Introduction to Accounting

Defining Accounting:

1. Quantitative information;
2. Likely financial; and
3. Useful in decision-making.

…by definition of American Institute of Certified Accountants (AICPA)

Accounting is an art, and science, of recording, classification and summarizing in a significant manner and in terms of money, transaction and events which are in part at least, of a financial character, and interpreting the results thereof.

…by definition of Philippine Institute of Certified Accountants (PICPA) 

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 decisions – in making reasoned choices among alternative course of actions.

Components of Accounting

1.  Analytical – identifying process; the process of recognition or non-recognition of business activities on accountable events.
•  Accountable or Quantifiable Events – events that has an effects on assets, liabilities and equity. Only economic activities are the subject concerned by accounting.
• Economic Activity measurement of economic resources and obligations, as to an entity is called transaction.
• Classification of Transaction:
• External Transactions – or exchange transfer transactions involving one entity and another.
• Internal Transactions – economic events involving the entity itself only;
• Production – process turning resource to products, and
• Casualty – sudden unanticipated loss.
2. Technical – measuring process; the process of assigning peso amounts to transactions.
• Measurement Bases:
1. Historical Cost
2. Current Cost
3. Realizable Cost
4. Present Value
3. Formal – communicating process; process of preparing and distributing accounting reports. 

• Communication processes:

1. Recording or Journalizing;
2. Classifying or Posting; and
3. Summarizing or Preparation of Financial Statements.
• Financial Statements – documents which reports financial information about the entity to decision makers.

  

The Accounting Cycle

The repetitive steps undertaken in practice of accounting.

1. Entering Journal Entries
2. Posting to Ledger
3. Preliminary Trial Balance
4. Adjusting
5. Preparation of Financial Statements
6. Closing
7. Post-Closing Trial Balance
8. Reversing

Basic Purpose of Accounting

To supply the financial information to statement users, so that they could make informed judgments and wise decisions.

Accountancy as a Profession

Republic Act No. 9298 (Philippines Accountancy Act of 2004) is the law regulating the practice of accounting.

Board of Accountancy is the body authorized by law to promulgate rules and regulations affecting practice of accounting profession in the Philippines.

Limitations:

• shall be registered as a Certified Public Accountant (CPA) of the Philippines
• shall have been issued of a certificate of accreditation
• shall have acquired minimum of 3 years meaningful experience with practice including taxation

Accreditation:

• required to have registered to Board of Accountancy and Professional Regulation Commission (PRC)
• shall be issued of Certificate of Registration from the PRC upon favorable recommendation of Board Of Accountancy, that is valid for three (3) years

Three (3) Main Areas of Practice

1. Public Accounting
• Auditing – involves auditing of financial statements by independent CPA form purpose of expressing an opinion for fairness of preparation.
• Taxation Service – involves preparation of annual income tax returns of an entity.
• Management Advisory Services – involves providing advises on installation of computer systems, quality control, installation and modification of accounting systems, budgeting, forecasting, design or modification of retirement plans, takeovers or merges.
2. Private Accounting – with which the highest accounting office will be as Controller. This includes maintaining records, producing financial reports, preparing budgets, controlling and allocating costs, and determination of taxes to pay.
3. Government Accounting – involves receipt and disposal of government funds, focusing on administration and custody of mentioned.

Continuing Professional Education (CPE)

All CPAs shall abide by the requirements, rules and regulations on continuing professional education to be promulgated by the Board of Accountancy, subject to the approval of the Professional Regulation Commission, in coordination with the accredited national professional organization of CPAs or any duly accredited educational institutions.