OVERVIEW OF ACCOUNTANCY

(Excerpted from the FINANCIAL

ACCOUNTING Textbook
By Conrado T. Valix)
 DEFINITION OF ACCOUNTING
Accounting Standard Council (ASC)
Accounting is a service activity. Its function is
to provide quantitative information, primarily
financial in nature, about economic entities, that
is intended to be useful in making economic
decision.
 DEFINITION OF ACCOUNTING
Committee on Accounting Terminology of the
AICPA
Accounting is the art of recording, classifying
and summarizing in a significant manner and in
terms of money, transactions and events which
are in part at least of a financial character and
interpreting the results thereof.
 DEFINITION OF ACCOUNTING
American Accounting Association (AAA) in its
Statement of Basic Accounting Theory
Accounting is the process of identifying,
measuring and communicating economic
information to permit informed judgment and
decision by users of the information.
 DEFINITION OF ACCOUNTING
KEY POINTS
• Quantitative information financial in nature
useful in decision making
• Identifying (Analytical)Measuring
(Technical)Communication (Formal)
 IDENTIFYING TRANSACTIONS
(Recognizing/Recording/Journalizing)

Examples of external economic activities or

transactions (Involves one entity and another entity)
– Northern Builders bought building materials from La
Suerte Hardware.
– Ace Company paid principal and interest of mortgage
loan to BDO.
– SM Supermarket paid the salaries of its employees.
– Crown Company paid income tax to the BIR.
– Bombay Co. collected cash from a debtor, Ganda Fish
Retailer.
 IDENTIFYING TRANSACTIONS
(Recognizing/Recording/Journalizing)

Examples of internal economic activities or

transactions (Activities within the entity)
– Cindy’s Bakeshop processed raw materials into
pastries. (Production process)
– Gardenia Corp wrote off spoiled inventories as
worthless.
– The right wing of Jelexy Co. factory building was
caught by fire.
 MEASURING TRANSACTIONS

• Assigning monetary amounts or value to

economic transactions.
• Unit of measurement is the Philippine peso.
• Bases for measurement
– Historical cost (most common)
– Fair market value
– Realizable value
– Present value
 MEASURING TRANSACTIONS

• Initial measurementwhen transaction first

occurred.
• Subsequent measurementwhen assets
(resources) and liabilities/equity (sources) still
carried at yearend.
• Derecognition measurementwhen assets
are disposed and liabilities/equity settled
 COMMUNICATING FINANCIAL INFORMATION

• Preparation and distribution of accounting reports

(e.g., financial statements).
• Accounting is the “universal language of business”.
• Implicit in this process are:
– Recording/Recognizing/Journalizing (after identifying
and measuring)
– Classifying posting to the ledger
• Ledger group of accounts (assets, liabilities, equity,
revenue and expenses)
 COMMUNICATING FINANCIAL INFORMATION

• Implicit in this process are:

– Recording . . .
– Classifying . ..
– Summarizing  formal financial statements
• Statement of Financial Position (also called Balance Sheet)
• Income Statement (also called Statement of Financial
Performance)
• Statement of Changes in Equity
• Statement of Cash Flows
• Notes to the Financial Statements
 COMMUNICATING FINANCIAL INFORMATION

• Users of Financial Statements

– Primary : Investors and Creditors
– Secondary: Government, Employees, etc.
• Objective of Accounting informed judgment
for decision making of users
– Profitability
– Liquidity
– Solvency
– Overall Financial Stability or Health
 THE ACCOUNTANCY
PROFESSION
“will”
(Where you belong! WELCOME!!!)
 THE ACCOUNTANCY PROFESSION
• Republic Act No. 9298The Philippine
Accountancy Act of 2004
• Professional Regulation Commission (PRC)
• Board of Accountancy (BOA)
• Licensure Examinations for Certified Public
Accountant (LE CPA)
• Bachelor of Science in Accountancy (BSA)
• TSUCBAAccounting Dept.-->BSARetention
PolicyQuota2.5 or HIGHER !!!
 THE ACCOUNTANCY PROFESSION

• General Field of Practice of CPAs

– Public accounting (Private PracticeExternal
Auditor, Tax Consultant or Management Advisory
Service Consultant)
– Private accounting (Profit and Nonprofit
OrganizationsChief Accountant)
– Government accounting (Government
EntitiesBIR Examiner)
 THE ACCOUNTANCY PROFESSION
• Continuing professional education (CPD)
– Related seminars, training, symposiums, conventions,
etc.
– Required for CPA license renewal every 3 years
• Accreditation in the practice of public accountancy
– PRC-BOA certificate of registration to practice public
accountancy
– With relevant years of work experience
– Valid for 3 years
 THE ACCOUNTANCY PROFESSION
• Terminologies
– Accounting v/s Auditing
– Accounting v/s Bookkeeping
– Accounting v/s Accountancy
– Financial Accounting v/s Managerial Accounting
 THE ACCOUNTANCY PROFESSION
• Generally Accepted Accounting Principles (GAAP)
– Rules, procedures, practices and standards followed in the
field of accounting.
– Like laws that must be followed in financial reporting.
– Established through social process
• Political actions
• Professional judgment
• Logic
• Research
– Ensures comparability and uniformity in financial
statements based on the same financial information
 THE ACCOUNTANCY PROFESSION
• The Financial Reporting Standards Council (FRSC)
– Formerly known as Accounting Standards Council (ASC)
– Created by PRC via BOA
– Main function is to establish and improve accounting
standards that will be generally accepted in the
Philippines.
– Philippine Accounting Standards (PAS) and Philippine
Financial Reporting Standards (PFRS)highest hierarchy
of GAAP in the Philippines
 THE ACCOUNTANCY PROFESSION
Composition of FRSC : A chairman (senior CPA practitioner), plus 14
representatives:
• 1 – Board of Accountancy
• 1 – Securities and Exchange Commission
• 1 – Bangko Sentral ng Pilipinas
• 1 – Bureau of Internal Revenue
• 1 – Commission on Audit
• 1 – Major organization of preparer and user of FS Financial
Executives Institute of the Philippines (FINEX)
• 8– Accredited national professional organizations of CPAs:
 (2) Public Practice
 (2) Commerce and Industry
 (2) Academe and Education (ACPAE)
 (2) Government
 THE ACCOUNTANCY PROFESSION
• Philippine Interpretations Committee
– Formed by FRSC in 2006
– Prepare interpretations of PFRS
– Give authoritative guidance
– International Financial Reporting Interpretations
Committee (IFRIC)
 THE ACCOUNTANCY PROFESSION
• International Accounting Standard Committee
(IASC)(since 1973)
– Independent private sector body
– Provide uniformity in the accounting principles
around the world
– Issues International Accounting Standards (IAS)
– Based in London, United Kingdom
– Philippines is a member country
 THE ACCOUNTANCY PROFESSION
• International Accounting Standard Committee
(IASC)(since 1973)
– Independent private sector body
– Provide uniformity in the accounting principles around
the world
– Issues International Accounting Standards (IAS)
– Based in London, United Kingdom
– Philippines is a member country
• International Accounting Standards Board (IASB)
– Replaces IASC
– Issues International Financial Reporting Standards (IFRS)
 THE ACCOUNTANCY PROFESSION
• Philippine move towards IFRS
– FRSC adopted in their entirety the IAS and IFRS
– Objective: “One uniform and globally accepted
financial reporting standards.”
– Philippines is fully compliant effective January
2005
– Transitioned from USA GAAP to IFRS since 1997.
 THE ACCOUNTANCY PROFESSION
• The Philippine Financial Reporting Standards
– Series of pronouncements by FRSC, collectively
include all the following:
• PFRS counterpart IFRSsame numbering
• PAS correspond to IASsame numbering
• Philippine Interpretations corresponds to IFRIC
Interpretations
 END OF LECTURE

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