ACCOUNTING AND THE BUSINESS

 Relationship
 Accounting and the Business
 Nature of Accounting • All businesses whether small, medium or large
 Branches of Accounting enterprise have accounting process.
 Accounting Reports • Accounting is necessary to manage the
 Generally Accepted Accounting Principles, business effectively and efficiently
Concepts and Assumptions • Useful for managers or owners in making
 Government Regulatory Agencies for Accounting plans and decisions.
 Accredited Professional Organizations of CPAs • Useful to all individuals who utilize this.
 Fields of Accounting
 Philippine Accountancy Act of 2004
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ACCOUNTING AND THE BUSINESS ACCOUNTING AND THE BUSINESS

 Importance of Accounting  Business

• Provides and communicates the information • The exchange of goods or services that results
required not only to decision makers but also in mutual benefit for both parties involved.
to other interested parties.
• Provides business enterprise as well as any • To make profit is its primary objective.
kind of organization or association the needed
financial information.
• Guides individuals in an informal basis.

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ACCOUNTING AND THE BUSINESS ACCOUNTING AND THE BUSINESS

 Kinds of Business (nature of operations)  Forms of Business (ownership structure)

• Trading or Merchandising • Sole Proprietorship
 Buying goods sold at a price higher than the purchase cost.  Owned and operated by only one person (proprietor).
• Partnership
• Manufacturing
 Controlled by two or more persons (partners)
 Producing goods sold at a price higher than the production
cost. • Corporation
 Managed by several people (shareholders).
• Servicing • Cooperative
 Rendering service for a certain fee higher than the service cost.  Formed by several people (members).
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ACCOUNTING AND THE BUSINESS ACCOUNTING AND THE BUSINESS

 Forms of Business (ownership structure)  Users of Accounting Information

Financial claim/interest in the business:
Sole  Customer
Proprietorship Partnership Corporation Cooperative  Employees
One owner called Two or more owners Unlimited owners Unlimited owners  General Public
proprietor called partners called shareholders called members
 Government
Unlimited liability Unlimited liability Limited liability Limited liability  Lending Institutions
 Owner/s (not the manager/s)
Owner is the There is a managing Management is Management is
manager partner vested in the vested in the  Prospective investors
board of directors board of directors  Suppliers and creditors
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NATURE OF ACCOUNTING NATURE OF ACCOUNTING

 Nature
• “Information provider”.
Accounting communicates financial information to anybody who
may have an interest or financial claim in the business not only
to the persons directly involved such as owners or managers,
but also to other interested users. Hence, accounting is also
defined as the “language of business”.
 Definition
• “Accounting is a service activity whose function is to provide quantitative
information, primary financial in nature, about economic entities that is
intended to be useful in making economic decision.”
Financial Reporting Standards Council (FRSC) – formerly Accounting Standards Council (ASC)
• “Accounting is the art of recording, classifying, 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.”
Committee on Terminology of the American Institute of Certified Public Accountants (AICPA)

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NATURE OF ACCOUNTING NATURE OF ACCOUNTING

 Functions  Role of Accounting in Business

• Recording – putting all transactions into writing (bookkeeping)
• Classifying – grouping similar accounts
• Summarizing – preparing of financial statements
• Interpreting – analyzing financial statements
• Helps owner/s or manager/s to make plans and decisions.
• Reports and analyzes business transactions with the FS.
• Communicates financial information to all interested parties.

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 BRANCHES OF ACCOUNTING ACCOUNTING REPORTS

 Branches  Financial Statements

• Financial Accounting
• Cost Accounting
• Managerial or Management Accounting
• Government Accounting
• Auditing
• Taxation
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• Income Statement (Statement of Comprehensive Income)
 shows the results of operations of a business enterprise
• Balance Sheet (Statement of Financial Position)
 presents the financial condition of a business
• Statement of Changes in Owner’s Equity
 shows the increase or decrease in the owner’s equity
• Cash Flow Statement (Statement of Cash Flows)
 presents the cash inflows and outflows of the business
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GENERALLY ACCEPTED ACCOUNTING PRINCIPLES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(GAAP), CONCEPTS AND ASSUMPTIONS (GAAP), CONCEPTS AND ASSUMPTIONS

 Accounting Principles  Accounting Principles

• Business Entity Concept
 The business is a separate personality from the owner.
• Going Concern Concept
 The business is still to operate for the near future.
• Accrual Basis of Accounting
 Records expenses as incurred regardless of paid or not and
recognizes revenue when earned whether received or not.
• Objectivity
 The business is free from bias information.
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• Cost Principles
 Properties are recorded at their acquisition costs
• Matching Costs against Revenue
 All costs are matched against the revenue during same period
• Consistency
 Accounting methods or principles applied in the FS for the current
year must be consistent with the previous year
• Accounting Period
 Business’ life is divided into periods at the end of FS preparation
• Full Disclosure
 FS must reflect all significantH0033
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facts or events for decision making

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GOVERNMENT REGULATORY AGENCIES ACCREDITED PROFESSIONAL
FOR ACCOUNTING ORGANIZATIONS OF CPAS

 Regulatory Bodies • Association of Certified Public Accountants in Education (ACPAE)

 Professional Regulation Commission (PRC)
 Board of Accountancy (BOA)
 Financial Reporting Standards Council (FRSC)
 Securities and Exchange Commission (SEC)
 Cooperative Development Authority (CDA)
 Bureau of Internal Revenue (BIR)
 Bangko Sentral ng Pilipinas (BSP)
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• Government Association of Certified Public Accountants (GACPA)
• Association of Internal Auditors (AIA)
• Association of Certified Public Accountants in Commerce and
Industry (ACPACI)
• Association of Certified Public Accountants in Public Practice
(ACPAPP)
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FIELDS OF ACCOUNTING PHILIPPINE ACCOUNTANCY ACT OF 2004

• Private Accounting
 Relevant Provisions
• Scope – Section 14 (only to CPAs)
• Government Accounting

 Practice of Public Accountancy

• Public Accounting

 Practice in Commerce and Industry

 Practice in Education/Academe

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PHILIPPINE ACCOUNTANCY ACT OF 2004 PHILIPPINE ACCOUNTANCY ACT OF 2004

 Relevant Provisions  Relevant Provisions

• Terms • Prohibition in the Accountancy Practice
 Practice of Accountancy This act states that no person can practice accountancy in
 Certified Public Accountant this country, or use the title “Certified Public
 CPA in Public Practice
Accountant”, or use the abbreviated title “CPA” or display
or use any title, sign, card, advertisement, or other device
 CPA in Commerce and Industry
to indicate such person practices or offers to practice
 CPA in Education/Academe accountancy, or is a CPA. Such person shall have received
 CPA in Government Service from the Board a certificate of registration/professional
license and be issued to him/her by the Board and the
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Commission.
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PHILIPPINE ACCOUNTANCY ACT OF 2004 PHILIPPINE ACCOUNTANCY ACT OF 2004

 Relevant Provisions  Relevant Provisions

• CPA Examination (Section 13) • CPA Examination Qualifications (Section 14):
States that all applicants for registration for the  must be a Filipino citizen
accountancy practice shall be required to undergo a  with a good moral character
licensure examination to be given by the Board in such  BSA graduate
places and dates as the Commission may designate
 no criminal liability or offense in moral turpitude
subject to compliance with the requirements prescribed
by the Commission in accordance with Republic Act No.
8981.

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PHILIPPINE ACCOUNTANCY ACT OF 2004 PHILIPPINE ACCOUNTANCY ACT OF 2004

 Relevant Provisions  Relevant Provisions

• CPA Examination Scope (Section 15) • CPA Examination Ratings (Section 16)
States that a candidate must obtain a general average of 75 %
 Theory of Accounts with no grade lowers that 65 % of any subject. In the event a
 Business Law and Taxation candidate obtains the rating of 75 % and above in at least
majority of the subjects as provided for by this Act, he/she
 Management Services shall receive a conditional credit for the subjects passed. If a
 Auditing Theory candidate shall take an examination in the remaining subjects
within two years from the preceding examination, provided
 Auditing Problems
further, that if the candidate fails to obtain at least a general
 Practical Accounting Problems (P1) average of 75 % and a rating of 65 % in each of the subjects re-
 Practical Accounting Problems (P2) examined, he/she shall be considered as failed in the entire
examination.
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PHILIPPINE ACCOUNTANCY ACT OF 2004 PHILIPPINE ACCOUNTANCY ACT OF 2004

 Relevant Provisions  Relevant Provisions

• Accreditation of Public Accountancy Practice (Section 31)
It states that CPAs, firms, and partnerships of certified
public accountants, engaged in the practice of
accountancy, including partners and staff members
thereof, shall register with the Commission and the
Board. Such registration to be renewed every three (3)
years: Provided, that subject to the approval of the
Commission, the Board shall promulgate rules and
regulations for the implantation of registration
requirements including the fees and penalties for
violation thereof.
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• Continuing Professional Education (Section 32)
States that all CPAs shall abide by the requirements,
rules, and regulations on continuing professional
education to be promulgated by the Board, subject to the
approval of the Commission, in coordination with the
national professional organization of CPAs or any duly
accredited educational institution. For this purpose, a
CPE Council is hereby created to implement the program.
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PHILIPPINE ACCOUNTANCY ACT OF 2004

 Relevant Provisions
• Foreign Reciprocity (Section 34)
States that subjects or citizens of foreign countries may be
allowed to practice Accountancy in the Philippines in accordance
with the provisions of existing laws, international treaty
obligations including mutual recognition agreements entered into
by the Philippine Government with the other countries. A person
who is not a citizen of the Philippines shall not be allowed to
practice accountancy in the Philippines. Unless he/she can prove,
in the manner provided by the rules of the court that, by specific
provision of law, the country of which he/she is a citizen, subject
or national admits citizens of the Philippines to the practice of
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restriction.

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