ACCOUNTING DEFINED

- A service activity. Its function is to provide quantitative information, primarily

financial in nature, about economic entities, that is intended to be useful in making
economic decisions. (Accounting Standards Council)
- 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 in character
and interpreting the results thereof. (Committee on Accounting Terminology of the
American Institute of CPA)
- The process of identifying, measuring, and communicating economic information to
permit informed judgement and decision by users of information
Keywords in the accounting definition:
1. About quantitative information;
2. Information are primarily financial in nature;
3. And, useful in making decisions
OBJECTIVE OF ACCOUNTING
To provide quantitative financial information about a business that is useful to users, whether
internal or external, in making decision.
USERS OF ACCOUNTING INFORMATION
INTERNAL USERS
These are people who are inside the business organization. Usually, people of the top level
management, employees and owners.
EXTERNAL USERS
People who do not have any direct control over the business organization. These are suppliers,
banks, creditors, investors including potential investors, government agencies and the public.
PHASES OF ACCOUNTING PROCESS
A. IDENTIFYING AND ANALYZING
In these phase, we tried to identify and analyze whether the transaction is accountable or not.
A transaction is considered accountable if it will affect the elements of accounting.
B. RECORDING AND CLASSIFYING
The phase in which the practitioner of accounting classifies in which the transaction shall be
recorded. Moreover, the phase where the practitioner formally records that transaction.
C. MEASURING
We try to measure the transaction. The unit of measure is Philippine peso.
D. SUMMARIZING
The process in which accountant try to summarize the day-to-day transactions in just one
report.
E. COMMUNICATING AND INTERPRETING
The process of discussing the summarize report of all accountable transaction in to the users
of accounting information.
TYPES OF BUSINESS ORGANIZATION
I. SOLE PROPRIETORSHIP
 A type of business organization, in which only one person is the owner as well as operator of
the business is known as Sole Proprietorship.

II. PARTNERSHIP
A business form in which two or more persons agree to carry on business and share profits &
losses mutually is known as Partnership.
III. CORPORATION
A company is an association of persons who invests money towards a common stock, for
carrying on a business and shares the profits through dividends.
KINDS OF BUSINESS OPERATIONS
Service-Concern
A business organization that provides services to its consumers. Some of the examples of these is
providing accounting and auditing skills to clients
Merchandising
These is also known as a ‘buy-and sell’ business. The organization bought goods from other
business organization and sells those with mark-up.
Manufacturing
An organization that produce or manufacture goods and sell it for profits. In other words, these
organization shift the raw materials into a new consumable product.
UNDERLYING ASSUMPTIONS OF ACCOUNTING
The underlying assumptions of accounting are the basic notions or fundamental premises on
which the accounting process. These is also termed or knows as postulates.

The underlying assumptions are:

1. Going concern
Accounting assumed that accounting entity will continue to exist or business
organization may operate indefinitely, unless, evidence of non-continuity is
present.
2. Accounting entity
These refers to the business organization, which may be a proprietorship,
partnership and corporation. Under this assumption, business organization is
separated from its owners or whoever constitute the organization.
3. Time period
The indefinite life of the entity is divided into time period like annually, semi-
annually, quarterly or monthly. In the business world, reporting period may be
fiscal or calendar.
4. Monetary unit
The monetary unit assumption refers to the quantifiability of the assets, liabilities,
equity, income and expenses. An element is considered quantifiable if it can be
measure in Philippine peso. Another factor about these assumption is the stability
of the peso. These factor assume that peso is always stable.

ACCOUNTING METHOD
CASH BASIS OF ACCOUNTING
The rule in cash basis of accounting is that, income is being recognized if cash has already
received and expenses ire recognized if it was been paid. These type of accounting method is not
acceptable for the purpose accounting reporting.
ACCRUAL BASIS OF ACCOUNTING
The rule in accrual basis of accounting is that, income is being recognized when earned
regardless if cash is received or not. And, expenses are recognized when it is incurred regardless
if it paid or not. These is the acceptable method of accounting.
BOOKKEEPING VERSUS ACCOUNTING
Bookkeeping is the process or an activity of recording the day-to-day transaction of business
organization while accounting is the process of recording, measuring and communicating the
accountable transaction in which helpful in making economic decisions.
IDENTIFYING AND ANALYZING
The step in which we try to identify whether the transaction is accountable or not. A
transaction is considered accountable if any of the elements of accounting is being
affected. The five essential elements of accounting are assets, liabilities, equity (capital),
income and
expenses.
a. Assets
– are controlled resources by the entity. An inflow of future economic benefits is
expected from those resources.
- are recognized if it is probable that future economic benefits will flow in the
entity and can be measured reliably.
b. Liabilities
- are obligations of the entity and it is expected that future outflow of resources
is expected to extinguish such obligation.
- are recognized if is probable that there is future outflow of resources in order
to extinguish obligations and such outflow can be measured reliably.
c. Equity
- is the investment of owners to the organization coming from its own personal
resources.
- it is the difference between total assets and total liabilities.
- the residual value or amount after paying all liabilities of the company
d. Income
- are inflows or other enhancements, or savings in cash flow, of future
economic benefits in the form of increases in assets or reductions in liabilities
of the entity, other than those relating to contributions by owners, that result in
increase in equity during the reporting period.
- a revenue should be recognized in the operating (performance) when it is
probable that the inflow or other enhancement or savings in outflows of future
economic benefit has occurred and can be measured reliably.
e. Expenses
- are consumptions or losses of future economic benefits in the form of
reductions in assets or increase in liabilities, other than those relating to
distributions to owners that result in decrease in equity.
- an expense is recognized when it is probable that consumption or loss of
economic benefits resulting in reduction in assets and or liabilities has
occurred and can be measured reliably.
JOURNALIZING
Journalizing is the process of recording a business transaction in the accounting process.
This activity only applies to the double-entry system.
 The double entry system is a fundamental concept underlying in bookkeeping and
accounting. This system requires that every financial transaction has equal and opposite
effect in at least two different accounts. The said system shall satisfy the accounting
equation.
The accounting equation:

ASSETS = LIABILITIES + EQUITY

Note: Income and Expenses are included as part of equity.

In journalizing the accounting transaction, elements shall be recorded in accordance with
the following:

To Increase / An Inflow To decrease /An outflow

of of
ASSETS DEBIT CREDIT

LIABILITIES CREDIT DEBIT

CAPITAL ACCOUNT CREDIT DEBIT

INCOME CREDIT DEBIT

EXPENSES DEBIT CREDIT

OTHER ACCOUNT TITLES

DRAWING ACCOUNT DEBIT CREDIT

CONTRA-ASSETS
CREDIT DEBIT
ACCOUNTS