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ACCOUNTING FUNDAMENTALS AND PRINCIPLESNature and PurposePresented by: May Anne M. Arabit, CPA, MBA1COURSE OUTLINEIntroduction Nature, Definition and Purpose of Accounting Users of Financial Accounting Information Forms of Business Organization Presented by: May Anne M. Arabit, CPA, MBA2COURSE OUTLINETypes of Business Operations Accounting Concepts and Principles The Steps in the AccountingInterpretation of Financial ResultsPresented by: May Anne M. Arabit, CPA, MBA3DEFINITIONAccounting 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 financial character and interpreting the results thereof.

Presented by: May Anne M. Arabit, CPA, MBAAICPA4DEFINITIONAccounting 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.

Presented by: May Anne M. Arabit, CPA, MBAAmerican Standard Council5DEFINITIONAccounting is the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.

Presented by: May Anne M. Arabit, CPA, MBAAmerican Accounting Association

-definition that stand the test of time6IMPORTANT POINTS

INFORMATION SYSTEMPresented by: May Anne M. Arabit, CPA, MBAQuantitative informationFinancial in natureUseful in decision making

Information system input process output

End Product financial statements7IMPORTANT ACTIVITIESIdentifying recognition and non-recognition of accountable eventsMeasuring process of determining monetary amounts at which the elements of financial statements are to be recognized and carried in the financial statementsCommunicating preparing and distributing accounting reports to potential users of accounting informationPresented by: May Anne M. Arabit, CPA, MBAIDENTIFYING ANALYTICALMEASURING TECHNICALCOMMUNICATION FORMAL

Accountable / Quantifiable-when it has an effect on assets, liabilities, and equity (accounting elements)-subject matter of accounting is economic activity/transactions (measurement of economic resources and obligations)

Economic transactions (external and internal)-external involves one entity and another entity-internal involves the entity only (production)

Measuring must be expressed in terms of a common financial denominator (peso) Assigning of peso amounts (Historical costs past purchase exchange price; current cost current purchase exchange price ; realizable value current sale exchange price; and present value future exchange price or discounted value)

Communicating identifying and measuring are pointless if information cannot be communicated Reason why it is called language of businessImplicit in the communication process are the recording, classifying and summarizing

8BASIC PURPOSE OF ACCOUNTINGThe basic purpose of accounting is to provide quantitative information about a business, that is useful to statement users particularly owners and creditors, in making economic decisions.

Presented by: May Anne M. Arabit, CPA, MBAAccountants primary task is to supply financial information to statement users so that they could make informed judgment and better decision

Users of financial information internal and external users9THE ACCOUNTANCY PROFESSIONPresented by: May Anne M. Arabit, CPA10Presented by: May Anne M. Arabit, CPAAuditing attestation servicesTaxation tax returns and consequencesMAS no precise coverage (internal in nature)

11THE REGULATORY BODIES OF ACCOUNTINGProfessional Regulation Commission (PRC)Board of Accountancy (BOA)Philippine Institute of Certified Public Accountants (PICPA)Accounting Standards Council (ASC) Financial Reporting Standards Council (FRSC)ACPAEACPACIACPAPPGACPAPresented by: May Anne M. Arabit, CPAPRC licensureBOA accreditationPICPA professional organization of CPAsASC accounting standard setting body created by the PRC upon recommendation of the BOAFRSC replaced ASC12BASICACCOUNTINGPRINCIPLES

Presented by: May Anne M. Arabit, CPA, MBAAdditional questions:

Accounting (conceptual, justification) vs Bookkeeping (procedural, maintenance)Accounting (field of accountancy such as public, private, govt or academe) vs Accountancy (practice of profession)Financial Accounting (recording of business transactions, preparation of FS) vs Managerial (developing accounting information within the entity)

THE GENERALLY ACCEPTED ACCOUNTING PRINCIPLEPresented by: May Anne M. Arabit, CPA, MBA-Encompass (covers) the conventions, rules and procedures necessary to the define what is accepted accounting practice-accepted by mere tacit (implied) agreement of accountants -like laws that must be followed in financial reporting-promulgated by the (FRSC)

***Overall purpose of accounting standards is to identify proper accounting practices for the preparation and presentation of FSACCOUNTING ENTITYGOINGCONCERNMONETARYUNITTIMEPERIODSAccounting AssumptionsUNDERLYING ASSUMPTIONIMPLICIT ASSUMPTIONPresented by: May Anne M. Arabit, CPA, MBAAccounting assumptions or postulates basic notions or fundamental premises on which the accounting process is based. Serves as foundation of accounting

Accounting EntityGoing concernMonetary unitTime Periods

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Accounting AssumptionsPresented by: May Anne M. Arabit, CPA, MBAGoing concern / continuity assumption continuing in operation indefinitely (the entity will continue in operations for the foreseeable future)

Accounting entity- The entity is separate from the owners, managers and employees who constitute the entityTransactions of the entity shall not be merged with the transactions of the owners Reason is for fair presentation of FS

Time Period the indefinite life of an entity is subdivided into time periods or accounting periods which are usually equal length for the purpose of preparing the financial reports (calendar year & fiscal year or natural business year)

Monetary UnitQuantifiability - ALEIE should be stated in terms of a unit of measure pesoStability of Peso assumptions that purchasing power of peso is stable or constant and that its instability is insignificant and therefore maybe ignored. Adjustments are unnecessary to reflect any changes in purchasing power.Presented by: May Anne M. Arabit, CPA, MBAIN YOUR OWN POINT OF VIEW, WHAT DOES ACCOUNTING MEAN?Presented by: May Anne M. Arabit, CPA, MBABig yellow worksheets; several huge notebooks; brain-whacking theories; gazillions of numbers; numerous account titles; struggling calculator; statements to finish; life-long practice; thick books to read; rushing late night work; ugly eye bags; unbalanced financial reports; accuracy problems; unhealthy lifestyle; constant lack of sleep; nosebleed exams; heart-stopping results. Name it! Everything is in here. People may call it Accounting. But to us, we call it LIFE.ANG PAGMAMAHAL NG ISANG CPAAng pagmamahal ng isang CPA ay hindi nagde-DEPRECIATE.RELIABLE regardless of the face andlooks dahil ang prinsipyo nito aylaging SUBSTANCE OVER FORM.COMPLETE, yung tipong wala ka nghahanapin pa kasi marunong magADJUST.Presented by: May Anne M. Arabit, CPA, MBAANG PAGMAMAHAL NG ISANG CPANagbibigay ng ALLOWANCE at sa lahat ng ginagawa nya, yung mahal nya anglaging PREFERRED... laging inuuna.Palaging meron appropriate DISCLOSUREpara ipakita sa buong mundo ang tunay na pagmamahal.

Presented by: May Anne M. Arabit, CPA, MBAANG PAGMAMAHAL NG ISANG CPAKung may samaan ng loob, nara-WRITEOFF kaagad, kung me tampuhan, nao-OFFSET ng pagmamahal.Yung mga nakaraan, iyakan at lambingan, nake-CARRY FORWARD sa next FISCAL YEAR.Presented by: May Anne M. Arabit, CPA, MBAANG PAGMAMAHAL NG ISANG CPAAng pagmamahal ng isang CPA, it keeps no RECORDS of wrong dahil merong REVERSAL of forgiveness at CORRECTING ENTRY kung kailangan.Kung meron man fortuitous event dahilsa third party, anjan parin ang pusongnakahandang mag-AUDIT dahil ang partnership nila ay based on TRUST and CONFIDENCE.

Presented by: May Anne M. Arabit, CPA, MBAANG PAGMAMAHAL NG ISANG CPASumusunod sila sa IFRS at SARBANES-OXLEY act pagdating sa lambingan dahil ang bawat isa ay marunong tumupad sa sinumpaang... none will commit the ACTS DISCREDITABLE to the PROFESSION.Presented by: May Anne M. Arabit, CPA, MBAANG PAGMAMAHAL NG ISANG CPAAng bawat detalye ng suyuan at tagpuan ay nakaRECORD sa WORKSHEET ng diary at handang ipahayag for the sake of TRANSPARENCY.Kahit wala ng pera ang bawat isa, theystill say that the FINANCIAL STATEMENTS PRESENTS FAIRLY at FREE OF MATERIAL MISSTATEMENT.

Presented by: May Anne M. Arabit, CPA, MBAANG PAGMAMAHAL NG ISANG CPAHigit sa lahat... GOING CONCERN kungmagmahal... panghabang buhayPresented by: May Anne M. Arabit, CPA, MBA