ACTG 2 CFAS

Assessment Task 1-1

Discussion questions:

1. Discuss the 3 important activities included in the definition of accounting.

Accounting is the “process of identifying, measuring and communicating

economic information to permit informed judgments and decisions by users of the
information.” (American Association of Accountants)

Three important activities are included in the definition of accounting:

1. Identifying-the process of analyzing events and transactions to determine
whether or not they will be recognized.

2. Measuring involves assigning numbers, normally in monetary terms, to the

economic transactions and events.

3. Communicating is the process of transforming economic data into

useful accounting information, such as financial statements and other
accounting reports, for dissemination to users. It also involves interpreting the
significance of the processed information.

2. Explain the different types of events or transactions.

Events:
Internal events are triggered by internal functions of a business or by the simple
passage of time and do not involve an external party. External transactions are
triggered by business activity between the organization and outside third parties.

Transaction:
Types of External event:
1. Exchange (reciprocal transfer)- an event wherein there is a reciprocal
giving and receiving of economic resources or discharging of economic
obligations between an entity and an external party.

2. Non-reciprocal transfer- is a “one-way” transaction in that the party giving

something does not receive anything in return while the party receiving
does not give anything in exchange.

3. External events other than transfer- an event that involves changes in the
economic resources or obligations of an entity caused by an external party
or external source but does not involve transfers of resources or obligations .
Types of Internal events:
1. Production- the process by which resources are transformed into finished
goods.
Ex. conversion of raw materials into finished products, production of
farm products.

2. Casualty- an unanticipated loss from disasters and other similar events.

Ex. loss from fire, flood, earthquakes, and other catastrophes.

3. Enumerate the measurement bases used in accounting.

1. Historical cost- is a measure of value used in accounting in which the value of an asset
on the balance sheet is recorded at its original cost when acquired by the company.
2. Fair value- is a reference to the estimated worth of a company's assets and liabilities
that are listed on a company's financial statement.

3. Present value- is the current value of a future sum of money or stream of cash flows given a
specified rate of return.

4. Realizable value- is a valuation method, common in inventory accounting, that considers
the total amount of money an asset might generate upon its sale, less a reasonable
estimate of the costs, fees, and taxes associated with that sale or disposal.

5. Current cost- is a valuation method whereby assets and goods used in production are
valued at their actual or estimated current market prices at the time the production takes
place.

6. Sometimes inflation-adjusted cost- is to remove it from all of the values in your analysis by
converting all values to current dollar values and by using a real interest rate – that is,
an interest rate with inflation removed from it

4. Discuss the 3 aspects of communicating process of accounting.

The communicating process of accounting involves three aspects:
1. Recording- refers to the process of systematically committing into
writing the identified and measured accountable events in the
a journal through journal entries.

2. Classifying- involves the grouping of similar and interrelated items

into their respective classes through posting in the ledger.

3. Summarizing- putting together or expressing in condensed from the

recorded and classified transactions and events. This includes the
preparation of financial statements and other accounting reports.

5. Give examples of accounting concepts.

1. Double-entry system
2. Going concern assumption
3. Separate entity (Accounting entity/Business entity concept/Entity concept)
4. Stable monetary unit (Monetary with assumption)
5. Time period (Periodicity/Accounting period)
6. Materiality concept
7. Cost-benefit (Cost constraint/Reasonable assurance)
8. Accrual basis of accounting
9. Historical cost concept (Cost principle)
10. Concept of articulation
11. Full disclosure principle
12. Consistency concept
13. Matching (Association of cause and effect)
14. Entity theory
15. Proprietary theory
16. Residual equity theory
17. Fund theory
18. Realization
19. Prudence (Conservatism)

6. Discuss the common branches of accounting.

1. Financial Accounting- is the branch of accounting that focuses on general-purpose

financial statements.
2. Management accounting- refers to the accumulation and communication of
information for use by internal users or management.
3. Cost accounting- is the systematic recording and analysis of the costs of materials,
labor, and overhead incident to production.
4. Auditing- is the process of evaluating the correspondence of certain assertions
with established criteria and expressing an opinion thereon.
5. Tax accounting- the preparation of tax returns and rendering of tax advice, such
as the determination of the tax consequences of the certain proposed business
endeavors.
6. Government accounting- refers to the accounting for the government and its
instrumentalities, emphasizing the custody of public funds, the purposes
for which those funds are committed, and the responsibility and accountability of
the individuals entrusted with those funds.
7. Fiduciary accounting- refers to the handling of accounts managed by a person
entrusted with the custody and management of property for the benefit of another.
8. Estate accounting- refers to the handling of accounts for fiduciaries who wind up
the affairs of a deceased person.
9. Social accounting (social and environmental accounting or social responsibility
reporting)- the process of communicating the social and environmental effects of
an entity’s economic actions to the society.
10. Institutional accounting- the accounting for non-profit entities other than the
government.
11. Accounting systems- the installation of accounting procedures for the
accumulation of financial data and designating of accounting forms to be used in
data gathering.
12. Accounting research- pertains to the careful analysis of economic events and other
variables to understand their impact on decisions. Accounting research includes a
a broad range of topics, which may be related to one or more of the other branches
of accounting, the economy as a whole, or the market environment.

7. What are the four sectors in the practice of accountancy?

1. Practice of Public Accountancy- involves the rendering of audit or accounting

related services to more than one client on a fee basis.
2. Practice in Commerce and Industry- refers to the employment in the private sector
in a position that involves decision making requiring professional knowledge in
the science of accounting and such position requires that the holder thereof must
be a certified public accountant.
3. Practice in Education/Academe- employment in an educational institution which
involves the teaching of accounting, auditing, management advisory services, finance,
business law, taxation, and other technology-related subjects.
4. Practice in the Government- employment or appointment in a position in an
accounting professional group in the government or a government-owned and/
controlled corporation, including those performing proprietary functions where
decision making requires professional knowledge in the science of accounting, or
where civil service eligibility as a certified public accountant is a prerequisite.
8. Why is there a need for reporting standards?
For financial statements to be useful, they should be prepared using reporting
standards that are generally acceptable. If each entity will develop its standards,
the financial statements would not be comparable, the risk of fraudulent reporting will
be heightened, and economic decisions based on these financial statements would be
grossly incorrect. For this reason, entities should follow a uniform set of reporting
standards when preparing and presenting financial statements.

9. Name the accounting setting bodies and other relevant organizations.

1. Financial Reporting Standards Council (FRSC)- is the official accounting standard

setting body in the Philippines created under the Philippine Accountancy Act 2004
(R.A. No. 9298)

2. Philippine Interpretations Committee (PIC)- is a committee formed by the

Accounting Standards Council (ASC), the predecessor of FRSC, with the role of
reviewing the interpretations of the International Financial Reporting
Interpretations Committee (IFRIC) for approval and adoption by FRSC.

3. Board of Accountancy (BOA)- is the professional regulatory board created under

R.A. No. 9298 to supervise the registration, licensure, and practice of accountancy
in the Philippines.

4. Securities and Exchange Commission (SEC)- is the government agency tasked in

regulating corporations and partnerships, capital and investing markets, and the
investing public.

5. Bureau of Internal Revenue (BIR)- administers the provisions of the National

Internal Revenue Code.

6. Bangko Sentral ng Pilipinas (BSP)- influences the selection and application of

accounting policies by banks and other entities performing banking functions.

7. Cooperative Development Authority (CDA)- influences the selection and

application of accounting policies by cooperatives.

Problem 1: True or False

 True 1. All events and transactions of an entity are recognized in the books of
accounts.
False 2. The accounting process of assigning numbers, commonly in monetary
terms, to the economic transactions and events, is referred to as classifying.
True 3. The basic purpose of accounting is to provide information about economic
activities intended to be useful in making economic decisions.
True 4. Financial accounting is the branch of accounting that focuses on general
purpose reports of financial position and operating results are known as the
financial statements.
True 5. General-purpose financial statements are those statements that cater to
the common and specific needs of a wide range of external users.
False 6. The financial statements are the only source of information when making
economic decisions.
True 7. All information presented in the financial statements is sourced from the
accounting records of the entity.
True 8. Entity A’s accounting period starts on July 1 and ends on June 30 of the
following year. Entity A uses a fiscal year period.
True 9. Once promulgated, accounting standards are never changed.
True 10. The entity’s management is responsible for the selection of appropriate
accounting policies, not the accountant.