Chapter 1

BASIC ACCOUNTING FEATURES,

CONCEPT AND PRINCIPLES
1.1 WHAT IS ACCOUNTING?
❖The Committees on Terminology, American Institute of
Accountants defined Accounting as the art of recording,
classifying, summarizing in a significant manner and in
terms of money, transactions and events, which are in part, at
least of financial character and interpreting the results
thereof.
❖Accounting is the systematic process of measuring and
reporting relevant financial Information about the activities
of an economic organization or unit.
1.1 WHAT IS ACCOUNTING?
❖Accounting is an art. It is “the language of business”.
However, it is not only an art but also a science in a way that
there are accounting principles that serve as guide in
accomplishing data and preparing reports.
❖It is actually information system that measures business
activities, processes information into reports and
communicates the results to decision makers
1.2a. ACTIVITIES OF ACCOUNTING
1. Recording –is engaged putting into records all the business
transactions. It can be recorded either manually or
electronically. It is usually in chronological manner according
to date of occurrence. It is also known as Bookkeeping.
2. Classifying – sorting similar and related business transactions
into assets, liabilities, owner’s equity or capital, revenue and
Expense account.
1.2a. ACTIVITIES OF ACCOUNTING
3. Summarizing- preparing the financial statements from the
transactions recorded in the books of account designed to meet
the information needs of its users.
4. Interpreting – representing the qualitative and quantitative
financial information about the business transactions in a
language comprehensible to the users of financial statements. By
interpreting the data in the financial statements, users are able to
determine the financial standing of the company as well as its
stability and growth potential.
1.2b PURPOSE OF ACCOUNTING IN BUSINESS

1.It provides information useful for decision making

2.It records and analyses necessary business
transactions
3.It provides useful information both inside and
outside stakeholders of the organizations.
1.3 TYPES OF BUSINESS OPERATIONS
1. Service is a type of business operation engaged in the rendering
of services.
2. Trading/Merchandising is a type of business engaged in buying
and selling goods
3. Manufacturing is engaged in the production of items to be sold.
This type of business operation is involved in the purchasing and
converting of raw materials to finished goods
4. The Non-Profit Organization it involves activities to meet social
needs and not for a financial profit.
1.4 Forms of Business Ownership
1.Sole/Single Proprietorship is a business owned and managed by only one
person. The owner is called proprietor
2.Partnership is a business organization owned and managed by two or more
people who agree to contribute money, property or industry to a common
fund for the purpose of earning a profit. The owners are called partners
3.Corporation is a form of business organization of not less than five persons. It
is organized by operation of law. The owners are called shareholders or
stockholders.
4.Cooperative this is an entity exempt from taxation. The owners are called
members.