THE PROFESSION - has not been convicted of any crimes
1. It has a standard of education.
2. Admission to the profession is controlled. ● Article III., Section 15: SCOPE OF
3. Compliant with ethical values required by the EXAMINATION
Code of Ethics and Accountancy Law. Per Standard Per Revised (June
4.Commitment to on-going professional development. 20, 2015)

Republic Act No. 9298 1. Theory of Accouns 1. Financial

● Article I., Section 1: SHORT TITLE Accounting &
Reporting (FAR)
- known as the “The Philippine Accountancy
Act of 2004” 2. Practical 2. AFAR
- an act regulating the Practice of Accountancy Accounting Problems
in the Philippines.

● Article I., Section 3: OBJECTIVE 3. Practical 3. Management

- the standardization and regulation of Accounting Problems Advisory Services
accounting education. II (MAS)
- the examination of registration of certified
public accountants 4. Management 4. Auditing
Services
- supervision, control, and regulation of the
practice of accountancy in the Philippines. 5. Auditing Theory 5. Taxation
 Reviewer in Accounting Plus
2. Existing and Potential Buyers
6. Auditing Problems 6. Regulatory
Framework for
Business (RFBT) Other Users
1. Employees
7. Business Law and 2. Customers
Taxation 3. Government
● Article III., Section 16: RATING IN THE 4. Public
LICENSURE EXAMINATION
- a candidate must obtain a general average of QUALITATIVE CHARACTERISTICS
75%, with no grade lower than 65% in any given - refers to the qualities and attributes that make the
subject. financial information useful.
- in the event a candidate obtains the rating of 1. Fundamental Qualitative Characteristics
75% and above in at least a majority of subjects 2. Enhancing Qualitative Characteristics
as provided, he/she shall receive a conditional
credit for the subjects passed. Fundamental Qualitative Characteristics
- a candidate shall take an examination in the - content and substance of financial information
remaining subjects within two years from - must be relevant and faithfully represented
preceding examination. ● Relevance
- if the candidate fails to obtain at least a general - if its affect your decision.
average of 75% and a rating of at least 65% in 1. Predictive Value
each of the subjects reexamined, he/she shall be - financial information can be used in
considered as failed. predicting future outcomes.
2. Confirmatory Value
General Yes Yes No No - financial information can be used to
Avereage confirm previous predictions and
>=75% evaluations.
No Grades No No but Yes No
Lower majority ● Faithful Representation
than 65% of the - it represents what it purports to represent.
subjects - descriptions and figures contained in financial
is
information must match with what actually
>=75%
existed or happened.
RESULTS Passed Conditi Fai Fai 1. Completeness
onal led led - full and adequate disclosures of all
necessary information.
● Article III., Section 18: FAILING 2. Neutrality
CANDIDATES TO TAKE REFRESHER - financial information are prepared and
COURSE presented with fairness and free from
- candidate who fails in two complete CPA bias.
board examinations shall be disqualified for 3. Free from error
taking another set of examinations unless he/she - free from accuracies and omissions.
submit evidence to the board that he/she enrolled
in and completed at least 24 units of subject Enhancing Qualitative Characteristics
- presentation or form of the financial information.
September 2010 - conceptual framework for - aims to increase the usefulness of the financial
financial reporting was approved by Internation information.
Accounting Standards Board (IASB). ● V erifiability
March 2018 - conceptual framework for ● C omparability
Financial Reporting 2018 was published. ● U nderstandability
● T imeliness
Conceptual Framework for Financial
Reporting 1. Substance over form
- consists of terms and concepts - in accordance with their substance and reality not
- provide an overall theoretical foundation merely by legal form.
- intends to guide not a standard - rent to own
- sell rather than rent
Objective of Financial Reporting 2. Prudence or conservatism
- to provide financial information about the - being careful when estimating figures in an uncertain
reporting entity that is useful to its users in situation to ensure that assets and incomes are not
making decisions. overstated.
Primary Users
1. Lenders and Creditors 3. Cost Constraint
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- benefits must always exceed the cost. Accounting Equation
- basic principle of accounting that explains the
Elements of Financial Information relationship of the fundamental elements of the
- building blocks statement of financial position or balance sheet.
- assets, liabilities, equity, income, and expense A = L + E
E = A - L
Financial Position L = A - E
(Balance Sheet)
1. Assets Double Entry System
- present economic resource - affects at least two accounts (dual effect)
- controlled by the entity as a result pf past events - debit must always equal to credit
- prepaid expense
Contra Accounts
2. Liabilities - are exception to the rule and will increase and decrease
- present obligation in the opposite manner as regular accounts.
- transfer of economic resources
Contra Asset example: doubtful accounts accumulated
3. Liabilities depreciation
- residual interest in the assets of an entity after Contra Liabilities: bond discount
deducting its liabilities (A-L). Contra Equity: treasury shares

Financial Performance Assets:

(Income Statement) 1. Current - within one year or
1. Income as long as in the normal
- increases economic benefits. operating cycle.
- increase in assets, decrease in liability, increase in Cash and cash equivalents
equity. Accounts Receivable
● Revenue Supplies
- from the normal operations
Notes Receivable
● Gains
Inventories
- not arise from the normal operations
Prepaid expenses
2. Expense 2. Non-current
- decrease in economic benefits Equipment
- decrease in assets, increase in liabilities, decrease in Vehicles
equity. Machinery
● Expenses Land
- arise in the course of the ordinary regular Building
activities Furniture and fixtures
● Losses
Computers
- do not arise in the course of the ordinary
Intangible Assets
regular activities

Liabilities
If the increase or decrease is not cause by the 1. Current
distributions of owners is definitely income or Accounts Payable
expense. Notes Payable
Salaries Payable
Utilities Payable
CHAPTER 3: ACCOUNTING EQUATION,
DEBITS AND CREDITS Interest Payable
Taxes Payable
The Account Unearned Revenues
- basic device in summarizing financial information
- to keep track and have a detailed record of the increase 2. Non-current
and decreases and balance of each element Mortgage Payable
Bonds Payable
ACCOUNT TITLES

Left Side Right Side

Debit Credit
(Dr) (Cr)
 Reviewer in Accounting Plus
Typical Accounting Titles (not limited to the following)
19.Salaries Expense EXPENSE

EQUITY 20.Loans Payable, Due C- LIABILITY

Capital Account 2025
- this account is used to record the original and
additional investment of the owner of the entity. It is
21.Service Revenues INCOME
increased by the amount of profit earned during the year
and decreased by a loss.
22.Interest Payable C- LIABILITY
Withdrawals
- withdrawals of cash or other assets from the business is 23.Accumulated (CONTRA ASSET)
recorded in the drawing or withdrawal account rather Depreciation – Building
than directly reducing the capital account.
24.Biological Assets – NC- ASSET
Zoo Animals
Income Summary- It is a temporary account used at the
end of the accounting period to close income and 25.Franchise NC- ASSET
expenses. This account shows the profit or loss for the
period before closing to the capital account.

INCOME
Service Income - revenues earned by performing
services for a customer or client.

Sales - revenues earned as a result of sale of

merchandise or inventory.

1.Investment in NC- ASSET

Subsidiary

2.Swept, Withdrawal EQUITY

3.Cash Equivalents C- ASSET

4.Mortgage Payable NC- LIABILITY

5.Swept, Capital EQUITY

6.Accounts Payable C- LIABILITY

7.Building NC- ASSET

8.Unearned Revenues C- LIABILITY 22.Interest Payable

23.Accumulated Depreciation – Building
9.Machinery NC- ASSET
24.Biological Assets – Zoo Animals
10.Office Supplies C- ASSET 25.Franchise
26.Rent Expense
11.Biological Assets – NC- ASSET 27.Unearned Service Revenue
Bearer Plants 28.Depreciation Expense
12.Accounts Receivable C- ASSET 29.Salaries Payable
30.Miscellaneous Expense
13.Notes Payable, due C- LIABILITY 31.Allowance for doubtful accounts
2024 32.Gain from sale of Machinery
33.Utilities Expense
14.Office Equipment NC- ASSET
34.Bonds Payable
15.Investment in NC- ASSET 35.Cash
Associates 36.Prepaid rent
37.Patent
16.Advertising Expense EXPENSE 38.Accounting Software
17.Land NC- ASSET 39.Inventory
40.Administrative Expenses
18.Notes Payable, due C- LIABILITY
within this year
Reviewer in Accounting Plus