In this part, you will learn more about the topic through varied activities.

Lesson

ACCOUNTING
1
sson 1: Introduction to Accounting
Intro
ducti
 the systematic process of measuring and reporting relevant financial information about the activities of an
economic organization or unit.

 Its underlying purpose is to provide financial information.

 expressed in monetary terms.

 an art of recording, classifying, and summarizing in a significant manner and in terms of money,
transactions and events, and interpreting the results of. (American Institute of CPAs)

 deals with transactions which are financial in nature, all other transactions that are non-monetary are not
within the scope of accounting

BOOKKEEPING
 confined with the recording of monetary transactions

BASIC FUNCTION OF ACCOUNTING IN BUSINESS:

 generation of relevant and timely financial information for interested parties.

NATURE OF ACCOUNTING:
a. Systematic process – has definite techniques and proper application requires skill and
expertise.
b. Art – refers to the design of how something can be performed. It is behavioral knowledge
involving creativity and skill.
c. Service activity – performs specific actions such as identifying, measuring, and communicating
financial information. It must follow logical steps in the accounting cycle like recording,
classifying and summarizing financial transactions and communicating the results after
d. Information system – a set of interrelated components that work together to achieve a
common purpose and serves as a repository of collected financial data, proposed financial
information, and communicated financial statements.

FOUR ASPECTS OF ACCOUNTING:

 1. Recording – writing down of business transactions chronologically in the books of account as
they transpire.
2. Classifying – sorting similar and related business transactions into the three categories of
Assets, liabilities, and owner’s equity.
3. Summarizing – preparing the FS from the transactions recorded in the books of account that
are 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.

FUNCTIONS OF ACCOUNTING IN BUSINESS:

 help interested users come up with informed decisions
 to support daily operations of the business

Origin of Accounting
 Can be traced from the Renaissance Period.
 From the Italian monk and mathematician Frater Luca Bartolomes Pacioli who wrote Summa de
Arithmetica, Geometria, Proportioni et Proportionalita (Everything About Arithmetic, Geometry and
Proportion) which was published in Venice in November 1494. It included a 24-page treatise on
bookkeeping, Particularis de Computis et Scripturiz (Details of Calculation and Recording),
specifically about record keeping and double-entry accounting.
 Aside from Pacioli, there are also other Italian personalities who wrote about double-entry
accounting during that time, but it is only his work that had a huge impact on the field of
accounting. It is for this reason that he is regarded as the “Father of Modern Accounting”

Branches of Accounting:
1. PUBLIC ACCOUNTING – the accountant performs or offers to perform any activity that will result in the
issuance of an attest report that is in accordance with professional standards.

A. External Auditing – public accountants examine the financial statements in order to

express an opinion on whether statements have been fairly presented or not. Auditor issues
an independent report of his or her findings.

B. Tax Preparation and Planning Services – the accountant is a tax specialist who is expected to be
an expert about tax revenue regulations and tax laws, wherein they help and advise their clients in
tax planning and preparing tax returns.

C. Management Advisory Services – management consulting is an area in public accounting wherein

they provide financial planning and control, and the development of accounting and computer
systems.
2. PRIVATE ACCOUNTING – involves setting up systems of recording business transactions that are
aggregated into financial statements.

A. Financial Accounting – provides economic and financial information for investors,

creditors, and other external users.

B. Uses a system of reporting designed to meet the information needs of external users.

C. Governed by an established body of standards and principles.

D. Cost Accounting – focuses on accumulating manufacturing costs for financial reporting

and decision-making purposes. It covers the reporting of financial information relevant to
manufacturing operations.

E. Budgeting – provides a detailed collection and reporting of the expenditures and revenues
involved in a business or company operations. This branch tracks the financial details of the
firm, including the money taken in and the money spent by the company and the staff.

F. Accounting Information System – collects and processes transaction data.

G. Tax Accounting – deals with the preparation of various tax returns and doing tax planning
for the business. This is like the tax services done in public accounting.

H. Internal Auditing – reviews the business operations to check if they are complying
management policies.

3. GOVERNMENT ACCOUNTING – used in government offices to record and report financial

transactions

4. ACCOUNTING EDUCATION – responsible for training future accountants.

Users of Financial Information:

A. Internal Users:
1. Employees – assess the company's profitability and stability, its consequence on their
future salary and job security
2. Managers – plan, organize and run a business
3. Owners – provide the capital of the business, need accounting information to help us
decide if we will withdraw or increase our investments and are interested to the Return of
Investment (ROI)

B. External Users:
1. Creditors – assess the creditworthiness and the capability of the business to pay its
obligations including the related interests on maturity date.
2. Potential Investors – need information to help them decide whether we should invest or
not in the business, know the potential returns on our investments if we decide to invest
 3. Suppliers – use the financial statements of customers to determine whether the debts
owed to them will be paid when due or whether the customer has enough funds to pay the
goods to be delivered
4. Customers – interested to know whether the business will continue to honor its product
warranties.

5. Regulatory Bodies – want to ensure that the company’s disclosure of accounting information is
in accordance with the rules and regulations set.

6. Public – use the financial information to know how the business helps the economy and whether
employment is available in the company.

7. Tax Authorities – use financial reports to determine the credibility of the tax returns filed on
behalf of the company.

FORMS OF BUSINESS
ORGANIZATIONS:
1. Types of Business According to
Ownership:

a. Sole Proprietorship - a form of

business which is owned by one
person

BUSINESS REQUIREMENTS:

 Register the preferred business name with the DTI. The approved registration should be renewed every five
years

 Secure a barangay permit in the barangay where the business will be located. This permit should be
renewed every year.

 Apply for a business permit in the municipality where the business is situated. This permit is renewable
every year.

 Register the business with the BIR. BIR requires a sole proprietorship business to pay its registration fee
every year.

 Register the business with SSS, PhilHealth, and HDMF/PAG-IBIG.

 b. Partnership - a form of business
owned by two or more persons, the
written agreement between or among
partners is called articles of co-
partnership.

BUSINESS REQUIREMENTS:

 Verify business name with the SSS and SEC.

 File articles of co-partnership with SEC.

 Register the business name with DTI (optional).

 Secure a barangay permit in the place where business is located (renewable every year).

 Apply business permit in the municipality where the business is located (renewable every year).

 Register the business with BIR (BIR requires an annual registration fee).

 Register the business with the SSS, PhilHealth, & HDMF.

c. Corporation - required to have

5 to 15 incorporators,

- is an artificial being created by

operation of law, having the right
of succession and the
powers, attributes and
properties expressly
authorized by law or
incident to its existence.

- its existence is evidenced by

articles of incorporation and by-
laws that are duly approved by the Securities and Exchange Commission.
 -

BUSINESS REQUIREMENTS:

 Verify business name with Securities and Exchange Commission (SEC).

 Draft and execute the articles of incorporation and by-laws by incorporators.

 Deposit the cash collected from subscriptions.

 File articles of incorporation and by-laws with the Securities and Exchange Commission (SEC).

 Register the business name with the Department of Trade and Industry (DTI) (optional).

 Secure a barangay permit in the place where business is located (renewable every year)

 Apply business permit in the municipality where the business is located (renewable every year)

 Register the business with the Bureau of Internal Revenue (BIR requires an annual registration fee).

 Register the business with the SSS, PhilHealth, and HDMF

d. Cooperative – owned by a group of

individuals who also serve as benefactors to
the business endeavor.

- requires at least 15 members to function.

- Board of Directors (BOD) and officers are

elected to manage the business

BUSINESS REQUIREMENTS:

• Prepare general statements to help measure the cooperative’s chance of success.

• Draft cooperative’s by-laws.
• Draft the articles of cooperation.
• Secure bond for accountable officer(s).
• Registrar with Cooperative Development Authority (CDA).

e. Service Business – focuses on providing

intangible products, such as offering
professional skills, proposals and expertise.
 Examples: Accounting firms, Law firms, schools, medical clinics, banks, hair salons and the
likes.

f. Merchandising - commonly known as the

“buy and sell” business. Products are bought
from manufacturers or other merchandisers
and are sold as is at an amount higher than
the purchase price. Examples: grocery stores,
hardware, department stores and drug stores.

g. Manufacturing - materials are bought to

create a new product. Examples: food and
garment factories, car manufacturing
companies.