Christian Oliver S.

Tan

Chapter 1: Accounting and its Environment

1. Define business and based on your own understanding explain its role in our society
today.
Ans: Business is an activity that aims on giving certain people certain needs in any way
or form, this can be done either alone or by a certain amount of people. By giving what a
certain person needs, the person given often offers something in return. The role of
business today in our society is to provide ease of our daily needs and basis and overall
make the quality of life better and comforting.

2. Contrast the different types and forms of business.

Ans;
Types of business:
Service – a business that most of the time involves professionals doing work for the
customer’s benefit. The benefit that the customer will receive will solely depend on what
kind of service business the owner has in setup.
Examples: Parlors, Restaurants, Spa, Internet Café’s
Merchandising- a business that purchases products then reselling it at retail or increased
price.
Examples: Grocery stores, Online buy and sell
Manufacturing – a business that uses raw materials to create an entirely new product.
Examples: Toy factories, Computer parts manufacturer

Forms of Business:
Sole Proprietorship- a business that is owned only by one person, called as the sole
proprietorship. In this business, the owner itself can only make changes and decisions
for the business.
Examples: Computer Repair Services, Freelance writing
Partnership- a business that has two or more persons operating the business. Every
decision that involves with the business is up to the people operating it to negotiate how
they will move the business towards somewhere.
Examples: Accounting groups, Physician groups,
Corporation- a business that is very complex and often needs more people to work than
usual. The business itself can be considered as a legal entity.
Examples: Apple INC., Ayala Corporation
3. If you decide to put up a business in the future, what type and form of business would
you prefer? Explain
Ans: I would like a merchandising business that is under a partnership because I think
the income is consistent and it has a lot of opportunities for growth.

4. Critique on the definitions of accounting given by the following standard setting

bodies:
      a. Accounting Standard Council (ASC) – it is about recording and classifying
transactions of the business then turning it into a quantitative information so that it may
be used for business decision.
      b. American Accounting Association (AAA)- it is a process of measuring the business
events in monetary terms through communicating every valuable information that can be
found from the events.
      c. American Institute of Certified Public Accountants (AICPA)- it is about summarizing
financial information through reporting that is also known as financial statements. A
financial statement has 5 categories:
1. Statement of Financial Position
2. Statement of Financial Performance
3. Statement of Changes in Owners’ Equity
4. Statement of Cash Flows
5. Footnotes/Notes to Financial Statements

5. Explain the role of accounting in business.

Ans: To give an information about the company’s status financially.

6. Give your own thoughts on why accounting is considered as the "language of

business".
Ans: Because it can be useful for interpreting financial information through someone
who cannot or have difficulties understanding how a business is going on overall.