Course Outline: ACC 111 – Financial Accounting and Reporting

Course Coordinator: Esterlina B. Gevera

E-mail address : egevera@umindanao.edu.ph
Student Consultation: By appointment
Mobile: 916-586-7793
Phone: (082) 3050646 loc. 137
Effectivity Date: Aug. 17, 2020
Mode of Delivery: Blended (On-Line with face to face or virtual sessions)
Time Frame: 108 Hours
Student Workload: Expected Self-Directed Learning
Requisites: None
Credit: 6
Attendance Requirements: A minimum of 95% attendance is required at all
scheduled Virtual or face to face sessions.

Course Outline Policy

Areas of Concern Details

Contact and Non-contact Hours This 6-unit course self-instructional manual is designed
for blended learning mode of instructional delivery with
scheduled face to face or virtual sessions. The expected
number of hours will be 108 including the face to face or
virtual sessions. The face to face sessions shall include
the summative assessment tasks (exams) since this
course is crucial in the licensure examination for CPAs.

Assessment Task Submission Submission of assessment tasks shall be on the

schedule stated at the end of each ULOs. The
assessment paper shall be attached with a cover page
indicating the title of the assessment task (if the task is
performance), the name of the course coordinator, date
of submission and name of the student. The document
should be emailed/submitted the hard copy (thru courier
or other means) to the course coordinator. It is also
expected that you already paid your tuition and other
fees before the submission of the assessment task.

If the assessment task is done in real time through the

features in the Blackboard Learning Management
System, the schedule shall be arranged ahead of time
by the course coordinator.

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 Since this course is included in the licensure examination
for CPAs, you will be required to take the summative
exam in a form of Multiple-Choice Question and
competency assessment inside the University. This should
be scheduled ahead of time by your course coordinator.
This is non-negotiable for all licensure-based programs.
Turnitin Submission To ensure honesty and authenticity, all assessment
(if necessary) tasks are required to be submitted through Turnitin with
a maximum similarity index of 30% allowed. This means
that if your paper goes beyond 30%, the students will
either opt to redo her/his paper or explain in writing
addressed to the course coordinator the reasons for the
similarity. In addition, if the paper has reached more
than 30% similarity index, the student may be called for
a disciplinary action in accordance with the University’s
OPM on Intellectual and Academic Honesty.

Please note that academic dishonesty such as cheating

and commissioning other students or people to complete
the task for you have severe punishments
(reprimand, warning, expulsion).

Penalties for Late The score for an assessment item submitted after the
Assignments/Assessments designated time on the due date, without an approved
extension of time, will be reduced by 5% of the possible
maximum score for that assessment item for each day
or part day that the assessment item is late.

However, if the late submission of assessment paper

has a valid reason, a letter of explanation should be
submitted and approved by the course coordinator. If
necessary, you will also be required to present/attach
evidences.
Return of Assignments/ Assessment tasks will be returned to you two (2) weeks
Assessments after the submission. This will be returned by email or via
Blackboard portal.

In case of group assessment tasks, the course

coordinator will require some or few of the students for
online or virtual sessions to ask clarificatory questions to
validate the originality of the assessment task submitted
and to ensure that all the group members are involved.
Assignment Resubmission You should request in writing addressed to the course
coordinator his/her intention to resubmit an assessment
task. The resubmission is premised on the student’s
failure to comply with the similarity index and other
reasonable grounds such as academic literacy
standards or other reasonable circumstances e.g.
illness, accidents or financial constraints.
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Re-marking of Assessment You should request in writing addressed to the program
Papers and Appeal coordinator your intention to appeal or contest the score
given to an assessment task. The letter should explicitly
explain the reasons/points to contest the grade. The
program coordinator shall communicate with the
students on the approval and disapproval of the request.

If disapproved by the course coordinator, you can

elevate your case to the program head or the dean with
the original letter of request. The final decision will come
from the dean of the college.

Grading System All culled from Black Board sessions and

traditional contact

Course discussions/exercises – 30%

1st to 7th formative assessment – 30%

All culled from on-campus/onsite sessions (TBA):

Final exam – 40%

Submission of the final grades shall follow the usual

University system and procedures.

Preferred Referencing Style For referencing style, you will use the Harvard format.
For in-text citation name of author, year, page or
paragraph no. Ex. Ballada (2019, p 3.1) that …… For
reference list: Ex. Ballada, W. 2019, Basic Accounting
and Reporting, DomDane Publishers, Samplaloc
Manila.
Student Communication You are required to create a umindanao email account
which is a requirement to access the BlackBoard portal.
Then, the course coordinator shall enroll the students to
have access to the materials and resources of the
course. All communication formats: chat, submission of
assessment tasks, requests etc. shall be through the
portal and other university recognized platforms.

You can also meet the course coordinator in person

through the scheduled face to face sessions to raise
your issues and concerns.

For students who have not created their student email,

please contact the course coordinator or program head.

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Contact Details of the Dean Dean Lord Eddie Aguilar
Email: aguilar_lordeddie@umindanao.edu.ph
Phone: (082) 305-0645

Contact Details of the Assistant Asst. Dean Mary Grace Sombilon

Dean and Program Heads Email: sombilon_marygrace@umindanao.edu.ph
Phone: (082) 305-0645

Mr. Devzon Porras

Email: dporrAS@umindanao.edu.ph
Phone : (082) 305-0645

Mr. Jade Solana

Email: jd_solana@umindanao.edu.ph
Phone: 082) 305-0645

Students with Special Needs Students with special needs shall communicate with the
course coordinator about the nature of his or her special
needs. Depending on the nature of the need, the course
coordinator with the approval of the program
coordinator may provide alternative assessment tasks
or extension of the deadline of submission of
assessment tasks. However, the alternative
assessment tasks should still be in the service of
achieving the desired course learning outcomes.

Online Tutorial Registration You are required to enroll in a specific tutorial session
when necessary or upon the recommendation of the
course coordinator. Tutorial session will be announced
later.

Blackboard Help Desk blackboardclass@umindanao.edu.ph

Instructional Help Desk cae@umindanao.edu.ph

Well-being Welfare Support Held Ronadora E. Deala

Desk Contact Details Email: Ronadora_deala@umindanao.edu.ph
09212122846

GSTC Facilitator
Zerdszen P. Rañises
Emai: gstcmain@umindanao.edu.ph
09058924090

GSTC Facebook Page:

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 https://facebook.com/UM-GSTC-Main-CAE-
111901303784349/?modal=admin_todo_tour

Library Contact Brigida E. Bacani

Email: library@umindanao.edu.ph
09513766681

for inquiries, you can email

at umlic.eresources@gmail.com, raphael_digal@umindanao.e
du.ph or
chat with us here http://library.umindanao.edu.ph/
Facebook page: https://www.facebook.com/UM-Learning-
and-Information-Center-Davao-City-962331877193048/

Course Information – see/download course syllabus in the Black Board LMS

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BIG PICTURE
Unit Leaning Outcome Week 1-3 (SLO): At the end of the unit, you are expected to:
a. Define & describe the nature, scope, functions of accounting and its environment,
including its basic concepts and principles. CC’s Voice
b. Describe the professional ethics and values in accounting profession. Rep
c. Classify and define the elements of Financial Statements (Assets, Liabilities and Owner’s hav
Equity Accounts). in a

CO Befo
BIG PICTURE IN FOCUS: WEEK 1-3 (Aug. 17 to Sept. 5, 2020)
the “
SLO(a) Define & describe the nature, scope, functions of accounting and its environment
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including its basic concepts and principles.
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SLO (b) Describe the professional ethics and values in accounting profession.
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METALANGUAGE the a
In this section, the most essential terms relevant to the study of basic accounting and to
demonstrate SLO a & b is operationally defined in order to have a common understanding as to
how these terms are being used in this field. You will encounter these terms as we go through

the study of accounting. Please refer to these definitions in case you will encounter difficulty in
understanding accounting terms.

You can proceed immediately to the “Essential Knowledge” since the first lesson is also definition
of essential terms.

ESSENTIAL KNOWLEDGE
To attain the SLO for these three weeks you need to fully understand the following essential
knowledge that will be presented in the succeeding pages. Please note that you are not limited
to exclusively refer to these resources hence you are expected to utilize books textbook for this
course), research articles and other resources that are available in the university’s library such as
ebrary, search.proquest.com etc.

1. Evolution of Accounting- this refers to the different stages in the development of

accounting from primitive to modern ages.
2. Establishment of ASEAN – this pertains to the creation of Southeast Asian Nations
(ASEAN) envisioning a stable, prosperous and highly competitive ASEAN region. ASEAN
group of Asian nations where Philippines is a member. The practice of accounting
profession is one of the services in the AFAS (Asean Framework Agreement on Services)
whereby accountants in the Philippines is recognized in the ASEAN region to practice the
profession.

WHAT ARE THE TYPE OF ACTIVITIES THAT IS NORMALLY DONE IN A BUSINESS?

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3. Financing Activities – this refers to activities of obtaining resources and how the
enterprise manage these resources to produce goods and services. Primary source of
financing are the owners and creditors such as banks and suppliers(Cash inflow). Example
of financing activities; investment of owners into the business; borrowing funds from
banks; repayment of these loans(Cash outflow); receipt of dividends (cash inflow) or
payment of dividends (cash outflow) are some example of financing activities.

4. Investing Activities – refers to activities in transforming resources from financing into a

different form to meet the needs of the customer or people. An example is when an
invested money of the owner or borrowed money from a financial institution is used to
buy machineries, building, land or equipment(Cash outflow) for the use of the business,
these are investing activities. When this land, building, machinery or equipment are
dispose (cash inflow) is also an example of investing activities.

5. Operating Activities – refers to activities involve the use of resources to design, produce,
distribute and market goods and services . This include research and development, design
and engineering, purchasing, human resources, production, distribution, marketing
selling and servicing. In other words all other activities that the company does which does
not fall under financing and investing are all operating activities. Example selling of goods,

6. collection of receivable, payment of account to supplier of goods and services, payment

of salaries of employees, etc.

FORMS OF BUSINESS ORGANIZATIONS

7. Sole proprietorship – this is a business organization owned by a single owner (called
proprietor) who generally manages the business such as practice of profession (e.g.
doctors, engineer, CPAs lawyers, etc) shops engage in services (e.g. beauty parlor, dress
shop, internet café, repair shop, etc.) or retail establishments (e.g. sari-sari store
convenient stores, boutique and many more. Since the business is owned by one owner
it follows that the owner shall solely benefit from profit or shoulder all the losses of the
entity.
8. Partnership – this is a business entity owned and managed by two or more persons who
bind themselves to contribute money, property or industry to a common fund with the
intention of dividing the profits among themselves. All partners are personally liable for
the debt incurred by the partnership which means that in case of partnership bankruptcy
the creditors can run after the personal assets of general partners.
9. Corporation – as define by the corporate law this is an artificial being created by
operation of law, having the rights of succession and the powers attributes and properties
expressly authorized by law or incident to its existence. The investors are called
shareholders. The shareholders are not personally liable for debts of the corporation.
From the point of view of accounting and the legal point of view the entity concept is true,
unlike in sole proprietorship and partnership.

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 10. Cooperative- Cooperative and Corporation is accounted similarly. These two entities
differs in terms of profit distribution. Cooperative distribute to members 70% of the net
profit (after deducting 30% statutory reserves) while Corporation distribute to
shareholders depending on the an amount declared by the board of directors or trustees.

Cooperative exists for the purpose of providing services to members while profit
oriented corporation exist to provide more return of investment to the investors.

Definition of Accounting
11. ACCOUNTING has four(4) definitions as define by different organization and standard
setting body.
- According to ASC (Accounting Standard Council) Accounting is a service activity,
financial in nature that provides quantitative information about economic entities
intended to useful in making economic decisions.
- According FASB(Financial Accounting Standards Board) Accounting is an information
system that measures, processes and communicates financial information about
economic entity.
- According to AICPA (American Institute of CPAs) Accounting is the process of
identifying, measuring and communication economic information to permit informed
judgments and decision by users of the information.

- According to AICPA this is the oldest definition of accounting. Accounting is an art of

recording, classifying, and summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least, of a financial in character, and
interpreting the results thereof.
Whatever is the definition of accounting as define by the different groups,
there is one common definition that encompasses the 4 definitions and
that is accounting provides quantitative information of business entities
useful to decision makers. Therefore, accounting is concern on business
transactions that can be quantified and can be measured.
12. Financial Statements (FS) – are the end product of the accounting process. There are
five(5) basic financial statements.
11.a Statement of Financial Position(SFP) (Old term is Balance Sheet)- it provides
information as to the financial condition of an entity as of a given period.
11.b Statement of Comprehensive Income(SCI) or Income Statement- it provides
information as to the financial performance (profit or loss) of an entity for a
given period.
11.c. Statement of Changes in Equity(SCE) – this presents a summary of changes in
capital such as initial investments of owner, additional investments of owner,
profit or loss from business operations and withdrawals of owner during a
specific period.

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 11.d. Statement of Cash flows (SCF) – it presents the cash flows of cash received
(cash inflow) and disbursed (cash outflow) during the period categorize as
Investing, Financing and Operating Activities.
11.e Notes to Financial Statements –information that are not captured in the FS but
is necessary to help users made an informed decision are presented in the notes
to financial statements. The notes to FS provides information in narrative form
about the items presented in the SFP and SCI such as; summary of significant
policies and other explanatory information, breakdown of line items and other
relevant information about the entity.
13. Micro, Small, Medium Enterprises – this refers to the various category of business,
groups according to its financial capacity. It is important to know what category does an
enterprise belongs to identify what framework is applicable to use in a particular business
entity.

WHO ARE MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)

12.a Micro- refers to enterprises with assets of P3.0Million and below and employ not
more than nine (9) workers. This group shall use the PFRS for Small Entities.
12.b Small – refers to enterprises with assets of above P3.0 to P15Million and employ 10
to 99 workers. This group shall use the PRFS for Small Entities.
12.c Medium- refers to enterprises with assets of above P15Million to P100Million and
employ 100 to 199 workers. This group shall use PFRS for Medium Entities.

According to National Statistics Office (NSO) record in 2010, 99.6% of the total business
enterprises of the total 777,687 are MSMEs. 91.6% are micro and 8% are SMEs. This
means that our country is dominated by MSMEs, very few are large enterprise.

14. Accounting Standards in the Philippines- refers to the accounting standards use and
adopted in the Philippines that serves as guidance in the preparation and presentation of
financial reports.

15. Fundamental Concepts of Accounting - these are concepts underlie the accounting
process.
14.a Entity Concept- this concept is considered as the most basic concept in accounting.
In accounting a business entity is a separate economic unit from that of the owner.
Therefore, the owner and the business as an organization are two separate entities. In
case, a business has more than one line of business, it has to be accounted separately.
For example if a business is engage in retailing and at the same time has a food chain
business then these two businesses has to be accounted separately. Personal transactions
of the owner should not be mixed with business transactions. That is why any resources
taken by the owner from the business for personal use must be accounted under
withdrawal.

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 14.b Periodicity Concept- In order to measure the performance of the entity and to
obtain a timely information for decision making, the life of the business is divided into
meaningful periods. For reporting purposes one year is the usual accounting period. If the
business starts in January and ends in December it’s called calendar year, but when it
starts any month of the year and does not end in December it’s called fiscal year
accounting period.
14.c Stable Monetary Unit Concept- since the Philippine peso is a reasonable unit of
measure, therefore its purchasing power is regarded as relatively stable. Effects of
inflation is ignored in the accounting records, which means we do not adjust the amount
in the record every time there is fluctuation in the purchasing power of peso.
14.d Going Concern - business is regarded as a continuing activity. For as long as the
business is doing good, no owner would close a profitable business. When financial
statements are prepared it is based on an assumption that the reporting entity will
continue its operation for the foreseeable future. This assumption supports the practice
of depreciating the asset over its useful life to present a more meaningful and reliable
amount.

16. Fundamental Principles – these are guiding principles that accountants shall rely to
generate information that is useful to the users of financial statements.

WHAT ARE BASIC PRINCIPLES IN ACCOUNTING?

15.a Objectivity Principle- recorded data must be supported by an objective, accurate
and reliable evidences to make it useful to the users. To make data reliable it possess a

verifiable and confirmatory characteristics when confirmed by an independent observers

(normally done during audit). Otherwise without this principles accounting records would
be based on the caprices and opinions of preparers and is therefore subject to dispute.
15.b Historical Cost- this principle supports the objectivity principle which states that
assets acquired should be recorded at their actual cost and not at what management
thinks they are worth as at reporting date. For example a building constructed at P10
Million but if bought from a contractor will cost P15Million, at what amount should the
building be valued, it should be at P10Million because that is the actual amount spent in
the construction.
15.c Revenue Recognition Principle- this principle is in consonance with the accrual basis
of accounting which is the GAAP. Revenue is recognized in the accounting period when
goods are delivered or services are rendered or performed whether or not cash is
received. This principle supports the recognition of account receivable account.
15.d Expense Recognition Principle- expenses should be recognized in the accounting
period in which they are incurred whether or not payment is made. This is also in
compliance with the accrual basis of accounting.
15.e Adequate Disclosure – requires that all relevant information that would help the
user’s understanding about the entity must be disclosed in the notes to financial
statements. There are information which are not captured on the face of the financial
statements such as; the method used in valuing receivables, inventories, PPE etc.; if there

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 are assets being pledged as collaterals for a loan; if there are pledge or assign receivables,
these are only some of the examples which cannot be seen on the face of the FS but need
to be disclosed because it can help the user in making an informed decision.
15.f Materiality – an item is material if its omission or misstatement would reasonably
influence the decisions of a user. In judging whether an item is material or not, depends
on the size and nature of the item in a particular circumstances.
15.g Consistency Principle – methods use from period to period must be the same to
achieve comparability. Though changes are permitted, if such changes will result to a
better and more reliable information, provided the change must be disclosed.

17. Core Competencies Framework for Accountants – this refers to the framework
underlying the competencies required for a professional accountant.

WHAT ARE THE CORE COMPETENCIES FRAMEWORK OF ACCOUNTANTS

16.a KNOWLEDGE – a CPA should have general knowledge of the different cultures in the
world and developing an international perspective. He/she should be competent in
English language, adaptable to western business practices, trainable and possess good
interpersonal relationship attributes. A CPA should have core knowledge in areas of
economics, quantitative method and business statistics, organization behavior, marketing
and operations management and must be conversant as how global business system
works. A CPA should also be conversant with IT concepts for business system and sound
knowledge on internal control in computer-based system. A CPA should be proficient in
accounting and other related areas which includes International accounting and auditing

standards, cost management and the latest concepts in management accounting, recent
tax laws, business and commercial laws.
16.b INTELLECTUAL SKILLS – intellectual skills requires that a CPA can demonstrate
analytical, problem solving and critical thinking skills at all times. The attributes of
interpersonal skills is very important, where a CPA can demonstrate an ability to work in
a groups being a team player. Communication skills is imperative, this refers to the active
listening skills and the ability to effectively communicate both orally and in writing, at all
organizational levels, deliver powerful presentation and etc.
16.c VALUES – an accountant shall work in accordance with the highest standards of
professionalism in order to attain the higher level of performance and generally to meet
the public interest, the need for CPAs to conform to the ethical standards of the
profession become vital. There is a need for CPAs to be able to discern between what is
morally right or wrong.

18. Users of accounting information- this refers to people or group of people or organization
(internal or external) who are interested of the accounting information. Such as
management, employees (internal), creditors, tax authorities, potential investors etc.
(external)

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19. Quantifiable Business Transactions – this refers to business activities that transpired in
an organization (profit or non-profit) that is measurable therefore it is the subject for
recording. Recording these historical events is the significant function of accounting. Such
as, payment for salaries of employees, rental of office space, purchase of supplies or
materials, payment for utilities (light, water and telephone); selling of goods or services,
payment of accounts and many more. Business activities such as hiring of employees,
signing of business contracts, assisting students in enrolment, Food delivery etc are not
to be recorded since it is not quantifiable. In the case of hiring what is being recorded is
the amount of salaries paid to hired personnel, in contract signing it is the amount of
contract that is going to be recorded not the signing of the contract, in assisting students
during enrolment, it is the salaries of personnel that is recorded not the act of assisting,
in food delivery it is the amount of food delivered not the act of delivering it. In other
words there are business transactions which are not to be recorded simply because it is
not quantifiable. The function of accounting wherein we are going to determine whether
the business transaction is recorded or not is identifying.

WHAT IS GENERALLY ACCEPTED ACCOUNTING PRINCIPLES? (GAAP)

20. GAAP – as define by Ballada (2019, p. 1-21) GAAP encompass the conventions, rules and
procedures necessary to define accepted accounting practice at a particular time. These
accounting principles are established by humans, unlike other principles in physics,
chemistry and other natural sciences that can be verified through observation and
experiment. Instead accounting principles evolved therefore, these are not eternal truths.
General acceptance of an accounting principle usually depends on how well it meets three
criteria: relevance, objectivity and feasibility.

21. Criteria of Relevance- when an information derived from an accounting practice is more
meaningful and useful to the users. One example is when a financial statements are not
timely prepared, therefore it losses its relevance, because it is not used in making a
decision, so the practice of not preparing FS on time is not GAAP.
22. Criteria of Objectivity – when an information derived from an accounting practice is not
a product of bias or personal judgment. When the information is verified by one or more
independent parties and arrive at the same conclusion then such information is objective.
Sales invoice or official receipt is an objective document use to support revenue or
collection. Therefore, if the recorded data is supported by documents like invoice or
official receipt then it is an objective data because it can always be verified. That is why
in accounting, records must be supported by objective evidence.
23. Criteria of Feasibility – when a certain practice can be implemented without undue
complexity or cost. This principle supports a new PFRS (Philippine Financial Reporting
Standard) for Small Entities. Under this standard subsequent measure of Investment
Property(IE) and Property Plant Equipment (PPE) is at cost less depreciation or
impairment instead of revaluation model. This is so because revaluation model is costly
for these entities to bear hence, they are allowed to use the other valuation method.
24. International Federation of Accountants (IFAC)- an international organization
representing all the major accountancy bodies across the world. Its mission is to develop

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 high standards of professional accountant and enhance the quality of services they
provided.
25. Philippine Institute of Certified Public Accountant (PICPA) is the integrated national
professional organization of CPAs in the Philippines, accredited by the BOA (Board of
Accountancy) and PRC (Professional Regulation Commission).
26. Accounting Standards Council (ASC) -an organization created by PICPA to establish and
improve accounting standards that will be generally accepted in the Philippines. This was
replaced by Financial Reporting Standard Council (FRSC) when the Accountancy Act of
2004 was enacted.

Why Ethics is important in Financial Reporting?

27. Ethics is concerned with the right and wrong and how conduct should be judged to be
good or bad. Ethics is important especially in preparing financial reports because users
rely on these reports when they make economic decision hence, it is imperative that
people involved in the preparation must do it in good faith, with accuracy, without
personal biases, and should fully disclose all relevant facts for the users full understanding
of the entity’s financial condition and performance. If people involved in these reports
lied therefore generated information losses credibility.

What would these FS serve as a purpose? It provides financial information, therefore no

ethical financial reporting it will result to distorted information.(Read Enron case and,
WorldCom accounting scandal w/c lead to the creation of Sarbanes-Oxley Act in July
2002).

28. Professional Ethics of Accountants – refers to set of ethical standards approved by PRC
to ensure that professional accountants act in a high standards of professionalism and
provide quality service to the clients, employer or public in general.

WHAT ARE THE FUNDAMENTAL PRINCIPLES IN THE CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANT?
27.a Integrity- this is an obligation impose to Professional Accountants (PAs) to be
straightforward and honest in all professional and business relationships. A person of
integrity practiced fair dealing and truthful in words and in action. PAs name should not
permit his name to be associated with reports, returns, communications or other
information where the he/she believes that such information contains a materially false
or misleading information , information furnished recklessly or omits or obscures
information that are required to be included that resulted to a misleading information.

27.b Objectivity – this is an obligation impose to PAs not to perform a professional service
if biases or unduly influences exist in such dealing or relationship which may influence to
override professional or business judgments.

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 27.c Professional Competence and Due Care – A CPA shall to it that in accepting
professional engagement, he/she possess the required level of skills to ensure that a

client or employer receives competent professional service. CPAs has to perform

diligently in accordance with the applicable technical and professional standards when
providing services. PAs has the obligation to maintain professional knowledge thru
continuing professional development that enable him/her to perform competently within
the professional environment.

27.d Confidentiality – a CPA should not disclosed information acquired as a result of

professional and business relationships without proper and specific authority or unless
there is a legal or professional right or duty to disclose. CPAs are not also allowed to use
confidential information acquired as a result of professional and business relationships
for his/her personal advantage or the advantage of third parties. In other words, PAs shall
maintain the confidentiality of information within the firm or employing organization.

27.eProfessional Behavior – this an obligation that is imposed to PAs to comply with

relevant laws and regulations and should avoid any action that discredits the profession.
PAs are prohibited to make exaggerated claims for the services they are able to offer,
qualification they possess or experience they have gained or making disparaging
references or unsubstantiated comparisons to the work of others.

29. Accountancy Act 2004 - refers to RA 9298 which is the revised accountancy act, that
governs the practice of accounting profession including the scope of board examination,
scope of accounting practice and the qualification of the examinees.

Scope in the Practice of Accounting

28.a Public Accounting- either individual practitioner or partners of big accounting firms
or employee of big accounting firms that render services on a fee basis to clients. The
work includes: auditing, taxation, preparation of income tax returns and management
consultancy services. A CPA is normally a member of an organization called ACPAPP(Asso.
Of CPAs in Public Practice)

28.b Government Accounting- render services to government such as Dept. of Finance,

SEC, BSP, BIR, DBM, DPWH, COA, GOCC (sss,gsis, hdmf, phic), LGUs and many more. A CPA
is normally a member of GACPA. (Govt. Asso. Of CPAs)

28.c Private Accounting- in this field a CPA is employed in private firms or industry holding
the positions as Chief Accountant, Accounting Manager, Internal auditor, Finance

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 Manager or Comptroller. A CPA is a member of an organization called ACPACI. (Asso. of
CPAs in Commerce and Industry)

28.d Academe Sector- in this field a CPA is normally employed in an educational

institution offering accounting programs as teachers, researchers, reviewers and some
are authors of accounting books. They are the unsung heroes who are committed to

prepare the students who aspire to become CPAs in the future, they are member of an
organization called ACPAE. (Asso. of CPAs in Education).

30. Branches of Accounting – this pertains to the varied field of work where accountants are
needed. In this topic, you will learn what field of expertise you will choose in this discipline.

WHAT ARE THE BRANCHES OF ACCOUNTING?

29.a Auditing – this is the most significant service to the public in the accounting
profession. External/Independent Auditing refers to the independent examination of the
entity’s records with the purpose of expressing an opinion as to the fairness of the FS
presentation. The external auditor’s responsibility is to protect the interest of the user of
the FS. This is done by an independent auditor (meaning not employed by the company
under audit). Internal Auditing refers to evaluation of company’s internal control
including its corporate governance and accounting processes. This is to ensure
compliance to laws and regulations to help maintain accurate and timely financial
reporting and data collection. It also provide management with tools necessary to attain
operational efficiency by identifying problems and correcting lapses before they are
discovered in an external audit.

29.b Bookkeeping – this is a mechanical task involving the collection of basic financial
data. Bookkeeping is normally involve of entering data in the books of accounts, classify
or sort the data, extract balances and summarized in the form of SPF and SCI and cash
flows. Bookkeeping is routinary in nature while accounting is analytical in nature.
Accounting is broader, while bookkeeping is one of the task in accounting.

29.c Cost Bookkeeping vs. Cost Accounting – cost bookkeeping is the process of entering
the cost data in the books of accounts, therefore it is similar to bookkeeping except that
data are recorded in very much greater detail. Cost Accounting make use of the
information extracted from the cost books for managerial planning and control. Some
accountants term this as costing, but today costing is not popularly use because it can
create confusion with other terms such as standard costing.

29.d Financial Accounting – this refers to the preparation of periodic of financial reports
such as SCI and SFP with greater compliance to the GAAP and subsequently publish
financial information.

15
 29.e Financial Management – this branch is quite new in the practice of accounting
profession, though other companies employ Financial Managers even if they are not CPAs
for as long as they have long and wide experience in financing activities. This branch
involves setting of financial objectives, making plans, obtaining the finance needed to
achieve the plans and generally safeguarding all the financial resources of the entity.
Normally financial managers deals with a wide range of data such as economics and
mathematics and relies more extensively on non-financial data.

29.f Management Accounting – this branch of accounting is wider in terms of scope

because it incorporates cost accounting data, all types of financial and non-financial
information from wide sources and use it for specific decisions which management may
be called upon to make.

29.g Taxation – this refers to the preparation of tax returns in compliance with the
existing tax laws and regulations, help clients in tax planning to minimize impact on tax
(tax avoidance) and assist clients in resolving tax problems.

29.h Government Accounting – this branch of accounting is only applicable to

government agencies, therefore cannot be used in commercial accounting. This branch is
concern in identifying sources and uses of resources consistent with the provisions of
city, municipal, provincial or national laws. Therefore, it focuses on the proper custody
and disposition of funds collected by the government.

SELF-HELP: You can also refer to the sources below to help you further understand the
lesson:

• RA 9298 The Accountancy Act of 2004

Required Reading in the Accountancy Act
Qualifications of applicants for examinations
Scope of examinations
Rating in the licensure examination
Failing candidates to take refresher course
Professional Organization
• Ballada, Win & Ballada, Susan (2019), Basic Financial Accounting and Reporting.
Sampalok Manila: Domdane Publisher & Made Easy Books.
• Heintz, James A. (2017). College Accounting 22 nd Edition. Australia: Cengage
Learning
• Etter, E.R. & Ross, B. W.(2013), American Journal of Business Education (Online),
6(6), 595. Doi:http//dx.doi.org/10.19030/ajbe.v6i6.8163
(Article entitled “Summaries in accounting courses: Improving students’ reading
comprehension, learning, thinking and communication skills”)

LET’S CHECK

16
Activity 1. All this information presented in the metalanguage and essential knowledge help you
to understand better accounting and its environment. Let us check your understanding of these
terms by providing answers on the space provided.
1. ______ is the phase of accounting where transactions are analyzed whether
accountable or non-accountable events.
2. _______ is a form of organization whose owners are personally liable for the debts
incurred by the business.
3. ___________ is a form of business organization whose owners are not liable for debts of
the business.
4. ___________ is an information system that measures, processes and communicates
financial information about an economic entity.
5. Company ABC obtained loan from Metrobank company to finance plant expansion. This
is an example of ___________ type of business activities.
6. Collected the accounts of the customer and payment of account to supplier is an
example of ____________ type of business activities.
7. Constructed a building for the factory is an example of _____________ type of business
activities.
8. It is an independent examination that ensures the fairness and reliability of the reports
that management submits to users, this branch is called _________.
9. Mr. Reyes invested cash into his business to engage in repair shop, is an example of
____________ type of business activities.

10. An organization in Asia that envisioned a stable, prosperous and highly competitive
economic region is called _____________.
11. An ancient law that requires merchants to give buyers a sealed memorandum containing
the agreed price( in the present times this is the BIR Code) is called _____________.
12. The accountant of primitive age is called _________________.

13. Who invented the double-entry bookkeeping? ________________.

14. It is during this time where Corporations were established and the factory system was
used to create products. _____________.
15. Group of businessmen whose assets is P3m or less is called ___________.
16. Returned of defective items to the supplier is an example of _______ type of business
activities
17. Paid salaries and taxes of the business is an example of ________ type of business
activities.
18. ________ an accounting principles which states that omitting or misstating this
information could influence users of the financial statements.
19. An accounting principles that states that similar items should receive a similar accounting
treatment is called ______________.
20. What accounting concept that should be considered when an owner of a business takes
goods from inventory for his personal use ______________.
21. This is a principle in accounting that support the practice of recording an asset based on
the amount actually paid and not what the management thinks is ___________.

17
22. The financial accounting process provides information about economic activities of an
enterprise for a specified accounting period that is shorter than the life of the enterprise,
this practice is in compliance to concept of _________________.
23. An accountant employed by a particular business firm or not-for-profit organization,
perhaps as chief accountant, controller or financial vice president are said to be engaged
in _________.

24. A business organization is owned by people called members is a _________.

25. One basic principles in accounting states that an accounting transaction has to be
supported by sufficient evidence to allow two or more qualified individuals to arrive at
essentially similar conclusion is called _________.
26. Carrying out professional responsibilities diligently and in accordance with applicable
technical and professional standards is description of the principle of ____________.
27. A professional accountant should be straightforward and hones in all professional and
business relationships is in consonance with the principle of ____________.
28. This is an organization whose main function is to establish and improve accounting
standards that will be GAAP. This group is _____________.
29. Accountant do not recognize that the value of the peso changes over time. This concept
is called ___________.
30. The set of guidelines and procedures that constitute acceptable accounting practice at a
given time is called ___________________________.
31. The Filipino accountants should possess knowledge to enable them to compete
internationally. (Enumerate here the knowledge required) 4 pts.
32. A branch in accounting that concern with the preparation and publish of complete
financial statements to intended users is called ___________.
33. What area in accounting that is task to manage financial resources of the business?
__________.

34. A CPA without any permission divulge an information about an entity under audit, this is
in violation of ____________ principle in professional ethics.
35. An information that is relevant but not captured on the face of the financial statements
is normally reflected in the notes to financial statement, this practice is in compliance of
_____________ principle.
36. What criteria of GAAP that supports the practice of preparing financial statements on
time so that it can be used in making a decision? __________________.
37. Accrual accounting of income is an application of __________ basic principle.
38. Accrual accounting of expense is an application of _________ basic principle.
39. This basic ethical principle requires that CPA must adhere to relevant laws and regulation
and should avoid acts that discredit the profession is called _______________.
40. This is a report where the entity’s financial performance is reflected ____________.
41. This is a report where the entity’s financial stability, liquidity and profitability is reflected,
____________.
42. What type of business organization owned by shareholders? _____________.

18
 43. This branch of accounting includes financial and non-financial data from various sources
and utilized it for specific decision is called _____________.
44. This area involves collection of financial data and entering these data in the books of
accounts, this is called _______________.
45. (should be answered with True or False). For reporting purposes, the personal assets and
debts of a business owner should be combined with the assets and debts of the business.
46. (should be answered with True or False). For accounting purposes, a business and its
owner are considered one and the same entity.

LET’S ANALYZE
Activity 2. Getting acquainted with the essential terms in the study of accounting and its
environment is not enough, what also matter is you should be able to explain how these concepts
principles and ethics being applied in the practice of accounting.
1. Why do you think ethics is important in business? (Give at least 2 reasons)

2. Why do you think independence in form and in substance is a requirement in external

auditing?

3. Cite practices that you know which may violate the basic principles of professional ethics
for accountants and why do you think this is a violation? (cite at least 2)

4. Cite at least 2 users of accounting information and state also why they are interested of
such information.
USERS REASON/S WHY THEY ARE INTERESTED

Activity 3.

19
From the topics presented it’s your turn to present your learnings about the lessons being
discuss. (Be ready for an oral defense thru video conferencing at a designated time and schedule.
This will be credited to your oral recitation). If in case there are duplication of answers, it will be
credited to the first presenter.

YOUR TURN

1. Which area or areas of accounting you prefer to practice and why?

2. Is globalization an advantage or disadvantage for a Filipino Accountant? (Whatever you

choose, support your answer)

3. Compared with other professions, what features in the ethics for accountant which is not
true to, say Doctors, Engineers, Lawyers etc. and why do you think this is unique to other
professions?

4. Give examples of business transactions, identify what type of business activities

(investing, financing or operating)and if this is to be recorded or not. (Give at least 5
different transactions and follow the prescribed format)
Business Transactions Type of Activities (X) For not ( / ) For yes

KEYWORDS INDEX
1. GAAP 8. Accounting
2. Quantifiable Business Transactions 9. Financial Statements
3. Fundamental Concepts 10. Business Activity
4. Fundamental Principles 11. ASEAN

20
 5. Core Competencies 12. Professional Ethics
6. Forms of Business Organization 13. Branches of Accounting
7. Micro, Small Medium Enterprise 14. Scope of Practice in Accounting

Big Picture Focus:

ULO (c )Classify and define the elements of financial statements (Assets, Liabilities and
Owner’s Equity)

METALANGUAGE

In this section, the most essential terms relevant to the recording process of accounting is
presented to establish a common understanding as to how these terms is being used in the
recording of business transactions. These terms are very crucial because you will encounter these
terms not only in this subject but throughout the study of accounting. However, I just limit the
terms to what is commonly use in this course. Remember there are more peculiar terms you will
encounter in your journey in this field of discipline. In addition, terms that are important which
are self-explanatory which can be found in your textbooks are not presented here. You are
required to study these terms such as Parts of the information System, Computer-based
Transactions and Database System this can be found in another books: _______________
1. Assets – is an economic resource owned or controlled by the entity as a result of past
events.
2. Economic resource - in the context of accounting this refers to tangible or intangible
resources quantitative in nature that has the potential to produce economic benefits
to the entity..

3. Control of Economic resource – if an entity has the power to use the significant
portion or 100% of an economic resource and obtain the economic benefits that may
flow from it, then the entity has control of that economic resource.
4. Account -is a device in accounting that is use to summary the increase or decrease of
the elements of FS.
5. Philippine Accounting Standards (PAS)- these are International Accounting Standards
(IAS) adopted by the Philippines and reference as PAS. PAS and PFRS (Philippine
Financial Reporting Standards(PFRS) are just the same crafted by different accounting
standard bodies.
6. Current Assets (CA)- (PAS 1) define an asset as current when:
• It expects to realize the asset, or intends to sell or consume it, in its normal
operating cycle. (Trade Receivable, Inventories, Supplies))
• It holds the asset primarily for the purpose of trading. (Short term
investments)

21
 • It expects to realize within 12 months after the reporting period (Non-
Trade Receivable)
• The asset is cash or a cash equivalent not restricted or used to settle an
obligation for at least 12 months after the reporting period.
7. Cash Equivalent – (define in PAS 7), these are short-term, highly liquid investments
that are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value. (e.g. Govt’ short-term T-Bills, bank certificate of
deposits, corporate commercial papers and other money market instruments)
8. Cash- this includes, coins, currency, checks (currently dated), money orders and bank
drafts use as a medium of exchange and accepted by banks at face value. This account
includes cash on hand, cash in bank (those deposited in banks in savings, or demand
deposits.
9. Operating cycle – is the time between acquisition of assets for processing and their
realization in cash or cash equivalents. When the entity’s normal operating cycle is
not clearly identifiable it is assumed to be twelve months, otherwise when it is more
than 12 months it has to be specified.
10. Notes Receivable- is a written promise of the customer or debtor to pay a certain
amount of money at a fixed determinable date as stated in the promissory note. The
note may arise from the sale of goods or services this is presented as part of “Trade
and Other Receivables”.
11. Accounts Receivable – is an account title use to record claims from customers from
the sale of services or goods on credit. This type of receivable is less secured when
compared with notes receivable. Normally presented as part of the line items “Trade
and Other Receivables” in the FS.
12. Other Receivables- includes all types of receivable not arising from the sale of goods
or services. If realized within the year after the reporting period it’s part of current
assets and presented as part of the line items in the “Trade and Other Receivables”.
13. Inventories- (define in PAS 2) – these are assets which are (a) held for sale in the
ordinary course of business; (b) in the process of production for such sale; or (c) in the

form of materials or supplies to be consumed in the production process or in the

rendering of services. Specific account title for inventories includes merchandise
inventories, supplies inventory, work-in-process, raw materials inventory and finished
goods inventory.
14. Prepaid Expenses – These are expenses which are paid in advance and not yet used
or consume at the reporting date. Common expenses that are normally paid in
advance are, Taxes, Rent, Advertising, Insurance, Supplies (use in the office/shop).
15. Non-Current Assets (NCA)– all assets that do not qualify under current assets fall
under non-current assets.
16. Property, Plant and Equipment (PPE)- (define by PAS 16) – these are tangible assets
that are held by an enterprise for use in the production or supply of goods or services,
or for rental to others, or for administrative purposes and which are expected to be
used during more than one period. This is a line item account for FS presentation

22
 which includes land, building, machinery and equipment, furniture and fixtures,
motor vehicles and equipment etc.
17. Accumulated Depreciation- it is a contra account that contains the accumulated
amount of depreciation charges made every accounting period. This amount is
deducted from the cost of the related assets (e.g. equipment or buildings) to obtain
the carrying value or book value. All assets except land are subject to depreciation.
18. Investment Property (IP)- is property (land or a building, or part of a building, or
both) held by the owner to earn rentals or for capital appreciation or both (Section
11 PFRS for Small Entities). This topic will be elaborated in your higher accounting
subjects.
19. Intangible Assets(IA) – (PAS 38) – these are identifiable, non-monetrary assets
without physical substance held for use in the production or supply of goods or
services, for rental to others, or for administrative purposes. These include goodwill,
patents, copyrights, licenses, franchises, trademarks, brand names, secret processes,
subscription list and non-competition agreements.
20. Other Assets - assets which can not be categorized as PPE, IP, or IA belong to this
category. Example, recoverable/refundable deposit, Utility deposit, rent deposit etc.
21. Liabilities – (define in PAS 1) these are present obligation of the entity to transfer
economic resources as a result of past events. An Obligation is a duty or responsibility
that an entity has no ability to avoid, it is always owed to another party/parties.
22. Current liabilities (CL) PAS 1 define as an obligation that (a) is expected to be settled
in its normal operating cycle; (b) is primarily for the purpose of trading; (c) is due to
be settled within 12 months after the reporting period; (d) the entity does not have
an unconditional right to defer settlement of the liability for at least 12 month after
the reporting period (this applies for loans).
23. Accounts Payable- this is an account title use to record obligation arising from the
ordinary course of business or trade transactions. This is presented as part of the line
item “Trade and Other Payables”.

24. Notes Payable – this is similar to notes receivable but in a reverse sense. The maker
of the note here is the entity itself while in notes receivable the maker is the customer.
This is presented as part of the line item “Trade and Other Payables”.
25. Accrued liabilities – these are obligations that emanates from unpaid expenses such
as salaries payable, utilities payable, interest payable, taxes payable, rent payable and
any related expense account which are not yet paid. This is presented as part of the
line item “Trade and Other Payables”.
26. Other liabilities – all other obligations which are expected to be settled within 12
months after the reporting period belong to this category. This includes, sss payable,
Phil health payable (PHIC), pag-ibig payable (HDMF), withholding tax payable and
other statutory obligations of the entity. This is presented as part of the line items
“Trade and Other Payables”.

23
 Note: The use of line items is applicable when there are numerous accounts in a
category. However, if accounts are few, the preparer can use the specific account
instead of line items.

27. Unearned Revenues/Income – this account is use to record the cash received from
clients or customer for the services or goods to rendered or delivered in the future.
Customer’s Deposit if the entity is engaged in buy and sell of goods and receives
advance payment from the customer, this is the appropriate account instead of
Unearned Revenue/Income.
28. Current Portion of Long-term Debt – this account is for the current- portion of long-
term obligations such as mortgage notes, bonds and other long-term indebtedness
which are to be paid within one year after the reporting period.
29. Non-current liabilities(NCL) – all other obligations which are not settled within 12
months after the reporting period belong to this category.
30. Mortgage Payable – this account is the account title use to record long-term debts of
the business entity with assets pledged as collateral.
31. Bonds Payable – this is an account title use to record an obligation through the
issuance of bonds (certificate of indebtedness) made by the issuer to a lender with
specific terms of repayment and interest to be paid. From the point of view of the
issuer this is a liability while from the point of view of the lender, this is a receivable.
32. Equity – is the residual interest in the assets of the enterprise after deducting all its
liabilities. In other words, they are claims against the entity that do not meet the
definition of liability. The term equity varies depending on the forms of organization.
Owner’s Equity for sole proprietorship; Partners’ Equity for partnership; Shareholders’
Equity for corporation and Members’ Equity for Cooperative.
33. Capital – is an equity account which is used to record the original and additional
investments of the owner of the business entity. This account is increased by the
amount of profit earned during the year or is decreased by a loss. (Other capital
accounts will be discussed in other accounting courses).

34. Withdrawal – this is a temporary account use to record withdrawal of cash or other
assets made by the owner of the entity rather directly charged to the capital account.
(Application of entity concept).
35. Income Summary – this is a temporary account used at the end of the accounting
period to close revenue and expenses accounts. This account is the difference
between revenue and expenses ( result may be profit or loss) for the period before
closing to the capital account.
36. Income – increases in assets, or decreases in liabilities, that result in increases in
equity other than those contributions made by the owner/investor.
37. Service Income – an account title use to record revenues earned in a service concern
type of business or practice of profession. This account has a specific name depending
on the nature of business. For example for business engage in laundry services (use
Laundry Income); for practice of profession like CPA, Doctors, Engineers (use “

24
 Professional Fees”); for Schools (use Tuition Fees and Miscellaneous Fees) and many
more.
38. Sales – an account title use to record revenues arising from sale of merchandise. For
example sale of medicines for a pharmacy; sales of construction materials for a
hardware or sale of grocery items for grocery store or sale of clothes and many more
for department stores, use this account “Sales”.
39. Expenses – are decreases in assets, or increases in liabilities, that result in decreases
in equity, other than those withdrawals made by owners.
40. Cost of Sales (C/S)– this account title is use to record the cost of MDSE purchase or
the cost to produce the products sold to customers during the period. It is also called
cost of goods sold.
41. Salaries or Wages Expense- this account title is use to record all payments made to
employees for the services (employees) rendered as a result of an employer-
employee relationship such as salaries or wages, 13 th month pay, cost of living
allowance and other related benefits.
42. Telecommunications, electricity, and Water Expense- this account title is use to
record the cost of communications (telephone, cellphone, telegrams or mails),
electric and water consumption used by the business entity.
43. Gasoline and Oil Expense- this account is applicable only if the entity has
transportation vehicle. All cost of gasoline, oil use in the maintenance of such motor
vehicle is recorded in this account.
44. Rent Expense – this account title is used to record payment of rentals of space,
equipment or other asset rentals payments of the entity.
45. Supplies Expense – this account title is used to record the cost of supplies used in the
conduct of business such as office supplies, shop supplies, parlor supplies etc.)
46. Insurance Expense- this account is used to record portion of premiums paid on
insurance coverage (e.g. motor vehicle, health, life, fire, typhoon or flood) which has
expired or already used up.

47. Depreciation Expense – this is an account title use to record the allocated cost of the
tangible assets (e.g. building and equipment)charged to expense during an accounting
period.
48. Taxes Expense – this account title is used to record taxes paid during the year (e.g.
business permits, percentage taxes, property taxes and other similar taxes except
income tax and Value added tax)
49. Advertising Expense – this account title is used to record the cost of advertisement
paid by an entity in marketing the product. (e.g. cost of flyers, bill boards or
advertisement thru TV and radio)
50. Uncollectible Accounts Expense- this is an account title use to record the estimated
amount of receivables that is doubtful of collection and this is charged to expense
during an accounting period.

25
 51. Interest Expense – this is an account title use to record the interest on borrowed
funds. This is also called finance charges.
52. Chart of Accounts – list of all accounts use in the recording of transactions. Normally
there is an assign number or code for easy reference. It is arranged in the FS order,
Assets, Liabilities , Owner’s Equity, Income and Expenses. It should be numbered on a
flexible manner to permit indexing and cross-indexing. When analyzing the
transactions, the accountant refers to the chart of accounts to identify pertinent
accounts to be increased or decreased. If an appropriate account is not listed in the
chart, it can be added to the list.
53. Journal – books of accounts where transactions are recorded for the first time.
54. General Ledgers- called book of final entry, because entries in the journal are
classified or sorted in the general ledger.

ESSENTIAL KNOWLEDGE
1. It is very important that before recording the transactions the entity has a chart of a
accounts to ensure that no duplication of account of similar in nature is being used. For
example if light and water expense is used as an account title to record payment to light
and water therefore this has to be consistent in the succeeding recording. Using light and
water this month and separating light from water in the succeeding months is not correct.
Chart of accounts varies depending on the nature of business, however there are standard
accounts that are usually used in all types of business. Such as Cash and Cash Equivalents,
Accounts Receivable, Accounts Payable, Salaries Expense, etc.

2. ACCOUNT CLASSIFICATION (SHOWN IN GRAPHICAL PRESENTATION)

ASSETS

CURRENT ASSETS NON-CURRENT ASSETS

CASH & CASH EQUIVALENTS PROPERTY, PLANT & EQUIPMENT

a. Cash on Hand • Land
b. Petty Cash Fund • Building
c. Cash in Bank • Equipment
d. Cash Equivalents • Transportation Equipment
• Furniture and Fixtures
TRADE AND OTHER RECEIVABLES • Accumulated depreciation
• Accounts Receivable (contra-asset)
• Allowance for doubtful accounts (contra
asset) INVESTMENT PROPERTY
• Notes Receivable • Land
• Interest Receivable • Building
• Advances of Employees For rent or capital appreciation or both

26 F
 INVENTORIES
• Merchandise Inventory INVESTMENTS (Long-term)
• Investment in share of stocks
• Finished Goods Inventory
• Investment in Bonds
• Work-in-process
• Raw materials inventory
• Supplies Inventory

PREPAYMENTS INTANGIBLES
• Prepaid Insurance • Goodwill
• Prepaid Taxes • Patent
• Prepaid Interest • Copyrights
• Prepaid Advertising •

OTHER ASSETS
• Refundable/recoverable deposits
(rental, utility)

LIABILITIES

CURRENT LIABILITIES NON-CURRENT LIABILITIES

TRADE AND OTHER PAYABLES MORTGAGE PAYABLE

• Accounts Payable
• Notes Payable
• Interest Payable
• Accrued expenses (Rent, salaries,
Utilities etc.)
• Unearned Revenue NOTES PAYABLE
• Customer’s Deposit (long-Term)
• Current Portion of long-term Payables

BONDS PAYABLE
(long term)

27
 EQUITY

CAPITAL
(owner’s initial and additional INCOME SUMMARY
investments

REVENUES
Service Income
Sales
Fees
Owner’s withdrawal
(Deducted from capital)

EXPENSES

COST OF SALES OR OPERATING EXPENSES:

DIRECT COST (For service Salaries and Wages
concern) Rent Expense
Communication Expense
Light and Water Expense
Advertising Expense
Supplies Expense
Transportation Expense
Gas and Oil Expense
Depreciation Expense
Doubtful Accounts

28
NOTE: The Income Summary is the difference between Revenue and Expenses. This difference
might be a net profit or net loss. The income summary is either added or deducted to capital. If
the result is net profit then add to capital but if the result is net loss deduct to capital in the same
manner that withdrawal is also deducted to capital to arrive at the correct balance of equity.

Therefore, if you are going to locate the Revenue and Expenses in the Accounting Equation it is
found on the equity section.

KEYWORDS INDEX
1. ASSETS 6. CURRENT ASSETS
2. LIABILITIES 7. NON-CURRENT ASSETS
3. EQUITY 8. CURRENT LIABILITIES
4. REVENUES 9. NON-CURRENT LIABILITIES
5. EXPENSES 10. LINE ITEMS

SELF-HELP : You can also refer to the sources below to help further understand the lesson.

• Ballada, Win & Ballada, Susan (2019), Basic Financial Accounting and Reporting.
Sampalok Manila: Domdane Publisher & Made Easy Books.
• Heintz, James A. (2017). College Accounting 22nd Edition. Australia: Cengage
Learning

LET’S CHECK
Activity 4. It is very important to have a deep understanding on the account title and its
classification, where to locate this in the financial statements because in recording transactions
this knowledge is very useful. Below is a chart of accounts, all you have to do is to classify these
accounts according to the elements of financial statements. On the second column identify the
Financial statements where these accounts must appear, 3 rd column identify the sub-
classification and on the last column write the correct line items where these accounts belong.
Some of the accounts will not be encountered in this course, nevertheless it is introduced for
your advance learning. The score required to pass this activity is 135. Each number is equivalent
to 3 points. You can use abbreviations SFP, IS (for FS); CA, NCA, CL, NCL, C/S, OPEX for sub
classification. The first 4 items are answered for your reference.

29
30
LET’S ANALYZE
ACTIVITY 5. Now that you are acquainted with the account titles and its classification, let us
apply this knowledge in answering the next activity. Below is the chart of accounts with its
corresponding amount, you are going to determine the correct amount of the following line
items to be presented in the financial statements.
a.) Cash and Cash Equivalents
b.) Trade and Other Receivables
c.) Inventories
d.) Prepayments
e.) PPE
f.) Intangibles
g.) Other Assets
h.) Trade and Other Payables
i.) Non-current liabilities
j.) Revenues
k.) Operating Expenses
l.) Equity

31
32
Activity 6. The study of the elements of the financial statements and its accounts is a requisite in
the next step of the accounting process. You are now ready to develop your own chart of
accounts for a business engage in providing services to customers or clients. You have the
freedom to choose the nature of business provided they are engage in providing services as their
source of revenue. The chart of accounts must be arranged from Assets, Liabilities, Equity,
Revenue and Expenses account titles. Give a brief description of the nature of business. Briefly
described the usage of each account. You may add line when necessary.

YOUR TURN
CHART OF ACCOUNTS
NAME OF COMPANY

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Activity 7.
Cielo Bon is engaged in a lease business. She has commercial buildings that are for lease. Below
is her chart of account. In this activity you are going to arrange the accounts summarize below in
the same order as they appear in the General Ledger. Assign each account a number using a
three-digit numbering system: Assign the series 100 for Assets; 200 for Liabilities; 300 for Equity;
500 for Revenues and 600 for Expenses. Once you are done email this to me. An example is
illustrated below for your reference.
Example : Cash on Hand – 101; Cash in Bank - 102 and so on….;
Accounts Payable – 201 and so on………..

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SCHEDULES
Activity Date of Submission Where to Submit/How
Activity 1 Aug. 19, 2020 CF’s email/courier
Activity 2 Aug. 21, 2020 CF’s email/courier
Activity 3 Aug. 22, 2020 CF’s email/courier
Activity 4 Aug. 25, 2020 CF’s email/courier
Activity 5 Aug. 27, 2020 CF’s email/courier
Activity 6 Aug. 29, 2020 CF’s email/courier
Activity 7 Sept. 3, 2020 CF’s email/courier
Q&A Aug. 24, 28 & Sept. 2, Collaboration/Zoom/Forum

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