DEPARTMENT OF ACCOUNTANCY

SCHOOL OF BUSINESS AND ACCOUNTANCY

HOLY ANGEL UNIVERSITY

Fundamentals of
Accounting
LEANDRO S. SANCHEZ CPA,JD
 CHAPTER 1
FUNDAMENTAL CONCEPTS AND PRINCIPLES
Systematic Process of measuring and reporting
relevant financial information about activities of
an economic organization or unit. Its underlying
purpose is to provide financial information. It is
capable of being expressed in monetary terms.
“LANGUAGE
OF
BUSINESS”
Four Aspects of Accounting

• Recording – writing down transactions chronologically in the books of

account as they transpire.

• Classifying – sorting similar and related business transactions (Asset,

Liabilities & Equity)

• Summarizing – preparing financial statements from the transactions

recorded to meet information needs of its users

• Interpreting – representing qualitative and quantitative financial

information about the business in a manner understandable to the
users.
 Parties
Interested in
the financial
information
(Stakeholders)
 Investors/ owners/stockholders
-provide financial resources
-want to know the financial position or results of
operation of their investment
Parties Management
Interested in -set goals for their companies
the financial -use financial data as a guide for future
information management actions
(Stakeholders)
Employees
-determine if they have a future in the company
 Financial institutions/ Creditors
-determine the capacity of the business
organization to pay its obligations and their interest
at the appropriate time

Parties Government
Interested in -important for tax purposes
the financial -compliance with Securities and exchange
information commission (sec) requirements
(Stakeholders) Others (customer/client)
-to know the length of dependency to the product
or services offered by the company
 Sole/Single Proprietorship

Three types
of Business
Organization
 Partnership
-two or more people
-contribute money, property,
or industry to a common
fund
-purpose of earning a profit
Three types
of Business
Organization
 Corporation
-Five or more individuals
-Ownership proof by shares
-Limited liability

Three types
of Business
Organization
Three types of Business Operations
•Service
-rendering of service
Three types of Business Operations
•Trading/ merchandising
-buying and selling of goods
Three types of Business Operations
•Manufacturing
-production of items to be sold
 • Accounting System – methods used by the
business to keep records of activities and
summarize the accounts

Terms • Transaction – completed action which can be

expressed in monetary terms
Generally Accepted Accounting
Principles (GAAP)

• Broad, general statements or rules and procedures that

serves as guides in the practice of accounting

• Standards, assumptions and concepts with general

acceptability

• Measurement techniques and standards used in the

presentation and presentation of financial statements
Fundamental Concepts

• Entity Concept – business enterprise is separate and distinct to its

owners

• Periodicity – providing financial accounting information in a period of

time
• Calendar year – 12-month period that starts on January 1
• Fiscal year – 12-month period that starts on any month of the year

• Going Concern – the enterprise will continue to operate indefinitely

 • Objectivity – all business transactions entered into
must be supported by verifiable evidence

• Historical Cost – all properties and services acquired

are recorded at its original acquisition cost

Basic • Accrual Principle – income should be recognized at

Principles
the time it is earned and expense should be
recognized when incurred
 • Adequate Disclosure – all material facts that will
significantly affect the financial statements must be
indicated

Basic • Materiality – concerned with information significant

enough to affect decisions
Principles
• Consistency – approaches used in reporting must be
uniformly employed