BASIC ACCOUNTING WITH

CORPORATE ACCOUNTING

Module The World of

1 Accounting
Learning Objectives
1. Define accounting and explain its role in the business.
2. Explain the importance of the purpose and phases of accounting.
3. Identify the branches of Accounting.
4. Have a fair knowledge of the history and contemporary development of accounting.
5. Describe the fundamental accounting concepts and principles
6. Understand the generally accepted accounting principles.
7. Know the Accountancy profession.
8. Illustrate the fundamental business model and its application to various types of
business.
9. Distinguish between the different types and forms of business organization.
Introduction
 Accounting is relevant in all walks of life, and it is
absolutely essential in the world of business.
 As business and society become more complex,
accounting develops new concepts and techniques to
meet the ever-increasing needs for financial information.
 Accounting is the system that measures business
activities, processes the information into reports and
communicates the results to decision-makers.
Introduction (Con’t.)

 Accounting quantifies the business communication – for this

reason accounting is called language of business.

 Without accounting, a business couldn’t function optimally; it

wouldn’t know where it stands financially, whether it is making
profit or not, and it wouldn’t know its financial situation.
Definition of Accounting
 Service Activity
 Information System
 Process
 Science
 Art
Definition of Accounting (Con’t.)

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.
Definition of Accounting (Con’t.)

Accounting is an information system

that measures, processes, and
communicates financial information
about economic entity.
Definition of Accounting (Con’t.)

Accounting is a process of identifying,

measuring, and communicating
economic information to permit informed
judgements and decisions by users of
information.
Definition of Accounting (Con’t.)

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.
PURPOSE AND PHASES OF
ACCOUNTING
• Measure
• Record
• Classify
• Summarize
• Interpret
PURPOSE AND PHASES OF ACCOUNTING
Measure
 
Before the effects of transactions can be recorded, they must be
measured. In order that accounting information will be useful, it must be
expressed in terms of a common financial denominator - money.

• Transactions must be expressed in terms of a common financial

denominator - money.
• Money serves as both a medium of exchange and a measure of
value.
• Business transaction must be determined when it occurred, what
value to place on the transaction and how the components of the
transaction should be classified.
 
PURPOSE AND PHASES OF ACCOUNTING
Record
The accounting function is part of the broader business system,
and does not operate in isolation. It handles the financial
operations of the business and also provides information and
advice to other departments. Business transactions are the
economic activities of a business.
• Recording of historical events is a significant function of
accounting.
• Accounts are produced to aid management in planning,
control, and decision-making to comply with regulations.
 
 
PURPOSE AND PHASES OF ACCOUNTING
Classify and summarize
 
• By simply measuring and recording the transactions, the
resulting information will be of limited use.
• To be useful in making decisions, the recorded data must be
classified and summarized.
• Classification reduces the effects of numerous transactions
into useful groups or categories.
• Summarization of financial data is achieved through the
preparation of financial statements.
• These summarize the effects of all business transactions that
occurred during some period.
 
PURPOSE AND PHASES OF ACCOUNTING

Interpret.
 
• After going through the preceding phases, it is imperative
that the result of the summarization phase be interpreted
or analyzed to evaluate the liquidity, profitability, and
solvency of the business organization.
 
BRANCHES OF ACCOUNTING
The main branches of accounting are the following:
 
• Auditing
• Bookkeeping
• Cost Bookkeeping and Cost Accounting
• Financial Accounting
• Financial Management
• Management Accounting
• Taxation
• Government Accounting
BRANCHES OF ACCOUNTING
Auditing.
It is the accountancy profession’s most significant service to the public. An
external audit is the independent examination that ensures the fairness and
reliability of the reports that management submits to users outside the business
entity. The result of the examination is embodied in the independent auditor’s
report. Once the required financial statements have been prepared by
management, they have to be evaluated in order to ensure that they do not
present a distorted picture.
External auditors are appointed from outside the organization. The external
auditor’s job is to protect the interest of the users of the financial statements.
Also, the external auditors are are likely to go in for much selective testing.
 
BRANCHES OF ACCOUNTING

Auditing. (Con’t.)
In contrast, the internal auditors are employees of the company. They
are appointed by, and answer to the company’s management though
they work independently of the accounting and other departments.
They ensure the accuracy of business records, uncover internal control
problems and identify operational difficulties. Further, internal auditors
perform routine tasks and undertake detailed checking of the
company’s accounting procedures.
Nonetheless, they work closely together, although the distinction made
between them still remains important.
 
 
BRANCHES OF ACCOUNTING
Bookkeeping.
 
It is a mechanical task involving the collection of basic financial data. The
data are first entered in the accounting records or the books of accounts,
and then extracted, classified and summarized in the form of income
statement, balance sheet, and cash flow statement. This process
normally takes place once a month. The bookkeeping procedures usually
end when the basic data have been entered in the books of accounts and
the accuracy of each entry has been tested. At that stage, the accounting
function takes over.
 
BRANCHES OF ACCOUNTING

Cost Bookkeeping, and Cost Accounting.

 
Cost bookkeeping is the process that involves the recording of cost data
in books of accounts. It is therefore, similar to bookkeeping except that
data are recorded in much greater detail.
 
Cost accounting makes use of those data once they have been extracted
from the cost books in providing information for managerial planning and
control.
 
BRANCHES OF ACCOUNTING

Financial Accounting.
 
Financial accounting is focused on the recording of business
transactions and the periodic preparation of reports on financial
position and results of operations. Financial accountants accord
importance to to generally accepted accounting principles.
BRANCHES OF ACCOUNTING

Financial Management.
 
Financial management is a relatively new branch of accounting
that has grown rapidly over the last 30 years. Financial
managers are responsible for setting financial objectives, making
plans, and generally safeguarding all the financial resources of
the entity.
BRANCHES OF ACCOUNTING

Management Accounting.
 
Management accounting incorporates cost accounting data and
adapts them for specific decisions which management may be
called upon to make. A management accounting system
incorporates all types of financial and non-financial information
from a wide range of sources.
BRANCHES OF ACCOUNTING

Taxation.
 
Tax accounting includes the preparation of tax returns and the
consideration of the tax consequences of proposed business
transactions or alternative courses of action. Accountants
involved in tax work are responsible for computing the amount of
tax payable by both business and individuals but their work is
really more complex.
BRANCHES OF ACCOUNTING

Government Accounting.
 
It is concerned with the identification of the sources and uses of
resources consistent with the provisions of city, municipal,
provincial or national laws. The government collects and spends
huge amount of public funds annually so it is necessary that
there is proper custody and disposition of these funds.
Evolution of Accounting
 The origins of accounting
 
Accounting arguably began before the use of abstract counting. Around
7,500 BC, the Mesopotamians were using small clay objects as counters for
keeping account of goods. Each object represented particular quantities of
different types of commodities, such as food, clothing, and even labor. They
became increasingly complex over centuries, bearing intricate markings, and
eventually, imprints of these markings onto parchment replaced the counters
themselves. According to many scholars, accounting and writing evolved
side-by-side in this way.
Evolution of Accounting
  Double entry bookkeeping
 
The double entry bookkeeping system we’re familiar with today
was first properly described by Luca Pacioli in 1494. Referred to
as ‘the father of bookkeeping and accounting’, he defined much
modern day thinking about debits, credits, journals, and ledgers.

The inventor of double-entry bookkeeping was Amatino Manucci.

He managed to construct a comprehensive and fully-articulated
set of double-entry records, with a regular balancing procedure
on closure of the General Ledger.
Evolution of Accounting
The modern accountant
 
With industrialization came a need for more advanced accounting
methods. The large corporations of the industrial revolution required
cost accounting systems that addressed external sources of finance like
shareowners, and needed to be able to calculate and predict profits
accurately, basing their operations on real financial data. All of this
called for dedicated accounting professionals who had highly
specialized knowledge, and could be trusted with great financial
responsibility.
Evolution of Accounting
  Information age and the Fourth Industrial Revolution
 
Tremendous advances in information technology have revolutionized
accounting in recent years. Time-consuming tasks that used to be manually
done can now be done with speed, consistency, precision, and reliability by
computers. There is an abundance of accounting applications and modules to
suit various business needs. With the advent of the Fourth Industrial
Revolution, new technologies such as artificial intelligence, blockchain, and
robotics are changing the business and work landscape and impacting the
field of accounting in fundamental ways. The challenge for the contemporary
accountant is how to adapt and be resilient in the face of accelerating
changes.
 
FUNDAMENTAL ACCOUNTING CONCEPTS

Several fundamental concepts underlie the accounting process. In

recording business transactions, accountants should consider the
following:
 
• Entity
• Periodicity
• Stable Monetary Unit
• Going Concern
 
ACCOUNTING FUNDAMENTAL CONCEPTS
Entity.

• An accounting entity is an organization or a section of an

organization that stands apart from other organizations
and individuals as a separate economic unit.
• Simply put, the transactions of different entities should not
be accounted for together.
• Each entity should be evaluated separately.
ACCOUNTING FUNDAMENTAL CONCEPTS
Periodicity.

• An entity's life can be meaningfully subdivided into equal

time periods for reporting purposes.
• This concept allows the users to obtain timely information
to serve as a basis on making decisions about future
activities.
• For the purpose of reporting to outsiders, one year is the
usual accounting period.
ACCOUNTING FUNDAMENTAL CONCEPTS
Stable Monetary Unit.

• The Philippine peso is a reasonable unit of measure and

that its purchasing power is relatively stable.
• The peso amounts as though each peso has the same
purchasing power as any other peso at any time.
• This is the basis for ignoring the effects of inflation in the
accounting records.
ACCOUNTING FUNDAMENTAL CONCEPTS

Going Concern.
Financial statements are normally prepared on the assumption that
the reporting entity is a going concern and will continue in
operation for the foreseeable future.
Hence, it is assumed that the entity has neither the intention nor the
need to enter liquidation or to cease trading.
This assumption underlies the depreciation of assets over their
useful life.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Accounting practices follow certain guidelines. Generally-accepted
accounting principles (GAAP) encompass the conventions, rules and
procedures necessary to define accepted accounting practice at a particular
time.
 
The general acceptance of an accounting principle usually depends on how
well it meets three criteria:
 
• Relevance
• Objectivity
• Feasibility
 
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Relevance. A principle is relevant to the extent that it results in information
that is meaningful and useful to the users of the accounting information.

Objectivity. A principle has objectivity to the extent that the resulting

information is not influenced by the personal bias or judgment of those who
furnish it. Objectivity connotes impartiality and trustworthiness. It also
connotes verifiability, which means that there is some way of finding out
whether the information is correct.
Feasibility. A principle has feasibility to the extent that it can be
implemented without undue complexity or cost.
THE ACCOUNTANCY PROFESSION
Characteristics
 
Accountancy qualifies as a profession because it possesses the following
attributes:
 
• All members of the accountancy profession are Certified Public
Accountants.

• CPAs adhere to a Code of Ethics.

• CPAs are members of a national organization.

THE ACCOUNTANCY PROFESSION

Career Opportunities
 
The accountant may be engaged in any of the following areas of
competence:
 
Public Practice. Accountants who render services on a fee basis and staff
accountants employed by them are engaged in public practice. Public
accountants, who practice individually or as members of public accounting
firms, should be Certified Public Accountants (CPAs). They offer their
services to the public. Their work includes auditing, taxation, and
management advisory services.
 
THE ACCOUNTANCY PROFESSION
Career Opportunities
  
Commerce and industry. Accountants employed in this area vary widely in
their scope of activities and responsibilities. Sample entry-level jobs: Financial
Accounting and Reporting Staff, Management Accounting Staff, Tax
Accounting Staff, Internal Audit Staff, Financial Analyst, Budget Analyst, Credit
Analyst, and Cost Accountant. Middle-level positions: Comptroller, Senior
Information Systems Auditor, Senior Fraud Examiner, and Senior Forensic
Auditor. Advanced positions: Chief Financial Officer, and Chief Information
Officer.
THE ACCOUNTANCY PROFESSION

Career Opportunities
  
Government Service. Accountants may be hired by the following: Congress
of the Philippines, Commission on Audit (COA), Bureau of Internal Revenue
(BIR), Department of Finance (DoF), Department of Budget and
Management (DBM), Bangko Sentral ng Pilipinas (BSP), and the local
government units (e.g. provincial, city or municipality).
THE ACCOUNTANCY PROFESSION

Career Opportunities
  
Education/Academe. This area guarantees he continued development of
the profession by endeavoring to clarify and address emerging issues
through research and sharing the results obtained with their colleagues.
Considered as modern day heroes, they make others understand the
body of accounting knowledge. In addition, they painstakingly prepare
candidates for the tough CPA exam.
FUNDAMENTAL BUSINESS MODEL
TYPES OF BUSINESS
 Services
 Trade
 Manufacture
 Production of Raw Materials
 Infrastructure
 Financial
 Insurance
rvices Selling people’s time and Hiring skilled staff and selling their time and skills Accounting
skills Legal
Software development
erchandising/ Buying and selling products Buying a range of raw materials or manufactured goods Wholesaler
ading and consolidating them, making them available for sale Retailer
in locations near to customers or online for delivery

anufacturing Designing
TYPES OF BUSINESS
products, Taking raw materials and using equipment and staff to Vehicle assembly
aggregating components convert them into finished goods Construction
and assembling finished Engineering
goods Electricity, water
Food and drink
Chemicals
Media
Pharmaceuticals
w materials Growing or extracting raw Buying blocks of land and using them to provide raw Farming
materials materials Mining
Oil
rastructure Selling the utilization of Buying and operating assets (typically large assets); Transport (airport operator,
infrastructure selling occupancy often in combination with services airlines, trains, ferries, buses)
Hotels, Telecoms, Sports
facilities, Property management

nancial Receiving deposits, lending Accepting cash from depositors and paying them Bank
and investing money interest; using the money to provide loans to borrowers, Investment house
charging them fees and a higher rate of interest than the
depositors receive
FORMS OF BUSINESS ORGANIZATION
FORMS OF BUSINESS ORGANIZATION
Corporation
FORMS OF BUSINESS ORGANIZATION
Sole Proprietorship
FORMS OF BUSINESS ORGANIZATION
Partnership
FORMS OF BUSINESS ORGANIZATION
ACTIVITIES IN BUSINESS ORGANIZATION

 Financing

 Investing

 Operating
ACTIVITIES IN BUSINESS ORGANIZATION
 Financing Activities are the methods an
organization uses to obtain financial resources
from financial markets and how it manages these
resources.
Primary sources of financing for most
businesses are owners and creditors, such as
banks and suppliers. Repaying the creditors and
paying a return to the owners are also financing
activities.
ACTIVITIES IN BUSINESS ORGANIZATION
Investing Activities involve the selection and disposal
and replacement of long-term resources that will be
used to develop, produce, and sell goods and services.
Investing activities include buying land, equipment,
buildings and other resources that are needed in the
operation of the business, and selling these resources
when they are no longer needed.
ACTIVITIES IN BUSINESS
ORGANIZATION
Operating activities involve the use of resources to
design, produce, distribute, and market goods and
services.
Operating activities include research and
development, design and engineering, purchasing,
human resources, production, distribution, marketing
and selling, and servicing.
BASIC PRINCIPLES
Objectivity Principle
According to this principle, the accounting
- End -
data should be definite, verifiable and free
from personal bias of the accountant.