ACCOUNTING

- is the system that measure business activities, processes that information into reports and
communicates the results to the decision-makers. Accounting quantifies business communication.
"Language of business"

- is a service activity. Its function to provide quantitative information, primarily financial in nature,
about economic entities that is intended to be useful in making economic decisions. (ASC)

- is an information system that measure, processes, and communicates financial information about an
economic entity.

- is the process of identifying, measuring and communicating economic information to permit informed
judgements and decisions by users of the information. (AAA)

- is the 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 character, and interpreting the results
thereof. (AICPA)

- Accountants can be called scorekeepers of business.

NATURE OF ACCOUNTING

- is an art

- is a process

- is an information system

- is a means and not an end

- is a service activity
FUNTIONS OF ACCOUNTING

1. To fulfill the stewardship function of the management (or owners)

2. To help interested users come up with informed decisions

3. To support daily operations of the business

USERS OF ACCOUNTING INFORMATION

*INTERNAL USERS

1. Managers/Management

a. Top-level

b. Middle-level

c. Lower-level

2. Employees/Labor Unions

3. Owners

*EXTERNAL USERS

1. Potential and Existing Investors

2. Creditors and potential creditors

3. Customers

4. Suppliers

5. Tax Authorities

6. Regulatory Bodies

7. Public
TYPES OF BUSINESS

SERVICES

TYPES ACTIVITY STRUCTURE EXAMPLES

Service Selling people’s time Hiring skilled staff and Software development
selling their time Accounting
Legal
Trader Buying and selling Buying a range of raw Wholesaler
products materials and Retailer
manufactured goods
and consolidating the,
making them available
for sale in locations
near to their customers
or online for delivery
Manufacture Designing products, Taking raw materials Vehicle Assembly
aggregating components and using equipment and Construction
and assembling finished staff to convert them Food and drinks
products into finished goods Pharmaceuticals
Raw Materials Growing or extracting Buying blocks of land Farming
raw materials and using them to Mining
provide raw materials Oil
Infrastructure Selling the utilization Buying and operating Transportation
of infrastructure assets (typically large Hotels
assets); selling Telecoms
occupancy often in Sport Facilities
combination with Property Management
services
Financial Receiving deposits, Accepts cash from Bank
 lending and investing depositors and paying Investment house
money them interest; using
the money to provide
loans to borrowers,
charging them fees and
a higher rate of
interest than
depositors receive
Insurance Pooling premiums of Collecting cash from Insurance
many to meet claims of many to pay losses
a few experienced by a few
customers. By
understanding the risk
accepted and the
likelihood of a claim,
more premium income
can be earned than
claims paid

FORMS OF BUSINESS ORGANIZATIONS

1. Sole Proprietorship
 Business owned by only one individual
 Simplest and least costly form of ownership

ADVANTAGES
Full control of operations
Easy to start, easy to dissolve
All profits go directly to the owner
Less regulations
The government taxes the owner and not the
business
DISADVANTAGES
Unlimited Liability – the owner is legally obliged to
pay all business debts
Limited Life – the business ceases to operate if
the owner dies, becomes physically or mentally
incapacitated, or is imprisoned
Difficulty in raising capital

2. Partnership
 Business is owned by 2 or more individuals pooling their resources together as common fund
 Articles of Co-partnership – written agreement between partners
 2 types of Partnership: General Partnership
 - where each partner is a general partner with unlimited liability

Limited Partnership

- with limited partners and at least one general partner. General Partner
unlimited liability. Limited Partner has limited liability.

ADVANTAGES DISADVANTAGES
Increased potentials from 2 or more different Unlimited liability of one or all owners
strengths
Easy to form with proper agreements on its Limited Life – the business ceases to operate if
formation one of the partners dies etc.
Less regulations compared to corporations High possibility of dispute and conflicts between
partners

3. Corporations
 Business required to have 5 to 15 incorporators
 Owners have limited liabilities and limited involvement from the operations
 Board of Directors – who are elected by the owners, will take control of the corporation’s
activities
 Profit Corporation issues its owners or shareholders shares of stocks which are evidenced by
stock certificates
 Non-profit Corporation does not issue shares of stock. Its owners are called members.

ADVANTAGES
More sources of funds
Easy to transfer ownership
Liability of owners are limited
Unlimited commercial life
DISADVANTAGES
More regulations to be followed
Profit is taxed at the corporate tax rate
Costly to incorporate
Stockholders are taxed again when profits are
distributed to them

MICRO
SMALL
MEDIUM