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CHAPTER 1: Introduction TO
ACCOUNTING
Accounting is a system that helps businesses
track events that affect them. This process
involves identifying the events that affect a
business, recording these events, and
communicating the summarized results of all
events within a particular period to interested
parties.
Accounting process

Identifying

Summarizing Recording
 Nature of accounting
• The basic features of accounting are as
follows:
• Accounting is a process.
• Accounting is an art.
• Accounting deals with financial information
and transactions.
• Accounting is a means not an end.
• Accounting is an information system.
• Accounting is a process. A process is composed of
multiple steps that lead to a common end goal.
• Accounting is an art. It entails creativity and skills
to help us attain some objectives.
• Accounting deals with financial information and
transaction. Accounting deals with a quantifiablef
• Accounting is a means not an end.
• Accounting is an information system.
 Main functions of accounting
• Keep systematic record of business
transactions
• Protecting properties of the business
• Communicating results to various parties in or
connected with the business.
• Meeting legal requirements.
Keep systematic record of business transactions
Recording transactions does not only involve entering the
transactions in the accounting books. The records should be
systematic enough to enable easy understanding of the readers.

Protecting properties of the business

The accounting records serve as the evidence that properties of
business do exist or how much of a particular resource does a
company have.
Communicating results to various parties in or
connected with the business
The accounting reports produced at the end of each period are not
only used by external parties, but also by the management in their
decision making.

Meeting legal requirements.

Our government requires some companies (particularly those with public
accountability) to provide financial reports quarterly, semi-annually, or
annually.
 History of Accounting
It is believed that the history of accounting is thousands of years old. And can even
be traced to ancient civilizations. A number of history books suggests that the
early development of accounting can be dated back to ancient Mesopotamia.
During those times, people followed a system of writing and counting money. The
development of accounting may be related to taxation and trading activities of
temples.
The reign of Emperor Augustus (63BC-14AD) provided more evidence about the
development of accounting. The Roman government kept detailed financial
information of the deeds of Emperor Augustus regarding the stewardship of
Roman resources. This is evidenced by the Res Gestae Divi Augusti ( The Deeds of
the Divive Augustus) . The Roman historians Suetonius and Cassius Dio recorded
the in 23BC, Augustus prepared a rationarium (account) which listed public
revenues, the amounts of cash in the aerarium (treasury), in the provincial of fisci
(tax officials), and in hands of the publicani (public contractors); and that it
included the names of the freedmen and slaves from whom a detailed account
could be obtained. The closeness of this information to the executive authority of
the emperor is attested by Tacitus’ statement that it was written out by Augustus
himself. (Oldroyd 1995)
Many consider the dissemination of the double-entry bookkeeping of Luca Pacioli
in the fourteenth century Italy is the most important event in accounting history. In
fact, Luca Pacioli is acknowledged as the father of modern accounting because of
this. The double-entry bookkeeping system is defined as any bookkeeping system
that has a debit and a credit for each transaction. Luca Pacioli’s Summa de
Arithmetica, Geometria, Proportioni et Proportionalita (Review of Arithmetic,
Geometry, Ratio and Proportion) is the first book printed with a treatise on
bookkeeping. The double-entry bookkeeping system is the system being used to
this very day. (Sangster et al 2007)
The modern profession of the chartered accountant originated in Scotland in the
nineteenth century when Queen Victoria granted a royal charter to the Institute of
Accountants in Glasgow. At present times, accounting standards are already
available to guide accountants in their practice of the profession. Some of these
standards include the PFRS (Philippine Financial Reporting Standard) and PAS
(Philippine Accounting Standards).
CHAPTER 2: BRANCHES OF
aCCOUNTING
1. Financial Accounting
2. Management Accounting
3. Government Accounting
4. Auditing
5. Tax accounting
6. Cost accounting
7. Accounting Education
8. Accounting Research
1. Financial Accounting
Financial Accounting is a branch of accounting primarily handling the
recording of financial transactions of a business. The financial transactions are
later summarized into standardized accounting reports, more popularly
known as the financial statements , for the benefit of the internal and
external users. Financial statements should provide information useful to a
wide range of users in their economic decisions. This is the main reason why
accounting standard such as PFRS and PAS are created. PFRS and PAS supply
guidelines on how company should prepare their financial statements.
Standardized financial statements allow the users to compare the results of
operations of different companies regardless of size and nature.
Likewise, standardized financial statements are also useful creditors.
 2 TYPES OF FINANCIAL STATEMENTS
General Purpose Financial Special purpose Financial
Statements Statements

Pr ima r y us e r s Pr ima r y us e r s
1. Investors 1. Top Management (ex.
2. Creditors Board of Directors, CEO,
3. Shareholders/Stockholders CFO, COO
4. Government Agencies 2. Department Managers
5. Auditors (ex. Sales manager,
6. Other interested outside Production Manager)
parties 3. Other internal parties
2. Management Accounting
Management accounting is a branch of accounting which focuses on the
preparation of financial reports used by managers in their day-to-day
decision making. Reports generated using management accounting are for
internal users only. As such, management reports need to follow accounting
standards such as PFRS and PAS. Additionally, unlike financial reports that
are generated quarterly, semi-annually, or annually, management reports
cam be done daily, weekly, or whenever managers requires specific report.
Management reports typically contain information regarding the amount of
cash on hand, level of sales revenue or a particular period, costs incurred, or
even the comparison of actual results with budgeted amount. Management
accounting differs from financial accounting through the information it
produced. Financial accounting summarizes financial information gathered
within specified . Meanwhile, management accounting information is
forward looking. It contains forecasted information used by managers in
planning.
Roles of Management Accountants
According to the Chartered Institute of Management Accountants
(CIMA), management accountants perform the following;

• Advise the manager about the financial implications of projects

• Explain the financial consequences of business decisions
• Formulate business strategy
• Monitor spending and financial control
• Conduct internal business audits
• Explain the impact of competitive landscape
• Bring a high level professionalism and integrity to the business
 Management Accounting Skill set

In addition to strong accounting fundamentals, management accountants

should also possess the following strategic business and management
skills:

• Analysis – be able to analyze information

• Strategy – able to formulate business strategies that would help the
company increase wealth
• Risk – able to identify risks that can potentially have detrimental effects
to the company
• Planning – able to apply accounting techniques in the planning and
budget creation phase of a business
• Communication – able to identify what information the management
needs and also explain the numbers to non-financial managers
3. Government Accounting
According to Section 109 of Presidential Decree 1445, government accounting is
defined as an accounting system which encompasses the process of analyzing,
recording, classifying, summarizing, and communicating all transactions involving the
receipt and disposition of government fund and property and interpreting the result
thereof. Government accounting is used by all government agencies (ex. DepEd,
DPWH and BIR). Due to specialized nature of government transactions, stricter
controls should be put in place to prevent the misuse of the country’s resources.
New Government Accounting System (NGAS) –enhances responsibility accounting in
all agencies. If there is a problem with the handling of funds on a certain agency,
people/officials from that agency are the ones accountable.
Government Accounting Process – it involves the Commission on Audit (COA), the
Department of Budget and Management (DBM), the Bureau of Treasury (BTr) and all
other government agencies
COA- responsible for keeping the government’s general account
DBM – shall be responsible for the formulation and implementation of the National
Budget for the efficient and sound utilization f government funds and revenues to
effectively achieve the country’s developmental objectives.
BTr – is responsible for the safekeeping of the national funds. It serves like a bank
where the funds are kept.
4. Auditing

Auditing is an unbiased examination and evaluation

of the financial statements of an organization.
Auditing is a process that includes numerous steps
to determine whether or not a company’s financial
statements are presented truthfully. Accountants
that perform the auditing procedure are specifically
called auditors (who should not be involved in the
company to avoid manipulation of results.
Financial statements that underwent the process of
“auditing” are called audited financial statements .
A financial statement willy be useful to users after it
has been audited.
 5. Tax Accounting
Taxes are the lifeblood of the government. Without the
taxes the citizens pay, the government cannot perform
it’s functions. Thus, it is imperative that the collection of
taxes be unhindered.
Tax accounting records some financial transactions on a
different manner. It adheres to some guidelines of the
PFRS and PAS, but it is required to implement everything
written in such standards. Tax accounting follows the
pronouncements of the National Internal Revenue Code
(NIRC).
 6. Cost Accounting
Cost accounting is a branch of accounting that provides information
for management accounting and financial accounting. (Horngren et
al. 2011)
Terms used in Cost Accounting
Cost – the resource sacrificed to achieved objective (ex. Money,
resources, time)
Cost object – anything that you wish to find the cost (ex. Cost of a pair of
shoes)
Cost driver – an activity that is a cause of the incurrence of a cost
Direct cost – cost that can economically be traced to cost object (ex.
Material, object
Indirect cost – cost that cannot be traced to a cost object (ex. Salary of
supervisor)
Fixed cost – costs that do not change within the relevant range of activity
(ex. Rent of a building)
Variable cost – cost that change as the level of activity or production
increases (ex. Material cost)
 7. Accounting Education
The bachelor of Science in Accountancy (BSA) in the Philippines is normally 5-
year program composed of subjects in accounting, audit, administration,
business laws and taxation. BSA also covers other fields such as banking and
finance, government, non-profit organizations, and the academe.. Students of
the course are also trained to create and understand computerized accounting
system to cope with the rapidly changing technology.

Admission Requirements for BSA

According to CHED,
Must be a high school graduate
Must have a college entrance examination above average or depending on the
specific rating set
Must pass aptitude examination test specific for BS Accountancy
Must pass interview conducted by college admission officer
Some schools requires a high school QPA of 85% and above with no grade less
than 80%
Higher rating on NSAT (National Secondary Assessment Test)
English proficiency examinationin all BS Accountancy students
 8. Accounting Research
Accounting research focuses on the search for new knowledge on the effects of
economic events on the process of summarizing, analyzing, verifying, and reporting
standardized financial information, and on the effects of reported information on
economic events.

Admission Requirements for BSA

Researchers typically choose a subject area and a methodology on which to focus their
efforts. The subject matter of accounting research may include information systems,
auditing and assurance, corporate governance, financials, managerial, and tax.
Accounting research plays an essential part in creating new knowledge. Academic
accounting research "addresses all aspects of the accounting profession" using a
scientific method. Practicing accountants also conduct accounting research that focuses
on solving problems for a client or group of clients. The Accounting research helps
standard-setting bodies around the world to develop new standards that will address
recent issues or trend in global business.