Chapter 1: Accounting and Its Environment  The tokens were sealed in clay balls called bullae and broken on

delivery for checking of the shipment against the invoice.

The evolution of accounting, the accounting profession, the  Bullae is considered to be the first bill of lading (proof of
conceptual framework and business model, accounting concepts, shipment)
conventions, standards and principles, business ethics, branches of  Clay tablets replaced the tokens later.
accounting and how accounting is applied to the three types of  Account records date back to the ancient civilizations of China,
businesses-service, merchandising and manufacturing. Babylonia, Greece and Egypt, the initial stage of record-
keeping.
Introduction  Proof: Archeologists have established certain clay tokens-
 Business cones, disks, spheres and pellets found in Mesopotamia
- The regular conduct of legal activities primarily intended to (modern Iraq) used as a medium of exchange for commodities
accumulate profit. such as sheep, jugs of oil, bread or clothing.
- responsibility toward the environment where they operate: II. Middle Ages
o Promote welfare of the employees, respect their  During the 11th to the 13th centuries, Northern Italy’s literacy
rights, values and traditions became widespread.
o Providing clean and safe working place.  Arabic numerals were used as a result of trade.
o Sustaining a healthy environment  The use of credit was prevalent and a semblance of
o Contribute taxes to the local and national international banking system was also functioning
government.  Development of a more formal account-keeping methods is
- Obligation of the business to the society called corporate attributed to the merchants and bankers of Florence, Venice
social responsibility. and Genoa in 13th to 15th centuries which soon gives rise to
double-entry bookkeeping.
Accounting  Proof: Earliest evidence of business bookkeeping were bank
 It is the language of business. ledger fragments of 1211 found in Florence, France and
 It is an art of recording, classifying and summarizing in a transcribed by Pietro Santini in 1887.
significant manner and in terms of money transactions and events  AMATINO MANUCCI – the inventor of double-entry
that are at least part of a financial character and interpreting the bookkeeping., giving importance to the aspect of financial
results thereof. (AICPA) control.
 It is a service activity.  LUCA PACIOLI-a Franciscan friar and mathematician, he is
 A system that measure business activities, processes information associated with the introduction of double-entry bookkeeping
into reports and communicates results to decision-makers. through his books where he described what were prevalent
 A process of identifying, measuring and communicating economic accounting practices of the day.
information to permit informed judgments and decisions by users  NICOLAS PETRI- the first person to group similar transactions in a
of accounting information. separate record and enter the monthly totals in the journal.
Evolution  BENJAMIN WORKMAN-published the first American accounting
I. Primitive Accounting textbook, “The American Accountant”
 The origin of record-keeping can be traced back as early as
8,500 B.C.
 - Coherent approach towards external economic relations and
III. Information Age
 Tremendous advances in information technology have
revolutionized and necessarily bring changes to the field of
accounting.
 Those tasks that are time-consuming when done manually
can now be done with speed, consistency, precision and
reliability by computers.
 DAN BRINKLIN and BOB FRANKSTON – wrote VisiCalc for Apple II,
the first electronic spreadsheet, a business application for
personal computer.

ASSOCIATION OF SOUTHEAST ASIAN NATIONS (ASEAN) enhanced participation in global supply networks.
 Established on August 8, 1967 in Bangkok, Thailand with then five
(5) founding members Indonesia, Malaysia, Philippines, Thailand
Fundamental Business Model
and Singapore. Later, the following nations joined the group
- How the money flows
namely Brunei Darussalam, Vietnam, Lao PDR, Myanmar and
- Proper accounting generates information which helps
Cambodia.
management to make judgement on how to improve the
 VISION: A stable, prosperous and highly competitive ASEAN
performance of the business.
Economic Region in which there is a free flow of goods, services,
Activities:
investment and a freer flow of capital, equitable economic
1. Investors Provide Capital
development and reduced poverty and socio-economic
- The cash investment will be deposited in the bank account of
disparities.
the business.
2. Cash Converted into Other Asset or Resources
*ASEAN Political Security Community
- Other assets can be inventory for sale, equipment or to pay
*ASEAN Socio-Cultural Community
operating costs such as salaries, rentals, utilities.
ASEAN Economic Community
3. Resources Are Used to Produce Goods or Services
 Single Market and Production Base
- The basis for producing products.
- Are measures to ensure free flow of goods, services,
4. Sale of Products or Services
investment, capital, skilled labor and priority integration
- The sale of products generates cash or receivable
sector.
5. Cash or Collected Receivable
 Competitive Economic Region - will be used to pay-off obligations, taxes, operating costs
- Actions on competition policy, consumer protection,
- The remaining cash can be sent back to the cycle or
intellectual property rights, infrastructure development, reinvested (stage 2)
taxation and e-commerce.
 Equitable Economic Development Types of Business
- SME development, an initiative for ASEAN integration.  Services
 Integration into The Global Economy - Selling people’s time
- Hiring skilled staff and selling their time
 - Accounting firm, law firm, service shops
Forms of Business Organizations
A business can assume any of the three forms of business organization.
The accounting procedures depends on which form the business takes.
 Trader/ Merchandising
- Buying and selling products  Sole Proprietorship
- Buying range of raw materials or manufactured goods, - Single owner who also serves as the manager of the business.
making them available for sale to customers or online delivery - The owner receives all the profits of the business and also
- Wholesaler, Retailer absorbs all losses.
 Manufacturing - Solely responsible for all the debts of the business.
- Designing, aggregating components and assembling finished - Business affairs is separate and distinct from the owners.
goods. - Proprietor
- Raw materials are converted into finished products using  Partnership
equipment and people - A business owned by two or more persons who contribute
- Vehicle assembly, Construction, Engineering, Food and drinks, money, property or industry to a common fund with the
Pharmaceuticals intention of dividing profits among themselves.
 Raw Materials - Each partner is personally liable for the debts of partnership
- Growing or extracting raw materials - Business affairs is separate and distinct from that of the
- Buying tract of land and using them to provide raw materials partners.
- Farming, Mining, Oil - Can have as many Partners as possible.
 Infrastructure  Corporation
- Selling the utilization of infrastructure - A separate legal entity
- Buying and operating assets; selling occupancy often in - An artificial being created by the operation of law
combination of services - With rights of succession,
- Transport (airlines, trains, ferries, buses), Hotels, telecoms, - With powers, attributes expressly authorized by law or
sport facilities incident to its existence.
 Financial - The stockholders are not personally liable to corporate debts
- Receiving deposits, lending and investing money - Shareholders or Stockholders
- Accepts cash from depositors and pay them interest, use
deposit money to provide loans to borrowers, charging them Types of Organization
fees and higher interest rate than what the depositors  Financing Activities
receive. - Methods used in business to obtain financial resources from
- Banks, Investment houses financial markets such as sources of cash from investors or
 Insurance banks and uses of cash to pay dividends to shareholders and
- Pooling premiums of many to meet claims of a few payment of loans.
- Collects money from many customers to pay claims of the  Investing Activities
insured due to losses. By accepting the risk of a claim, more - Include purchase sale of long-term assets such as land,
premium income can be earned than claims paid. equipment, buildings and other resources needed to produce
- Insurance
 goods and services and selling these resources when they are  Periodicity Concept
no longer needed. - Also known as time period assumption, periodicity allows an
 Operating Activities entity’s life to be subdivided into equal time periods for reporting
- The core activities of the business directly related to providing purposes and for timely information as a basis for making decisions.
its goods and services to the market which involves
competing with suppliers and customers.
Basic Phases of Accounting  Stable Monetary Unit Concept
Accounting Function - The Philippine peso is a reasonable unit of measure whose
- To take charge of the financial operation of the business in order purchasing power is relatively stable overtime and it ignores or
to provide information and advice other departments. disregards the effects of inflation in accounting records.
- Foreign transaction is needed to be converted in Peso before it is
Accounting is part of the broader business instead because business going be recorded.
handles volume of transactions in their daily operations and accounting  Going Concern
place a major part to be able to produce financial information. - A fundamental principle in accounting which assumes that a
reporting entity will continue in operation even beyond the next
 MEASURING AND RECORDING accounting period and will continue its current plans, use its
- Business transactions before recording must be analyzed and existing assets and meet its financial obligations. That it has neither
measured or be expressed in terms of money. the intention to enter liquidation or cease trading.
- Put value to the transaction - Continuing the business up to last
 Classifying
- Because of numerous data, recorded business transactions will be Criteria for General Acceptance of an Accounting Principles
useful if it can be classified into groups or categories, otherwise the  Relevance
resulting information will be of limited use - A principle has relevance if it results in information that is
 Summarizing meaningful and useful to those who needs to know something
- The results of classifying will be summarized in order to produce a about a certain organization
good financial statement or financial reports.  Objectivity
 Interpreting - A principle has objectivity if the resulting information is not
- To evaluate the liquidity, solvency and profitability of the business influenced by the personal bias or judgment of those who furnish it
organization, the result of summarization must be interpreted by thus it connotes reliability and trustworthiness. It also connotes
interested parties. verifiability which means that there is some way of finding out
whether the information is correct.
After analyzing and evaluating owners will take action for the good of the - It must be verifiable
business or expansion, it depends on the result of financial reports.  Feasibility
- A principle has feasibility to the extent that it can be implemented
Fundamental Concept without undue complexity of cost. These criteria often conflict with
 Entity Concept each other because in some cases the most relevant solution may
- Business and owners are treated separately and its transactions be the least objective and least feasible.
should not be accounted for together because the business stands
apart from other organizations as a separate economic unit.
- Personal affair is separated from the owner’s business Basic Principles of Accounting
 Objectivity Principle - Same method used over the time
- Accounting records and statements should be based on the most
reliable data available which is verifiable and can be confirmed by Accountancy in the Philippines
independent observers. • Accounting has been practiced in the Phils. since the Spanish period
- Free from bias but only on March 17, 1928, this was formally recognized by the
approval of Act No. 3105.
 Historical Cost • Act. 3105 – “An act regulating the practice of Public Accounting;
- States that acquired assets should be recorded at their actual cost Creating the Board of Accountancy; Providing for Examinations,
and not at what management thinks they are worth at a reporting Granting of Certificates and Registration of Certified Public
date. Accountants; for the Suspension or Revocation of Certificates; and
- Recorded as purchase cost Other Purposes”
 Revenue Recognition Principle • Since then, the profession has grown rapidly from 43 registered
-A feature in accrual accounting which requires that revenue must accountants in 1923 to more than 160,000 as of 2018 (Ballada,2018).
be recognized in the period it was realized or earned –not New accountants are added to the roster every passing year.
necessarily when cash is received.
- It is recorded as earned even it is not yet paid Past & Present Luminaries of the Accounting Profession
- Following accrual concept • Dr. Vicente Fabella. Became the first Filipino CPA in the U.S.
 Expense Recognition Principle • Dr. Nicanor Reyes. Founder and first President of Far Eastern
- States that expenses should be recognized at the time it was University (formerly Institute of Accountancy)
incurred or used up to produce revenue and not at the time the • Belen Enrile-Gutierrez. First Filipina CPA.
entity paid for those goods and services. • Jaime Hernandez & Paciano Dizon. First and second Filipino Auditor
- Recognized expenses when it is incurred, not the time it is paid Generales of Commission on Audit (COA).
 Adequate Disclosure • Manuel Villar. Filipino tycoon, former Speaker of the House; Senate
- Confirms that all essential information that would affect the user’s President.
clear understanding of company’s financial position must be • Washington Sycip. President of International Federation of
disclosed in the financial statements. Accountants; founder of SGV & Co., leading accountancy firm in the
- Users: Owners, Management, Creditor, Suppliers, Investor country.
- Disclose information • Jose W. Diokno. Former Senator and Secretary of Justice.
 Materiality Principle • Alberto Romulo. Former Senator, Secretary of Foreign Affairs...AND
- Financial reporting is concerned with information that is significant MANY MORE!
enough to affect evaluations and decisions. It depends on the size
and nature of the item judged in the particular circumstances of its Scope of Practice
omission. Rep. Act No. 9298 –known as the Philippine Accountancy Act of 2004
- Important significant information must be included states that the practice of accountancy shall include but not limited to:
- If omitted book must be adjusted • Practice of Public Accountancy
 Consistency • Practice in Commerce & Industry
- States that the firm should use the same accounting method from • Practice in Education / Academe
period to period to achieve comparability overtime within a single • Practice in Government
enterprise.
Accounting Standards in the Philippines
 Accounting Standards Council the significant trust the client placed in him and his professional
- created by the Philippine Institute of Certified Public Accountants, abilities.
the official organization of CPA’s, whose mission is to establish and • Sexual Harassment. Unwanted repeated or aggressive sexual
improve accounting standards that will generally be accepted in advances toward another usually happened between a superior and
the Philippines. It is composed of eight (8) members. a person of lower rank.
• Discrimination: The unjust or prejudicial treatment of different
 Financial Reporting Standards Council categories of people or things especially on grounds of race, religion,
- the new accounting standard setting body as reflected in Sec.9 (A) ethnicity, age, sex, gender preferences and marital status.
of the Accountancy Act of 2004. It is composed of fifteen (15)
members with a chairman and fourteen (14) representatives, all Code of Ethics for Professional Accountants
CPAs from different fields of practice or agencies. A professional accountant must observe the following fundamental
principles:
Role of Ethics in Business  Integrity
BUSINESS ETHICS provide guidelines that businesses follow in terms of - Straightforward and honest in all professional and business
appropriate policies and practices regarding controversial subjects relationships. It implies fair dealing and truthfulness.
including corporate governance, insider trading, bribery, discrimination,  Objectivity
corporate social responsibility and fiduciary responsibilities. - Should not allow bias, conflict of interest or undue influence of
 The law set the tone for business ethics. others to override professional or business judgments.
- Speak for the truth
- What is fair
Ethical Dilemma - True available evidence
- a situation in which there is no obvious right or wrong decision but  Professional Competence and Due Care
rather right answer. Business is a good source of ethical dilemma - Has duty to maintain professional knowledge and skill at a level
because its primary purpose is for profit. There is no easy solution to required to ensure that client or employer receives competent
ethical dilemmas, we follow a process of ethical reasoning based on professional services which include exercise of sound judgment.
our own ethical standards. - Be confident on work; Admit if you can’t do it
- Sometimes they follow their own ethical standards  Diligence
- Based on experience, knowledge, scenario - Encompasses responsibility to act persistently in accordance with
- Common Ethical Dilemmas the requirements of an assignment and in an effort to accomplish
• White Collar Crime. A fact of business life and should be on the something.
lookout for it such as fraud, embezzlement, theft of equipment and  Confidentiality
supplies, false insurance claims, bribery, kickbacks, and other schemes. - Respect the confidentiality of information, not disclosing to third
• Whistle Blowing/Whistle Blower. Going to authorities or media with parties without proper or specific authority.
proof that a company is engage in wrong-doing.  Professional behavior
• Conflicts of Interest. Arise when a person must play two conflicting - Should comply with relevant laws and regulations and should not
roles in a situation. Example: nepotism, self-dealing, etc. avoid any action that discredits the profession.
• Fiduciary Responsibilities. In a relationship with client, a professional
must put the interest of the client first ahead of its own because of
 wider range of sources. It incorporates cost accounting data and
adapts them for specific decisions.

Branches of Accounting  Taxation

 Auditing - Tax accounting is a structure of accounting methods focused on
- The independent examination that ensures fairness and reliability taxes rather than the appearance of public financials statements. It
of the reports that management submits to users of accounting includes preparation of tax returns and the consideration of the
information: tax consequences of proposed business transactions.
- Internal Auditing – within the organization  Government Accounting
- External Auditing – outside the business entity. - Refers to the process of recording and management of all
 Bookkeeping financial transactions incurred by the government which includes
- The routine task of recording financial transactions to the books of income and expenditures. It is necessary to account proper
accounts as part of the process of accounting in business and custody of public funds and its disposition because it involves
keeping its financial records. huge amount.
- Record keeping
 Financial Accounting
- The focus is on the recording of financial transactions and the
periodic preparation of reports on financial position and results of
operations. It also applies to the preparation and subsequent
publication of highly summarized financial information to be used
by management for planning and control purposes.
 Financial Management
- A new branch of accounting occupied by financial managers who
are responsible for setting financial objectives, obtaining the
finances needed to achieve plans and generally safeguarding all
the financial resources of the entity. Financial managers are much
more heavily involved in management and draws on a much wider
range of disciplines and relies more on non-financial data.
Managers:
- Behind the investment
- In-charge in source of investors
- Access the company situation based on non-financial data
- In-charge to the trading of stocks
 Management Accounting
- The process of preparing reports about business operations that
helps managers make short-term and long-term decisions. It
incorporates all types of financial and non-financial data from a