INTEGRATED ACCOUNTING REVIEWER BRANCHES OF ACCOUNTING

ACCOUNTING - a service activity that records transactions of 1. PUBLIC ACCOUNTING - career field open to firms and individual
the business and prepares a progress report about its financial CPAs who offers to the public for a fee, expert services like
position and result of operation. Recording, Classifying, bookkeeping, auditing, accounting, tax and consultancy. For
Summarizing and Interpreting auditing, accounting and tax services it is a must that they passed
 Provide quantitative information, primarily financial in the CPA licensure examination first.
nature, about economic entities that is intended to be 2. INDUSTRY ACCOUNTING - also called as Private Accounting is
useful in making economic decisions. another career field where more accountants are employed than
 Is considered the language of business because it in Public Accounting because of the huge number of
communicates relevant financial information to decision merchandising and other firms.
makers 3. GOVERNMENT ACCOUNTING - where one works as a government
USERS OF ACCOUNTING INFORMATION accountant in government agencies. They render opinions in
government financial statements.
STAKEHOLDERS – the one who has interest in the economic 4. RESEARCH AND EDUCATION - field where the accountant
performance of a business assumes the role of researcher, teacher and reviewer.
OWNER or INVESTOR – the one who invest capital in a
business venture with the objective of receiving a return from REGULATORY BODIES IN THE PHILIPPINES
the profit earned the business.
MANAGER – appointed steward of the business, tasked to 1. PRC (PROFESSIONAL REGULATORY COMMISSION) - In charge of
ensure efficient operation and wise use of its resources and regulating and licensing the practice of a profession like accounting,
responsible for organizing, planning, directing and controlling medicine, engineering, nursing and the like. Its functions are
the operation of the business. A) Maintaining and enforcing professional examinations.
LENDER – this user reviews the financial statements of an B) Promulgating and implementing standards
applicant as a means of evaluating liquidity or ability to pay. C) Providing legal and other regulatory services
SUPPLIER – this may be considered the firm’s “partner” in 2. BOA (BOARD OF ACCOUNTANCY) - under jurisdiction of PRC and is
tasked in setting up and promulgating a set of professional standards
business who usually extends service and merchandise on
and ethics in the practice of the accounting profession. It constantly
credit depending on the firm’s capability to pay
monitors the practice of Accountancy in the Philippines.
GOVERNMENT – this user requires all earners (individuals or
3. PICPA (PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC
business firms) to submit regularly their financial statements
ACCOUNTANT) - Professional organization of CPAs. Setting up and
and is also responsible in establishing the rates of taxes to be
implementing rules vital to the accounting profession.
paid Under PICPAs umbrella are the following:
EMPLOYEE – this statement user is interested in company’s 4. ACPAE - Association of Certified Public Accountants in Education
operating performance. If it earns well, remuneration will be 5. GACPA - Government Association of Certified Public Accountants
higher and more benefits will be enjoyed 6. AIA – Association of International Accountants
CUSTOMER – this user considers not only the price and quality 7. ACPACI - Association of Certified Public Accountants in Commerce
of the product but also the company’s reputation and ability to and Industry
deliver the product on time 8. SEC (SECURITIES AND EXCHANGE COMMISSION) - Its task is to
ENTREPRENEUR – this one take risk in putting up a business safeguard public interest. It regulates business organizations like
venture for a product or service which is result of one’s skill Partnership and Corporations.
and creative mind 9. BSP (BANGKO SENTRAL NG PILIPINAS) - regulates the operations
of all banks, as well as importations and exportation of goods. It also
FORMS OF BUSINESS ORGANIZATION monitors foreign currency transactions and the Ph Peso exchange
rate.
1. SOLE PROPRIETORSHIP - organized by one person. 10. BIR (BUREAU OF INTERNAL REVENUE) - ensures compliance of tax
 No formal legal process is required and license requirements by all businesses. Collection of fees and
 Can be handled and managed easily taxes is a primary responsibility of this agency as this is the principal
 He/she gets all of the profit. source of funding the various projects/activities of the government.
2. PARTNERSHIP - owned by two or more persons who 11. IASB (INTERNATIONAL ACCOUNTING STANDARD BOARD - tasked
contribute money, property or industry to formulate new standards for financial reporting and measurement
 Subject to governmental requirements called IFRS (International Financial Reporting Standards)
 Unlimited liability 12. PFRS/PAS (PHILIPPINES FINANCIAL REPORT SYSTEM/PHILIPPINE
 Difficulty in managing ACCOUNTING STANDARD) - are the new set GAAP issued by the
 Limited life Accounting Standards Council (ASC) to govern the preparation of
financial statements. Agency tasked in reviewing, preparing and
3. CORPORATION - Separate legal entity from its owners
codifying standards for use in accounting practice
 Subject to rigid governmental requirements
 Juridical person, Unlimited life
 MATERIALITY CONCEPT -The materiality principle states that an
ACCOUNTING FRAMEWORK accounting standard can be ignored if the net impact of doing so
QUALITATIVE CHARACTERISTICS has such a small impact on the financial statements that a reader of
the financial statements would not be misled
FOUR PRINCIPAL ATTRIBUTES: REPORTING PERIOD -It is understood that a complete and accurate
1. UNDERSTANDABILITY - Requires that terminologies must financial picture of the business may only be made at the end of its
be clear, orderly presentation in order to make a goods life.
assessment and sound judgment. However, since users need reporting of financial information on a
2. RELEVANCE - Prescribes the quality of information that will regular basis, then its life has to be divided into specific time
make a difference and influence a statement user to make intervals called accounting period. This will enable the enterprise to
a meaningful decision prepare periodic Financial Statement.
In order to be relevant information must be timely MONEY MEASUREMENT CONCEPT (UNIT OF MEASURE) - All
and material (based on nature and size) business transactions are recorded using only one unit of
3. RELIABILITY - Degree of confidence users have on the measurement. Since money is used as medium of exchange.
financial statements because they can be depended upon
as free from material errors or misstatements. TYPES AND EFFECTS OF TRANSACTION
To be reliable information must be:
a. FAITHFUL REPRESENTATION - Requires that FOUR TYPES OF TRANSACTION
information should not mislead users 1. SOURCES OF ASSETS
b. SUBSTANCE OVER FORM - Substance shall prevail a. Increase in assets=Increase in liabilities
over its form
b. Increase in assets= Increase in owner’s equity
c. NEUTRALITY - Information must be free from bias
and manipulation
2. EXCHANGE OF ASSETS
4. PRUDENCE - Requires that the accountant to perform a. Increase in one assets= decrease in assets
caution when using estimates or information that is 3. USE OF ASSETS
market by uncertainty a. Decrease in assets= Decrease of liabilities
PRINCIPLES - broad laws or rules adopted as guides to the b. Decrease in assets= Decrease of owner’s equity
conduct and practice of the profession 4. EXCHANGE OF CLAIMS
ETHICS – set of moral values and principles that is required of a. Increase in liabilities= decrease in owners’ equity
a professional so that the reports submitted can be trusted by b. Increase in owner’s equity= decrease in liabilities
the users c. Increase in one liability= decrease in another liability
FUNDAMENTAL CONCEPTS AND PRINCIPLES OF d. Increase in one owner’s equity=decrease in another
ACCOUNTING owners equity
BUSINESS ENTITY CONCEPT - assumes that the entity is
THREE CLASSES OF BUSINESS ACTIVITIES
separate from its owners. In preparing reports only the
elements of Financial Statement of the business should only be
presented. OPERATING ACTIVITY
COST ACCOUNTING (EXCHANGE PRICE) - Assets, liabilities, (Current Assets and Current Liabilities) - consist of principle
revenues and expenses should be recorded based on cost. Cost activities that a company performs to earn income.
is the amount agreed upon in an arm’s length transaction. It INVESTING ACTIVITY (Non Current Assets) - consist of buying and
may be based on the cash or its cash equivalent if there is no selling of long-term assets and other investments.
cash paid in the transaction. FINANCING ACTIVITY
Remember that cost changed cost price now may not be the (Non Current Liabilities and Capital) - Transactions with creditors
cost later. or investors used to fund either company operations or
ACCRUAL CONCEPT - Revenues is recorded based on when expansions. Include events and transactions that affect a business'
they are rendered regardless of collection equity and long-term liabilities.
Expenses are recorded based on when it was incurred INTERNAL CONTROL - plan of organization which includes all the
regardless of payment. practices, techniques and procedures designed to provide an
OBJECTIVITY CONCEPT - Requires that assets acquired must be effective accounting system to safeguard assets, check accuracy
verifiable and substantiated by source documents. This and reliability of accounting data
principle also supports the cost principle since valuation of
assets at cost is definite. COMPONENTS OF INTERNAL CONTROL
DISCLOSURE CONCEPT - The value of information found in the
financial statements may be enhanced to help users make 1. ENVIRONMENTAL CONTROL – requires high level of integrity
informed judgment when additional notes or explanations are and ethical values and formulating operating strategies that will
given. Adequate disclosure should be presented in the Notes to protect the welfare of company and its stakeholders
Financial Statements.
2. MONITORING ACTIVITIES – requires set of procedures to be 7. TAX ACCOUNTING – deals with tax matters affecting firms
followed such as defined specific responsibilities for (partnership and corporation), individuals, trusts and estates.
employees emphasizing segregation of duties/works for It involves preparation of tax returns, interpretation and
check and balance application of tax rules.
3. RECORD CONTROL – ensures that all transactions are 8. FORENSIC ACCOUNTING – new discipline which integrates
properly documented and recorded accounting, auditing and investigative skills. Forensic
4. ASSET CONTROL – ensures that assets are physically accountant works as fraud examiner involving illegal
protected and recorded with their respective serial numbers transactions such as cash embezzlement, bankruptcy or
and location code money laundering. This is done by tracking down FS.
ACCOUNTING INFORMATION SYSTEM (AIS) - involves the ACCOUNTING FRAMEWORK – a pervasive structure compose of
collection, storage, and processing basic rules, procedures, and premises that guide the accountant’s
of financial and accounting data used by internal users to report action and provides formation of standards
information to investors, creditors, and tax authorities. ETHICS PRINCIPLE – serves as a guide to good performance,
IMPREST SYSTEM - internal control procedure which aims proper conduct, and behavior expected of professionals
to protect the cash receipts and disbursements of the ACCOUNTANCY ACT – rules and regulations covering the
business, it requires that no one person should be allowed practices of accounting is embodied in IRR 9298
to handle all aspects of cash transactions
PROFESSIONAL ETHICS
MEASUREMENT SYSTEM – in an AIS the processing phase
which involves analyzing, measuring, recording, 1. OBJECTIVITY - needs to be independent and free from bias.
classifying, and summarizing This means that financial reporting like a company's
financial statements need to be based on evidence and
not opinions.
2. COMPLETENESS – the data should not be omitted to avoid
false and misleading information in financial statement
3. COMPETENCY - ability to use applicable information
technology and systems to meet work needs. Compliance
with applicable standards, rules, regulations and systems of
internal control; interpret and evaluate results, prepare
documentation; create financial reports
4. CONFIDENTIALITY - involves a set of rules or a promise
usually executed through confidentiality agreements that
limits access or places restrictions on certain types of
information.
5. INDEPENDENCE - practice having no financial or other
interest in the client whose financial statements are being
examined.
ACCOUNTING AREAS 6. INTEGRITY – requires accountants to be honest and
forthright with a client's financial information, should
1. BASIC ACCOUNTING OR BOOKKEEPING – routine activity of restrict themselves from personal gain or advantage using
recording, classifying, and summarizing business confidential information.
transactions in a systematic manner. 7. SOCIAL RESPONSIBILITY – refers to legal and social
2. FINANCIAL ACCOUNTING - involves the preparation and obligation of an individual or entities towards the promotion
interpretation of financial statements intended for external and preservation of the interests of the society
users (provides reports)
3. COST ACCOUNTING – concerned with systematic recording ETHICAL RISK
and measurement of the cost of manufacturing a product
and the cost of rendering service. 1. CONCEALING LOSSES - refers to a company's financial
4. MANAGEMENT ACCOUNTING – responsible for preparing position when total expenses exceed total revenues.
reports for internal users of the company in planning, Net loss is the amount of money the company lost during
directing and controlling its various operations and the period.
resources 2. CIRCUMVENTING CONTROLS - to avoid the real issues by
5. AUDITING – involves the review and examination of artfulness or deception; avoid by anticipating or outwitting
accounting records and financial statements and from which 3. REPORTING ARTIFICIAL PROFITS
a professional and unbiased opinion is given as to the 4. FICTITIOUS DISBURSEMENTS - an employee makes a
fairness of the accounting information contained in financial distribution of company funds for a dishonest
statement purpose include forging company checks, the submission of
6. GOVERNMENT ACCOUNTING – deals with the false invoices, doctoring timecards, and so forth.
administration or use of the public funds to bring about
service to community
 DEBTOR/MAKER – this is the party who promises to
AIS PRINCIPLE pay an obligation or debt
NET REALIZABLE VALUE – value of the receivables
1. COMPATIBILITY – helps one identify changes taking place after deducting the allowance for bad debts
in the entity between two or more periods, will able to RESIDUAL VALUE – recovery value of an asset at the
determine the change of its performance or position end of its estimated useful life
2. FLEXIBILITY - should be able to adapt to changes in the FACE VALUE – the principal amount
company based on its needs, operations, and management. UTILITY VALUE – productive value of an asset
3. COST-BENEFIT - refers to an accounting constraint that states the cost
representing its ability to yield service
of providing information must be measured against the benefit derived
BOOK VALUE – the net amount of a depreciable asset
from the use of that same information after deducting accumulated depreciation
MATURITY VALUE – this is the total amount to be paid on the due
BUSINESS DOCUMENTS – an evidence of business transactions date of the obligation
such as official receipt, cash voucher and invoice MATURITY DATE – the date that the debt becomes due
INCOME SUMMARY – temporary account used to clear the books CAPITAL EXPENDITURES – these are cash outlays for freight,
of revenues and expenses, the balance of which represents the custom duties and other incidental expenses which are usually
net income or net loss for the period added to the cost of the asset bought
T ACCOUNT – a tool that is used to classify and summarizes the REBATE – discount granted for paying an account promptly
effects of transactions on the accounting values MARKET VALUE – properties invested by the owner should be
WORKSHEET – a tool used to summarize all the information recorded as this value, the amount that could be paid for an asset
needed to make adjusting entries and facilitate preparation of at an arm’s length transaction
the financial statements as well as the closing entries GAIN ON SALE – recognized when the proceeds from the sale of
CHART OF ACCOUNTS – table of contents listing the titles and the asset is higher than its book value
numbers of the accounts found in the general ledger PERCENTAGE TAX – 3% tax paid for gross receipts or sales of
SUBSIDIARY LEDGER – a record showing the details and running goods and services by the business
balance of a customer’s account
GENERAL JOURNAL – the book of original entry where
transactions are recorded
GENERAL LEDGER – the book of final entry which shows the
compilation of accounts wherein the debits and credits of each
account is entered into one place so that the balance may be
determined at anytime
TRIAL BALANCE – a summary form listing all the general ledger
accounts with their corresponding debits and credits balances
ADJUSTED TRIAL BALANCE – a trial balance prepared at the end
of the year before preparing the financial statements
POST CLOSING TRIAL BALANCE – prepared after making the
closing entries, to prove the equality of the debits and credits
CLOSING ENTRY – entries prepared at the end of every
accounting period to clear the books of temporary accounts
DOUBLE ENTRY PROCEDURE – a simple accounting device
showing the increase side and decrease side of an account. The
duality of transaction requires that an entry must have an equal
debit and credit amount
OPERATING CYCLE – the period it takes for a cash to be used or
converted back into cash
ACCOUNTING CYCLE – series of steps and procedures
performed in one accounting period
COMPOUND ENTRY – an entry made up of more than one debit
and more than one credit
TRANSPOSITION ERROR - an error of data entry that occurs
when two digits that are either individual or part of a larger
sequence of numbers are accidentally reversed (transposed)
when posting a transaction.
SLIDE ERROR - an error that results from moving the decimal
point of a figure to the left or right of its correct position.
MISPOSTING ERROR - to transfer (an item) to an incorrect
ledger in bookkeeping.
INTEREST INCOME – interest to be recognized by the payee