Comprehensive Study Notes: Basic Financial Accounting & Reporting – Accounting and Its Environment
Introduction and Learning Objectives
After studying this chapter, you should be able to:
Define accounting and explain its role in business.
Have a fair knowledge of the evolution of accounting and how it affected pedagogy, policy and practice.
Discuss basics of ASEAN and recognize how it will affect accountancy practice in the region.
Describe the fundamental business model and its application to various types of businesses.
Distinguish between different forms and activities of business organizations.
Explain the importance of the purpose and phases of accounting.
Ascertain the need to adapt Fra Luca Pacioli's system for modern times.
Explain fundamental accounting concepts and principles.
Understand the income tax of entities per TRAIN Law and CREATE Act.
Summarize salient features of the Accountancy Act of 2004, the Core Competencies Framework and the Code of Ethics for Professional Accountants and harness them for professional advancement.
Explain why ethics are crucial in accounting.
Identify and discuss career opportunities open to accountants.
Example illustrating accounting in action: Dennis Rodman’s finances show how budgeting, timing of payments, endorsement deals, and financing decisions rely on accounting information and analysis to steer a client from potential bankruptcy toward financial prosperity. His manager used budgeting, discounting (wait for payment), and investment decisions informed by accounting data to structure a seven-figure deal and strategic endorsements. This underscores that accounting information is a central business tool across personal, managerial, and strategic decision-making.
Introduction to Accounting
Accounting has evolved in response to social and economic needs of society, much like medicine and law.
In a market economy, information helps decision-makers allocate scarce resources efficiently. Quality accounting information enables informed choices about resource allocation.
Accounting is the language of business: it measures activities, processes information into reports, and communicates results to decision-makers.
Accounting is essential for both business and personal financial planning (education, amortization, loans, taxes, investments).
Definitions of accounting (selected sources):
Accounting is a service activity providing quantitative information about economic entities to aid economic decisions (Statement of Financial Accounting Standards No. 1, par. 1).
It is an information system that measures, processes and communicates financial information about an economic entity (SFAC No. 1, par. 9).
It is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions (AAA, 1966; Accounting Principles Board, 1970, par. 40).
It is the art of recording, classifying and summarizing in monetary terms transactions and events of a financial character (AICPA, 1953, par. 9).
Evolution of Accounting
Accounting history informs pedagogy, policy and practice.
Primitive accounting: dating back to ca. 8500 B.C. with clay tokens (sheep, oil, bread, clothing) and bullae (first bills of lading) used for record-keeping.
Ancient record-keeping in China, Babylonia, Greece, and Egypt.
Babylian law (Code Hammurabi era, 2286–2242 B.C.) required sealed memos of agreed prices; scribes recorded transactions on clay with signatures; some records kiln-dried for important trades.
Early wage payments recorded on clay tablets (3600 B.C.). Tax collection closely tied to accounting even in ancient times.
Preconditions for systematic bookkeeping (Littleton, 1941): writing, arithmetic, private property, money, credit, commerce, capital.
Middle Ages: Crusades spread literacy in Northern Italy; use of Arabic numerals; international banking system emerges.
Inca quipu used knots to record data.
Florentine merchants (13th–15th centuries) contributed to formal account-keeping; early ledgers show dual entries. The oldest double-entry records appear in the ledgers of Farolfi & Co. (1299–1300) and Rinieri Fini & Brothers (1296–1305).
Amatino Manucci credited as a key figure in the development of double-entry bookkeeping; practice involved five main books (general ledger, two merchandise ledgers, expenses ledger, cash book) and at least two subsidiary books; emphasis on internal financial control.
The Method of Venice (Italian method): Pacioli did not invent double-entry but documented prevalent practices in 1494 in Summa de Arithmetica, Geometria, Proportioni et Proportionalita; Particularis de Computis et Scripturis describes double-entry bookkeeping.
Pacioli’s contribution: bookkeeping should inform the trader about assets and liabilities; closing books periodically; emphasize annual balancing; close partnerships and maintain regular accounting.
Goethe and Sombart praised double-entry bookkeeping as a landmark in economic history.
Savary and the Napoleonic Commercial Code: the Code Savary (1673) introduced lower-of-cost-or-market (LCM) valuation principles; new regulation required annual fair value statements to protect against bankruptcies (France 1673; Napoleonic Code 1807).
Nicolas Petri (1769) grouped similar transactions in journals and introduced monthly totals.
Industrial Revolution and corporate form (late 18th–19th c.): cost accounting emerges; need for formal accounting in large-scale production; railroads in the U.S. spurred balance sheets to creditors; depreciation begins to be recognized (early 1900s); US Steel’s consolidated statements (1903–1904) mark a milestone in modern financial accounting.
Schmalenbach’s Model Chart of Accounts (1920s): standardization for inter-firm comparisons; emphasis on flows (Dynamic Balances) rather than just balances; aim to facilitate inter-firm comparisons.
ASEAN and Information Age
Information age enabled by electronic spreadsheets (VisiCalc) and widespread IT; accounting software and modules automate reporting and analytics; mobile devices and cloud solutions reshape business and accounting processes.
ASEAN: established Aug 8, 1967 (Bangkok Declaration) with founding members Indonesia, Malaysia, Philippines, Singapore, Thailand; Brunei (1984), Vietnam (1995), Lao PDR and Myanmar (1997), Cambodia (1999).
Vision: stable, prosperous, highly competitive ASEAN Economic Region with free flow of goods, services, investment, capital; reduced poverty and disparities.
Demographics and economy: 10 member states, population ~625 million in 2013; GDP in trillions; rising incomes, youthful population; GDP growth around 5.1%.
Four Pillars of ASEAN Economic Community (AEC): Single market and production base; Competitive economic region; Equitable economic development (SME development, integration initiatives); Integration into the global economy.
Priority integration sectors: Goods (agro-based, automotive, electronics, fisheries, rubber, textiles, wood-based), Services (air transport, e-ASEAN, healthcare, logistics, tourism).
ASEAN Framework Agreement on Services (AFAS) and other instruments: ATIGA (Trade in Goods), ACIA (Investment), MRAs (Mutual Recognition Arrangements) for various professions including accountancy (MRA 2014).
ASEAN Chartered Professional Accountant (ACPA): pathway through Monitoring Committee and ACPACC; RFPA status in host country with host-country regulatory oversight.
AQRF (ASEAN Qualifications Reference Framework): common reference framework to enable cross-country qualification comparisons and mobility; voluntary compliance by 2016–2018 targets; supports recognition of qualifications and the ASEAN skills framework.
AQRF supports the free flow of services and professional recognition across ASEAN.
FUNDAMENTAL BUSINESS MODEL
To be successful, a business must: develop a product/service that customers will pay for, creating a revenue stream.
A business requires investments for infrastructure, equipment, and personnel; the right combination generates revenue.
Five activities illustrate money flow:
1) Investors provide capital deposited in a bank account (Cash).
2) Cash is converted into assets (e.g., equipment) or inventory or spent on operating costs (salaries, rent, utilities).
3) Resources combine to produce products/services.
4) Sale generates receivables, which later convert to cash inflows.
5) Cash inflows repay debt (interest to banks), reinvest in assets or operations, pay taxes on profits, and distribute returns to owners.
This cycle highlights the basis of accounting: track cash flow, asset use, profitability, and tax consequences to support management decisions and performance improvement.
The model also demonstrates why accounting is essential for planning, control, and decision-making.
TYPES OF BUSINESS
While the fundamental business model remains constant, applications vary across seven broad activity structures:
Services: selling people’s time; examples include software development, accounting, legal services.
Trader: buying and selling products; examples include retail and distribution.
Manufacturer: designing, fabricating, and assembling products; examples include vehicle assembly, electronics, consumer goods.
Raw materials: growing/extracting raw materials (agriculture, mining, oil).
Infrastructure: selling the use of infrastructure; examples include utilities, transport infrastructure.
Financial: receiving deposits, lending, and investing; insurance operations (pooling premiums, paying claims, investing funds).
Other sectors listed include agriculture, mining, energy (oil), transport, hotels, telecoms, property management.
Each activity can be organized under various entity forms (e.g., sole proprietorship, partnership, corporation).
FORMS OF BUSINESS ORGANIZATIONS
Sole Proprietorship: single owner (proprietor) who manages; profits and losses accrue to owner; owner is personally liable for debts; accounting records are separate from proprietor’s personal finances.
Partnership: two or more persons contribute capital; profits shared; each partner liable for partnership debts; partnership is treated as a separate entity for accounting purposes.
Corporation: separate legal entity; stockholders own the firm; owners’ liability is limited to their investment; management may be separate from owners; accounting reports to owners/board.
MSMEs: large share of employment (61% of the workforce in the Philippines) and a large number of firms; MSMEs contribute to economic output but are often undercapitalized; need for supportive policy and credit access.
2008 reforms for MSMEs (Republic Act No. 9501, RA 9501): banks must allocate at least 10% of loan portfolios to MSMEs (8% micro/small, 2% medium); Small Business Corporation gains capital; definitions of MSMEs updated by net asset thresholds and employee counts; aims to promote an entrepreneurial culture and youth entrepreneurship.
ACTIVITIES IN BUSINESS ORGANIZATIONS
Accounting provides information to support three primary organizational activities:
Financing: obtaining resources from financial markets; primary sources include owners and creditors; repayment and returns to owners are financing activities.
Investing: acquiring and disposing of long-term assets (land, buildings, equipment) to develop, produce, or sell goods/services.
Operating: converting resources into goods/services; includes R&D, design/engineering, purchasing, HR, production, distribution, marketing, and servicing; firms compete in supplier, labor, and product markets.
Effective financial information supports decision-making, planning, and performance evaluation.
PURPOSE AND PHASES OF ACCOUNTING
Accounting is part of a broader business system and interacts with other departments.
Transactions must be measured (recognition), valued (valuation), and classified (classification).
Recording alone is not sufficient; data must be classified and summarized into financial statements.
Post-summarization interpretation/analysis evaluates liquidity, profitability, and solvency; accounting informs decisions on resource allocation and performance improvement.
PACIOLI'S DOUBLE-ENTRY BOOKKEEPING AND ITS EVOLUTION
Fra Luca Pacioli’s Summa (1494) describes three books: memorandum, journal, ledger, and the double-entry system (debet dare vs. debet habere).
The memorandum records transactions chronologically in the currency of the transaction.
The journal records entries in order of occurrence, in one currency, in narrative form.
The ledger lists accounts alphabetically with running balances.
Pacioli did not discuss financial statements; annual balancing was advocated to detect errors and evaluate performance.
The medieval system served owners who needed summarized information; modern systems must serve both owners and managers for planning and control.
Two main specializations emerged due to demands of modern practice:
Financial Accounting: information supplied to owners.
Management Accounting: information supplied to managers.
Today, accounting serves many stakeholders beyond owners and managers (customers, employees, governments, investors, lenders, public, suppliers).
FUNDAMENTAL CONCEPTS
Entity Concept: each accounting entity is a separate economic unit; transactions of different entities are not aggregated.
Periodicity Concept: life subdivided into equal time periods for reporting; annual reporting is common.
Stable Monetary Unit Concept: the unit of measure (peso) is stable enough for purposes of recording; inflation effects are ignored for practical purposes.
Going Concern: financial statements assume the entity will continue operating in the foreseeable future; depreciation is based on this assumption.
Note: COVID-19 introduced uncertainty that can cast doubt on going concern assumptions.
CRITERIA FOR GENERAL ACCEPTANCE OF AN ACCOUNTING PRINCIPLE
GAAP consists of conventions, rules, and procedures that define accepted practice at a given time.
Accounting principles evolve; they are not eternal truths.
Criteria for acceptance typically include:
1) Relevance: information meaningfully affects decisions.
2) Objectivity: information is free from bias and verifiable by independent observers.
3) Feasibility: implementable without undue cost or complexity (trade-offs may arise among relevance, objectivity, and feasibility).
BASIC PRINCIPLES
Objectivity Principle: use reliable, verifiable data; minimize subjective judgment.
Historical Cost: assets recorded at their original cost rather than current market value.
Revenue Recognition Principle: revenue is recognized when goods are delivered or services are rendered.
Expense Recognition (Matching) Principle: expenses recognized when related revenues are incurred to produce them.
Adequate Disclosure: all information necessary for understanding must be disclosed.
Materiality: information is material if its omission or misstatement could influence decisions; materiality depends on size and nature.
Consistency Principle: use the same accounting methods over time for comparability; changes require justification and disclosure.
TAXATION OF BUSINESS ORGANIZATIONS (per TRAIN Law and CREATE Act)
Sole Proprietorships (individuals): may have compensation income, business income, or mixed income. Taxation details include:
Compensation income taxed under graduated rates (Sec. 24(A) Tax Code). Rates adjusted over time: 20–35% (2018–2022) and 15–35% (from 2023 onward).
Taxable income for compensation equals gross compensation minus non-taxable/in exempt benefits (e.g., 13th month pay, de minimis benefits, and employee contributions to SSS/GSIS/PHIC/Pag-IBIG, and union dues).
Gross Compensation Income, Less: Non-Taxable/Exempt compensation, equals Gross Taxable Compensation Income. Taxable income framework uses items defined by the Tax Code.
Business Income (self-employment or profession): individuals may elect to be taxed at graduated rates or 8% on gross sales/receipts and other non-operating income (GSRONOI) in excess of P250,000, in lieu of graduated rates and Sec. 116 percentage tax.
If GSRONOI does not exceed VAT threshold (P3.0 million), option applies as above.
Mixed Income Earners: those with compensation plus business/professional income.
On compensation: taxed at graduated rates.
On business income: if GSRONOI does not exceed VAT threshold, option to be taxed at graduated rates or 8% of GSRONOI in lieu of graduated rates and percentage tax; if GSRONOI exceeds VAT threshold, taxed at graduated rates.
The P250,000 threshold is integrated into graduated rates for compensation; not applicable as an additional separate threshold for mixed income.
Partnership taxation:
General Professional Partnership (GPP): not subject to income tax, but must file annual information/returns; partners taxed individually on their shares; losses allocated as agreed; GPP may elect Optional Standard Deduction (OSD) only once.
General Co-Partnership (compania colectiva): partnerships not GPP are taxed as corporations.
Corporation taxation:
Domestic corporations: general income tax rate 25% (effective July 1, 2020) on taxable income from all sources; MCIT applies if higher.
Small domestic corporations (net taxable income ≤ P5.0M and total assets ≤ P100M, excluding land) taxed at 20% (effective July 1, 2020).
Minimum Corporate Income Tax (MCIT): 2% of gross income as of year-end, starting in the 4th taxable year after business start, when MCIT exceeds normal tax. Between July 1, 2020 and June 30, 2023, MCIT rate was 1%; otherwise 2%.
Foreign corporations:
Resident Foreign Corporations (RFOC): taxed at 25% with MCIT.
Non-Resident Foreign Corporations (NRFOC): generally taxed under withholding regimes; pro-forma computation uses 25% rate for withholding.
Note: Tax and accounting principles can diverge; final determinations follow the Tax Code when conflicts arise with GAAP.
ACCOUNTANCY IN THE PHILIPPINES
The practice of accountancy in the Philippines developed into a recognized profession; Act No. 3105 (1928) established the Board of Accountancy and regulation for CPAs.
Growth of CPAs from 1923 (43 CPAs) to thousands by 1990s; ongoing expansion due to regulatory and professional development.
The Accountancy Act of 1967 and later updates shaped regulation, ethics, continuing professional education (CPE), and integration of the profession.
The Accountancy Act of 2004 (Republic Act No. 9298) repealed the 1975 code and modernized the profession’s regulation, including licensure, examinations, and practice standards.
Board of Accountancy (BOA) under PRC supervises regulation; PICPA (Philippine Institute of CPAs) functions as the integrated national professional organization; PICPA established in 1929; PICPA adheres to IFAC pronouncements and ethics.
BOA/PRC governance: composition of the Professional Regulatory Board of Accountancy; qualifications for board membership; licensure examination requirements; subjects; rating system; refresher courses for failed candidates; oath and registration processes.
PICPA governance and structure: four geographic areas (Luzon, Visayas, Mindanao, National Capital Region) and four sectors (Education/Academe, Public Practice, Commerce and Industry, Government); National Board of Directors (25 directors: 21 regional and 4 sectors); year-to-year governance alignment (from calendar to fiscal by 2006).
Key legislative milestones and regulatory bodies:
BOA/PRC, SEC, BSP, BIR, COA, and other agencies interact with standard-setting and professional regulation.
Code of Ethics for Professional Accountants (adopted 2008) aligned with IFAC; updated to reflect national conditions.
ACCOUNTING STANDARDS IN THE PHILIPPINES
Accounting Standards Council (ASC) established by PICPA in 1981 to develop generally accepted accounting principles in the Philippines; supported by SEC, CB (Central Bank), PRC, FINEX.
ASC statements represented the generally accepted accounting principles (GAAP) in the Philippines; standards influenced by IASB/FASB literature and other international guidance.
Financial and Sustainability Reporting Standards Council (FSRSC; formerly FRSC): per RA 9298, Section 9(A), the standard-setting body; composition includes a chairman, BOA/SEC/ BSP/BIR/COA, Insurance Commission, and sector representatives, including two representatives from each accredited national professional organization (CPAs in public practice, commerce and industry, education/academe, government).
CORE COMPETENCIES FRAMEWORK FOR ACCOUNTANTS
Rationale: bridge gap between workplace requirements and academic preparation via competency-based education.
Core competencies define knowledge, skills, and professional values required for entry to the Philippine accountancy profession; aims to produce technically competent and ethical CPAs ready for international competition.
Minimum core competencies cover:
Knowledge
General Knowledge: global awareness, English proficiency, adaptability to Western practices, trainability, and capability to work with foreign partners.
Organizational and Business Knowledge: economics, quantitative methods, organization behavior, marketing, operations management; global business understanding; governance and ethics; decision making and risk analysis.
Information Technology (IT) Knowledge: internal controls in computer-based systems; development standards for business systems; IT adoption management; security of information.
Accounting Knowledge: core accounting and auditing standards, cost management, management accounting concepts, tax law, business and commercial law, corporate finance, capital markets, ethics, environmental accounting.
Skills
Intellectual: analysis, problem solving, strategic/critical thinking, abstract reasoning.
Interpersonal: teamwork, client service, negotiation, diversity sensitivity, adaptability.
Communication: effective oral and written communication; ability to explain complex matters to diverse audiences; questioning and information gathering.
Values
Professional Ethics: integrity, objectivity, independence, competence, due care, confidentiality, professional behavior.
Moral Values: discernment of right and wrong beyond formal rules.
IFAC role in defining future-oriented competencies; CPAs must maintain ethical standards and adapt to global expectations.
IFAC RESEARCH: FUTURE-FIT ACCOUNTANTS
IFAC identifies seven key roles for finance/accounting to remain relevant:
Co-Pilot: strategic leadership; drives change and growth; involved in major decisions.
Navigator: steers value creation and profitability with actionable insights.
Brand Protector: protect organization's assets and reputation; monitor performance.
Storyteller: communicate the organization’s narrative and value creation over time.
Digital and Technology Enabler: leverage digitalization, automation, AI, and data to drive decisions.
Process and Control Expert: ensure efficient end-to-end processes and governance.
Trusted Professional: maintain objectivity and professional skepticism.
ROLE OF ETHICS IN BUSINESS
Ethics: study of right/wrong; guides behavior in all activities, including professional contexts.
Ethical dilemmas arise when profitability conflicts with moral/professional standards (e.g., supplier choices using child labor; cost-cutting leading to unsafe products).
Ethical decision-making process: analyze consequences, analyze actions, decide; sleep test as a check for moral soundness.
Examples: white-collar crime, fraud, whistle-blowing, conflicts of interest, discrimination, fiduciary duties, sexual harassment.
Ethical financial reporting: integrity and credibility in financial reporting; cases of fraud (WorldCom, Enron, Tyco, Madoff) illustrate the consequences of fraudulent reporting.
SOX (Sarbanes-Oxley Act, 2002) in the U.S. increased accountability and governance requirements for public companies; effective governance, independent directors, enhanced disclosures, whistleblower protections, and restrictions on non-audit services for audit clients.
Code of Corporate Governance (Philippines, 2002) and the Code of Ethics for Professional Accountants (adopted 2008, aligned with IFAC).
The Code of Ethics for Professional Accountants in the Philippines: three-part structure (Part A: fundamental principles; Part B: public practice; Part C: business).
Fundamental Principles: Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, Professional Behavior.
THE ACCOUNTANCY PROFESSION
Characteristics that make accounting a profession:
CPAs hold a Bachelor of Science in Accountancy and pass CPA licensure examinations.
CPAs share a language and adhere to a Code of Ethics; public trust is placed in audit reports.
PICPA is the integrated national professional organization; serves to uphold standards, ethics, and education.
Career opportunities span:
Public Practice (auditing, taxation, advisory services): large and small firms; examples of major firms mentioned (US/Philippines context).
Commerce and Industry (corporate accounting, internal controls, budgeting, financial analysis).
Government Service (COA, BIR, BSP, and other government agencies).
Education/Academe (teaching, research, curriculum development).
Branches of accounting and related work:
Auditing: external vs internal audit; independence and testing approaches; reporting.
Bookkeeping: data collection and entry; basis for financial statements; often monthly.
Cost Accounting / Cost Bookkeeping: detailed recording for managerial planning and control; cost data feed into management accounting.
Financial Accounting: focus on recording transactions and reporting financial position and results; GAAP emphasis; external users.
Financial Management: newer field focusing on objective setting, financing plans, and safeguarding financial resources; uses broader disciplines.
Management Accounting: combines cost data with non-financial information for decision-making.
Taxation: tax return preparation and planning; tax minimization within law; differentiates between tax avoidance (legal) and evasion (illegal).
Government Accounting: identification of resources and uses under laws; large public fund management.
ASEAN FRAMEWORKS AND QUALIFICATIONS (DETAILED)
MRAs (Mutual Recognition Arrangements) for accountancy: allow recognition of CPAs across signatory countries; pathway to practice as ASEAN Chartered Professional Accountant (ACPA) and Registered Foreign Professional Accountant (RFPA) status.
AQRF (ASEAN Qualifications Reference Framework): common reference to compare qualifications across member states; supports mobility and quality assurance; voluntary compliance timeline by 2016–2018; supports recognition under ASEAN Economic Community and Socio-Cultural Blueprints.
CORE CONCEPTS IN PRACTICE AND ETHICS FOR ACCOUNTANTS
Ethical frameworks: professional integrity, confidentiality, and responsible disclosure in financial reporting; conflicts of interest must be disclosed or avoided.
Professional skepticism, independence, and objectivity in auditing and assurance work.
Fiduciary duties: professionals must place clients' interests ahead of personal interests when in a fiduciary relationship.
Workplace ethics and governance: whistle-blowing, discrimination, sexual harassment; importance of a diverse and inclusive workforce for better service delivery.
Code of Ethics for Professional Accountants (Philippines): alignment with IFAC; three-part structure; ongoing updates to reflect emerging issues and practice realities.
CAREER OPPORTUNITIES AND EDUCATIONAL PATHWAYS
Public Practice: CPAs offering audits, taxation, advisory services; large firms (global networks) and local firms; typical career ladder includes staff, manager, partner/senior adviser.
Commerce and Industry: roles in financial accounting, FP&A, internal audit, budgeting, cost analysis, and governance.
Government Service: state accounting, COA oversight, regulatory roles.
Education/Academe: teaching and research; development of curricula and new programs; faculty roles.
Global perspective: the Philippine accountancy profession aims to maintain high standards and to compete in the global market, aided by PICPA, BOA, PRC, ASC/FSRSC, and IFAC frameworks.
FORMAL STRUCTURE AND COMMON TERMS (GLOSSARY-INSPIRED)
GAAP: generally accepted accounting principles; evolving conventions, rules, and procedures.
MCIT: Minimum Corporate Income Tax; applicable when MCIT exceeds normal corporate tax.
GPP: General Professional Partnership (not subject to corporate income tax; partners taxed individually).
GSRONOI: Gross Sales/Receipts and Other Non-Operating Income.
VAT threshold: P3.0 million (for business income considerations in TRAIN/CREATE context).
MRAs: Mutual Recognition Arrangements for professional services across ASEAN.
AQRF: ASEAN Qualifications Reference Framework for mobility and recognition.
ACAP/ACPA: ASEAN Chartered Professional Accountant status and recognition processes.
ADDITIONAL NOTES ON ETHICS AND ACCOUNTING PRACTICE (SELECTED POINTS)
The importance of ethical reporting and the consequences of fraudulent reporting (WorldCom, Enron, Tyco, Madoff) demonstrate why ethics and governance are central to professional responsibility.
The transition toward more rigorous governance, accountability, and ethics is reflected in both international standards (IFAC, SOX) and national acts (Philippines’ Code of Ethics, Code of Corporate Governance, Accountancy Act of 2004).
The professional accounting landscape emphasizes continuous professional development (CPD/CPE) and compliance with evolving standards and regulations to maintain legitimacy and public trust.
KEY EQUATIONS AND FORMULAE
Tax computation (general framework; simplified display):
For Sole Proprietorships/Individuals:
Taxable Income = Gross Income − Allowable Deductions
Tax = TaxRate × Taxable Income, where TaxRate is applied according to the graduated rates schedule (Sec. 24(A) Tax Code) or alternative schemes for business income.
For Business Income (GSRONOI):
Taxable Business Income = GSRONOI − Operating Expenses (if using graduated rates) or 8% of GSRONOI in excess of P250,000 (in lieu of graduated rates and Sec. 116 tax).
For Mixed Income Earners: combine taxes on compensation income and business income as above, with integration of the VAT threshold considerations.
For Domestic Corporations (normal tax vs. MCIT):
Normal Tax = Taxable Net Income × 25% (effective July 1, 2020), subject to MCIT when applicable.
MCIT = 2% of Gross Income (as of year-end) starting in the 4th taxable year, with transition to 1% rate from 7/1/2020 to 6/30/2023.
For small domestic corporations: Tax = 20% if net taxable income ≤ P5.0 million and assets ≤ P100 million (excluding land).
Core competencies and knowledge areas are described in terms of knowledge, skills, and values; no single numeric formula applies, but the competency framework can be summarized as: Knowledge + Skills + Values lead to professional performance and ethics.
Basic accounting equations referenced throughout include the double-entry framework: every debit has a corresponding credit; assets = liabilities + equity (implicit in the standard accounting framework described in the Pacioli section).
Note: All LaTeX-style math in this summary is represented within double-dollar delimiters where appropriate, for example: and for the applicable years.