Republic of

Republic of the
the Philippines
Philippines
POLYTECHNIC
POLYTECHNIC U UNIVERSITY
NIVERSITY OF
OF THE PHILIPPINES
THE P HILIPPINES
OFFICE OF
OFFICE OF THE
THE VICE
VICE PRESIDENT
PRESIDENT FOR
FOR BRANCHES
BRANCHES AND
AND CAMPUSES
CAMPUSES
MULANAY, QUEZON
MULANAY, QUEZON BRANCH
BRANCH

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 Module 2 INTRODUCTION TO ACCOUNTING

Overview

Accounting has evolved, as have medicine, law and most other fields of human
activity, in response to the social and economic needs of a society. As business and society
have more complex over years, accounting has developed new concepts and techniques to
meet the ever increasing needs for financial information. Without such information, may
complex economic deployments and social programs might never have been undertaken.

Learning Outcomes

After the completion of this module, you are expected to:

1. Differentiate the forms of business organizations.

2. Compare and contrast the types of business according to type of activities.
3. Describe the type of information needed by each group of users.
4. Describe the profession of accounting and its specialized fields.

Lesson 1 – FORMS OF BUSINESS ORGANIZATION

Objectives:

1. Enumerate the forms of business organizations.

2. Enumerate the advantages and disadvantages of each form of business
organization.

Course Materials:

There are three forms of businesses:

1. Sole Proprietorship
This is a business set up and managed by one person. Most small businesses such
as beauty parlor, dress shops, bakeries are sole proprietorship – owned.

Advantages:
a. Only small amount of capital is needed.
b. its operation can be managed by the proprietor.
c. the owner or proprietor gets all the profits.
d. Only a minimum requirement to legally operate is needed.

Disadvantages since there is only one owner or manager, it may be

a. difficult to expand the business and sell different products or services because of the
capital and only one owner- manager.
b. It has no indefinite life. Owner may just one day want to close it. , or become
incapacitated or die.

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 c. Owner has unlimited liability. It means that if the business is unable to pay its debt,
bank or creditor can attach the owner’s personal properties.

2. Partnership
This is a business owned by two or more persons called partners who contribute
money, property and talent into a common fund for the purpose of sharing profit among
themselves. Professionals such as lawyers, accountants, engineers and doctors usually put
up a partnership consultancy firm.

Advantages
a. Ease in managing the business and I attracting clients because of more owners
involved.
b. Manager is more efficient because of the division of responsibilities among partners.

Disadvantages
a. No indefinite life since disagreements could easily be arise because of many owners
involved.
b. Partners like sole proprietors, have unlimited liability.

3. Corporation

A business organized as a separate legal entity from the owners. It means that it can
conduct business by itself – enter into contracts, buy and sell properties and stocks. An
investor simply buys shares of stocks in a corporation and become a shareholder. It is
managed by a Board of Directors elected by a shareholder from among themselves.

Advantages
a. More capital can be raised because of the large number of shareholders.
b. Can afford to hire expert who can efficiently manage and operate the business.
c. Can exist for an indefinite period of time with a legal life of fifty years, which can be
renewed by the SEC for another fifty years. It can exist for an indefinite period of
time.
d. More stable than a partnership because it is not affected by the withdrawal of a
shareholder. A shareholder who wants to withdraw from the corporation simply sells
that shares owned to others or can even sell the shares back to corporations.
e. Higher amount s of profit may be obtained because of its large amount of resources
which also means higher return on investment for the shareholders or investors.

Disadvantages
a. A shareholder, unlike a sole proprietorship or a partner, has no limited liability. There
is, therefore a higher risk involved on corporate debts because in the event of
insolvency (assets not enough to liquidate debts) corporate creditors cannot attach
personal properties of shareholders.
b. It is subject to more legal and tax requirements.
c. Abuse of power by the Board of directors could certainly affect the welfare of the
corporation and its shareholders.

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Lesson 2 – TYPES OF BUSINESS OPERATIONS

Objectives:
1. Identify the different forms of business according to the nature of activities.
2. Cite an example for each type of business according to activities.

Course Materials:

The activities needed to earn profit depend on the type of operation that is undertaken by
the business. There are at least three general lines of operations.

A. A service business is one which provides service, for a fee, to clients or customers.
Examples: beauty parlor, barbershop, travel agency.

B. Merchandising business is one which buys and sells goods or merchandise.

Examples are shoe store, bookstore or a drugstore.

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 A. A manufacturing business buys raw materials, converts these into finished products
and then sells the finished products to customers. Examples: garment factories, drug
laboratories, food processing companies.

Lesson 3 – USERS OF FINANCIAL INFORMATION

Objectives:
1. Define internal users and give examples.
2. Define external users and give examples.

Course Materials:

INTERNAL USERS

The internal users are those who make decisions that affect the internal operation of the
company. They are the following;

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 1. Managers – they plan, organize and run a business.

2. Employees/ labor unions – he assesses the company’s profitability and stability. Its
consequences on their future salary and stability.

3. Owners- they provide the capital f the business. Owners need this accounting
information to help them decide whether they should withdraw or increase their
investments.

EXTERNAL USERS
The external users of financial reports are those who make their decisions-based on
the company’s financial information. They are the following:

1. Potential investors- they need the information to help them decide whether they
should invest or not in business. Through past performances or operating results of
the company, they would want to know potential returns on their investment should
decide to invest.

2. Creditors and potential creditors- they assess the credit worthiness and the capability
of the business to pay its obligation including the related interests on maturity.

3. Customers- they assess the financial position of their suppliers which is necessary for
them to maintain a stable source of supply in the long term. They are interested to
know whether the business will continue to honor its product warranties.

4. Suppliers- they use financial statements f their customers to determine whether the
debts owed to them will be paid when due or whether the customer has enough funds
or resources to pay the goods to be delivered or the services to be rendered.

5. Tax authorities hey use financial reports to determine the credibility of the tax returns
filed on behalf of the company. They are interested to know if the business pays the
correct amount of taxes.

6. Regulatory bodies- they want to ensure that the company’s disclosure of accounting
information is in accordance with the rules and regulations set in order to protect the
interest of the stakeholders who rely on such information. Examples of these
regulatory bodies are the Securities and Exchange Commission (SEC) and Bangko
Sentral ng Pilipinas ( BSP).

7. Public- they use the financial information to know how the business helps the
economy and whether employment is available in the company.

Lesson 4 – BRANCHES OF ACCOUNTING

Objectives:

1. Identify each branch of accounting.

2. Explain the kind /types of services rendered in each branches.

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Course Materials:

PUBLIC ACCOUNTING

In Public accounting, the accountant performs or offers to perform any activity that will
result to the issuance of the attest report that is in accordance with professional standards.
Such activities include consulting services, personal financial planning services, the
preparation of tax return, an advice on tax matters for a fee. Examples of public accounting
services are as follows:

External Auditing
In external auditing, public accountants examine the financial statements in order to
express an opinion on whether statements have been fairly presented or not.

Tax Preparation and planning Services

Some CPA’s also offer tax services wherein they advise and help their clients in tax
planning and preparing tax returns.

Management Advisory Services

Management consulting is an area in public accounting that involves financial
planning and control, and the development of accounting and computer systems. The
accountant advises management on matters such as the installation of accounting system,
finance, budgeting, business processes, introduction of new products and other business
activities.

PRIVATE ACCOUNTING

Private accounting involves setting up systems in recording business transactions

that are aggregated into financial statements. It includes the development and interpretation
of accounting information intended to assist management in operating the business. The
branches of accounting under private accounting are as follows:

Financial Accounting
This branch of private accounting provides economic and financial information for
investors, creditors and other external users. It uses system of reporting designed to meet
the information need of external users. Financial accounting ends in the preparation of
general-purpose financial statements.

Cost Accounting
Cost accounting focuses on accumulating manufacturing costs for financial reporting
and decision – making purpose. It covers the reporting of financial information relevant to
manufacturing operations. It provides management necessary tools for planning and
controlling activities.

Budgeting
Budgeting provides a detailed collation and reporting of the expenditures and
revenues involved in a business or company operations.

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Accounting Information System
Accounting information system collects and processes transaction data. It also
disseminates information to interested parties. It involves the designing of both manual and
computerized data processing systems.

Tax Accounting
It deals with the presentation of various tax returns and doing tax planning for the
business. This is similar to the tax services don in public accounting. In this branch,
however, the client is the business and not the public.

Internal Auditing
This branch of private accounting reviews the business operation to check if they are
complying management policies. It evaluates the efficiency of business operations. Normally,
an internal auditor is hired employee of a company.

GOVERNMENT ACCOUNTING
Government accounting is a system used in government offices to record and report
financial transactions. It is a systematic process of collecting, recording, classifying,
summarizing, ad interpreting the financial transactions relating to revenues and expenditures
of government offices. Government accounting reveals how public funds have been
generated and utilized.

ACCOUNTING EDUCATION
This branch of accounting is responsible for training future accountants. It engages in
teaching accounting, financial management, taxation and other related business courses. As
per CHED Memorandum No 3. S 2007, a CPA in accounting education should possess the
educational qualifications, professional experience, classroom teaching ability, computer
literacy scholarly research productivity and other attributes essential for the successful
conduct of a professional accounting program.

CPA’s in Specialized Areas

1. Forensic Accounting. Forensic accountants provide the detective work needed to

investigate and examine evidence of white – collar financial crimes such as stealing and
fraud.

2. Information technology Services Business often seeks individuals who can design and
implement customized software systems.

3. Environmental Accounting. CPAs involve in environmental accounting determine how

companies can be both profitable and environmentally responsible. They do
environmental compliance audits and set up preventative systems to ensure compliance
and avoid future environmental claims or disputes.

4. International Accounting. International accountants are knowledgeable in international

trade rules and regulations, international mergers, government regulations, tax laws and
overseas transactions

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