Friday, 21 August 2020 8:14 pm

REVIEW OF BASIC ACCOUNTING

Accounting is the process of recording, classifying, summarizing and interpreting. ACRONYMS TO REMEMBER
It is the process of identifying, measuring and communicating economic
information to permit informed judgement and decision by users of the AICPA - American Institute of Certified
Public Accountants
information. Accounting provides quantitative information that is useful for AAA - American Accounting
economic decisions. Association
ASC - Accounting Standards
Codification
4 ASPECTS OR PROCESSES OF ACCOUNTING PICPA - Philippine Institute of Certified
Public Accountants
1. Recording - writing down of business transactions
2. Classifying - sorting similar ad related transactions into A, L, and OE.
3. Summarizing - preparing financial statements.
4. Interpreting - representing the qualitative and quantitative financial
information.

USERS OF ACCOUNTING INFROMATION INTERNAL USERS

- Management
- Owners/Stockholders - Employees
- Investors - Owners
- Government
- Financial Institutions/Creditors EXTERNAL USERS
- Management - Creditors - Investors
- Employees - Tax Authorities - Regulatory Authorities
- Banks (SEC, DOLE)
3 TYPES OF BUSINESS ORGANIZATIONS - Suppliers

1. Sole Proprietorship - owned and managed by one

person. (DTI)
2. Partnership - two or more people, at least one
general partners and some (or many) limited
partners. (SEC)
3. Corporation - owners are those that hold shares
of stock. Managed by BOD's. (SEC)
2 TYPES OF CORPORATION
C Corporation - separate tax-paying entities
S Corporation - pass-through entities
3 TYPES OF PARTNERSHIP
General Partnership - all partners are held
liable and responsible for debts.
Limited Partnership - one partner may or
can invest capital/funds.
Limited Liability Partnership - protects
each partners' personal asset and each
partner from debts or liability incurred by
other partners.

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3 TYPES OF BUSINESS OPERATIONS

Service - rendering of services.

Trading or Merchandising - buying and selling of goods.
Manufacturing - production of items to be sold.

Accounting System - methods used by the business to keep records of its financial activities.
Transaction - completed action which can be expressed in monetary terms.

GAAP (Generally Accepted Accounting Principles)

- Accounting principles and processes, standards and underlying assumptions that
are used in preparing financial statements

BASIC ACCOUNTING CONCEPTS & PRINCIPLES

Fundamental Concepts

1. Entity Concept - a business enterprise is separate and distinct from its owner or investor.
2. Periodicity (Time Period) Principle - financial statements are to be divided into specific time
intervals. (specified time periods)
3. Dual Effect - total amount on the left side should always be equal to the right side of the
equation, any change must be matched with a corresponding change in another account.
4. Matching Principle - cost should be matched with the revenue generated.
5. Going Concern - business is expected to continue indefinitely.
6. Accrual Basis - income should be recognized at the time it is earned such as when goods
are delivered or when services have been rendered (also applies to expenses).
7. Stable Monetary Unit - recorded business transaction can be expressed in terms of
currency and the value of currency is assumed to be stable over time.

Other Basic Principles

8. Objectivity Principle - financial statements must be presented with supporting evidence.

9. Historical Cost - all properties and services acquired by the business must be recorded at its
original acquisition cost.
10. Materiality - financial reporting is only concerned with information significant enough to
affect decisions.
11. Adequate Disclosure - all relevant and material information should be reported.
12. Consistency - the approaches used in the reporting must be uniformly employed from
period to period to allow comparison of results between time periods.

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