BAINTE1L

THE ACCOUNTING ENVIRONMENT AND FINANCIAL STATEMENTS:

ACCOUNTING FRAMEWORK
1. Statement of Financial Position -
Accounting does this for you: progress report of assets and liabilities
2. Income Statement - performance
- tracks down business activities,
report of revenues against costs and
- analyzes, calculates, or measures and
expenses
records these activities, and then,
3. Statement of Cash Flows - cash report
- prepare a progress report.
where the money came from and where
ACCOUNTING VS. BOOKKEEPING the money was used.
4. Statement of Owner’s Net Worth -
- Accounting is conceptual and goes progress report showing changes in
beyond bookkeeping. Includes the your wealth
interpretation of information
recorded under bookkeeping. Business - economic units that engages in
- Bookkeeping is procedural or buying & selling of goods or services.
mechanical aspect of accounting.
- major concern: how best its resources:
BABYLONA & EGYPT - earliest bookkeeping machines, raw materials, labor skills,
number of men to employ.
- the first accounting book was written by
COTRUGLI in Naples Types:
- the modern double entry bookkeeping
a. Profit-oriented Businesses – establish to
system could be traced from the book
earn profit.
prepared in 1494 by an Italian
mathematician FR. LUCA PACIOLI entitled b. Non-profit oriented Businesses – uses
SUMMA DE ARITHMETICA surplus revenues to achieve goals rather
- Philippines - bookkeeping- was than to distribute them as profit or
introduced by the Spaniards. dividends.
- Bookkeeper was called TENEDOR DE
LIBRO

Common of all businesses: they need

financial information before making
decisions.
LEGAL FORMS OF BUSINESS OWNERSHIP MANAGEMENT INVOLVES FOUR PROCESSES:

1. SOLE PROPRIETORSHIP - managed by 1. Planning

one person. 2. Organizing
- advantages: (1) small amount of 3. Directing
capital, (2) managed easily, (3) all the 4. Controlling
profits, (4) easy to form, (5) full control,
(6) quick decision-making.
- disadvantages: (1) difficult to expand,
ACCOUNTING
(2) no indefinite life, (3) unlimited
liability.
2. PARTNERSHIP - between two or more - defined as a service activity (ASC)
persons - prepare financial reports that will provide
- advantages: (1) ease in managing, (2) relevant information.
efficient management - as a process of recording, classifying, &
- disadvantages: (1) no indefinite life, summarizing transactions (AMERICAN
(2) unlimited liability INSTITUTE OF CERTIFIED PUBLIC
3. CORPORATION - separate legal entity ACCOUNTANT)
- it can conduct business by itself. - identifying, measuring, & communicating
- investors > buys shares of stocks > (AMERICAN ACCOUNTING ASSOCIATION)
shareholders
- 20% - 50% (significance influence) Purpose: to supply financial information to
- more than 50% (significant control) users to help them make informed
- has perpetual life. judgement and better decisions

TYPES OF BUSINESS ACTIVITIES “Accounting as the language of the

business.”
1. Operating
2. Financing ACCOUNTING AS A PROFESSION
3. Investing
REPUBLIC ACT OF 9289 - Philippine
FORMS OF BUSINESS OPERATION Accountancy of 2004 (law that govern the
accountancy profession in the Philippines)
1. Service - provides services, for a fee, to
clients or customers. - objectives: (1) standardization of
accountancy education, (2) registration
2. Merchandising - engages in buying and for CPALE, (3) supervision, regulation, &
selling of goods or merchandise. control of accountancy practice)

3. Manufacturing - the one who buys raw BOARD OF ACCOUNTANCY - under the
materials, converts it to finished goods and jurisdiction of the Professional Regulatory
then sells to customers. Commission

- set-up & promulgate a set of

professional standards & ethics.
- they enforced the R.A. 9289
- composed of a chairman & 6 members ACCOUNTING PRINCIPLES
which are appointed by the president.
1. Business Entity Concept
PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC - delisted from the cash of the business.
ACCOUNTANT - transactions that align or affect the
business.
- national professional organization of - business enterprise is separate &
cpas in the Philippines distinct from personal transactions.
- setting up & implementing rules 2. Going Concern Principle
- expected to operate indefinitely.
CPALE SUBJECTS
- change in value.
1. Management Advisory Services - price keeps on changing.
2. FAR/Practical Accounting 1 3. Matching Principle
3. Advance FAR/Practical Accounting 2 - expenses should be match to the
4. Taxation related revenue.
5. Regulatory Framework for Business 4. Accrual Basis/Assumption
Transactions (Business Law) - income: earned regardless of
6. Auditing collections/earned when service
rendered/when item delivered to the
PASSING GRADE FOR CPALE customer.
- expense: incurred regardless of
- general average > 75%
payment.
- grade per subject should not be less
5. Periodicity Principles
than 65.
- divide the life of the operating of the
business.
FINANCIAL REPORTING STANDARD COUNCIL
6. Stable Monetary Unit
Financial Reporting Standard Council - uniform currency
7. Exchange Price or Cost Principle
- in charge of making accounting standard. - should recorded based on cost.
- upon recommendation of BOA, 8. Objectivity
Professional Regulatory Commission - verifiable & substantiated.
created the FRSC
- members: AREAS OF ACCOUNTING
- chairman (1)
1. Financial Accounting - preparation &
- 14 representatives:
interpretation of financial statements for
- BOA (1), BSP (1), COA (1), BIR (1), SEC (1),
external users (investors, lenders,
Major preparers or users of F.S (1),
suppliers, government, customer)
- PICPA (8): Public practice (2),
2. Management Accounting - special-
Commerce/Industry (2), Academe (2),
purpose financial statement for internal
Government (2)
users (managers)
International Accounting Standard 3. Cost Accounting - summarizing the
details/necessary to produce & sell a
- international committee product or service/controlling the
- standard > IFRS (UK) & PFRS expenses.
4. Government Accounting - proper ACCOUNTING EQUATION
custody & disposition of public funds
5. Auditing - independent examination &
verification of the financial statement

FINANCIAL STATEMENT

1. Statement of Financial Position/Balance

Sheet
- list of assets, liabilities, equity
- present condition at current point
- used to determined liquidity or solvency.

ACCOUNTING PERIOD - accounting function

2. Statement of Comprehensive
which can be fiscal, week, month, or
Income/Income Statement
quarter.
- income & expenses
- profitability of a business at current time
OPERATING CYCLE - to make an initial
outlay of cash.
3. Statement of Changes in
Equity/Statement of Owner’s Equity STEPS IN ACCOUNTING CYCLE
- investments, withdrawal, net income/net
loss 1. Gather the documents.
2. Analyzing business transactions
4. Statement of Cash Flow/s 3. Journalizing (General Journal)
4. Posting (T-Accounts/General Ledger)
- cash received & cash used.
5. Unadjusted Trial Balance
6. Prepare worksheet for adjustments &
QUALITATIVE CHARACTERISTICS OF F.S.
financial statements.
7. Journalize & post the Adjusting (Journal)
Understandability -
Entries
understandable/clearly presented.
8. Adjusted Trial Balance
Relevance - relevant to the needs of the
9. Financial Statements
users
10. Closing Entries
Reliability - free of material error & bias &
11. Post-Closing Trial Balance
not misleading.
12. Reversing Entries
Comparability - must be comparable to
the financial information.
SOURCE OF DOCUMENTS

USERS OF F.S
1. Invoice
2. Official Receipt
- investor, creditors, customers,
3. Cash/Check Voucher
employees, government, suppliers
4. Check
5. Promissory Note
6. Statement of Account
CHART OF ACCOUNTS - listing of all account
titles

Current Assets - cash & cash equivalent

Non-Current Assets - property, plan, &

equipment

Current Liabilities - short term

Non-Current Liabilities - long term