Accounting and Bookkeeping TYPES OF BUSINESS ORGANIZATIONS

1. SOLE PROPRIETORSHIP (1 OWNER)

Bookkeeping 2. PARTNERSHIP (2 OR MORE
OWNERS)
 The systematic recording of a 3. CORPORATION (MANY OWNERS
company's financial transactions CALLED STOCKHOLDERS)

SOLE PROPRIETORSHIP (1 OWNER)

Accounting  What are the advantages and
disadvantages of this type of business?
 The systematic recording, reporting, and  Ease in startup, less requirements
analysis of financial transactions of a  Less taxes to pay
business.  Owner enjoys profit
 Owner responsible for raising capital
 Owner acts as a worker and
Accounting has four phases namely: entrepreneur
 Owner makes decisions regarding
 Recording- technically called business
bookkeeping which is only a part of  Owner fully responsible for all losses
accounting. and debts of the business
 Owner may have limited knowledge
 Classifying- sorting and grouping of and experience
similar items under the same name of
account. PARTNERSHIP (2 OR MORE OWNERS)
 What are the advantages and
 Summarizing- data recorded are disadvantages of this type of business?
summarized through financial  Ease in startup, owners put their
statements. resources together
 Less taxes
 Interpreting- analytical phase   Ease in borrowing financial capital
(from banks)
  -interpret the results of  Owners have different expertise
operation based on the (efficiency)
    financial statements  Owners share the responsibilities,
debts and losses
 Conflict between partners
Importance of Accounting  Business has a legal personality in
accordance with the law
 plays a vital role when it comes to
decision making CORPORATION (MANY OWNERS CALLED
STOCKHOLDERS)
 What are the advantages and
 It provides information disadvantages of this type of business?
How are we doing, and are we doing well or  Difficulty and expense in start up
badly?
 Ease in raising capital (sell stocks)
Which problems should be looked at?
Which is the best alternative for doing a job?  Directors can hire professionals
 Shareholders have little say in
management
  Corporation is a separate legal entity monthly, quarterly, and annually
distinct from those of its members basis
 Transferable shares (publicly listed)
 Double Taxation
 More government regulation

THE BUILDING BLOCKS OF ACCOUNTING

Ethics in Financial Reporting

 Financial statements to be honestly
prepared
 Ensure financial information is accurate
and reliable
Generally Accepted Accounting Principles

 standards that are generally accepted

and universally practiced in the
accounting profession
 accounting guidelines that govern how
accountants measure, process, and
communicate financial information

Principles

 Cost principle- dictates that companies

record assets at their cost
 Reliability Principle- accounting
information is based on the most reliable
data available
o Verifiable
o Free from bias
 Economic entity assumption- requires
that the activities of the entity be kept
separate and distinct from the activities
of its owner
 Monetary unit assumption- include in the
accounting records only transaction data
that can be expressed in money terms
and that the peso’s purchasing power is
stable
 Going concern assumption- assumes
that the entity will remain in operation for
the foreseeable future
 time period assumption
o businesses can divide up their
activities into artificial time
periods
o allows a business to prepare
financial statements on a