ACCOUNTING

- process of identifying, measuring, and communicating economic information.

- vital to any business organization.

- equally essential to the successful operation of different organizations.

PROFIT

- primary concern of any business.

MANAGEMENT

- likely to give appropriate decision.

~With accounting, Management is provided with information essential to the effective conduct and
evaluation of its business activities.~

Forms of Business Organization:

1. Sole Proprietorship - owned by one person called the proprietor(manager).

2. Partnership - owned by two or more persons who partnered to contribute money, property, or
services.

3. Corporation - artificial being.

- owned by stockholders/shareholders and managed by the Board of Directors/Trustees.

•Retained Earnings - profit of corporation.

•Dividends - share in the profit of corporation.

4. Cooperatives - association of persons with common bond of interest.

Types of Business Activities:

1. Service
 - binabayaran.

- ex: law firm, hospitals, transportations & communications services.

2. Merchandising

- sells goods in the same physical form it was acquired.

- known as "trading concern" or "buy and sell".

- ex: hardware, bookstore, sari-sari store.

3. Manufacturing

- converts raw materials into finished product.

- ex: Multinational companies such as Dole, Pharmaceuticals, Cements, Toyota

4. Agribusiness

- associated with farming.

ACCOUNTING INFORMATION SYSTEM

- generate reliable financial information.

- combination of personnel, records, and procedures that a business uses to meet its need.

ACCOUNTING MANUAL

- guidebook

BUSINESS RECORD

- mandatory in government.

SECTION 232A of the Internal Revenue Code of the Philippines

- requires all corps, companies, partnerships or persons to pay internal revenue taxes, it is also done in
compliance with Municipal of city ordinances.
BOOKKEEPER

- recording process

ACCOUNTANT

- transform accounting data into a report form called "financial statements".

- analyze and interpret the report.

- provides guide and a basis.

AUDITORS

- examines financial statements that was prepared by the accountant

- renders opinion as to its fairness and reliability of the report.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLE (GAAP)

-uniform set of accounting rules

• In Philippines, the accounting standards promulgated by ACCOUNTING STANDARD COUNCIL constitute

the GAAP.

Basic Accounting Concept/Assumptions:

1. Accounting Entity Concept.

- assumes that business has separate and distinct personality from that of the owner.

2. Going-Concern Assumption.

- assumes that business has continuous life of existence.

3. Periodicity Concept.

- assumes that life of a business entity is meaningfully divided into equal period.

•Accounting period

-can be period of:

1-month(monthly basis)

3-months(quarterly basis)

6-months(semi-annual basis)

12-months(annual basis of yearly basis)

•Fiscal period - accounting period of less than a year

•Interim financial statements - financial statements of less than a year

3 kinds of Annual Accounting Periods:

1. Calendar Year - starts at January 1 and ends at december 31.

2. Fiscal Year - begin on any month except january 1

3. Natural Business Year - business experiencing slack season

4. Unit of Measure Assumption.

- assume that peso is our unit og measure

- purchasing power will not fluctuate.

5. Accrual Basis Assumption.

- assumes that recording of income and expense follow the accrual basis of accounting.

Basic Accounting Principles:

1. Objectivity Principle - most reliable data available.

2. Historical Cost - assets are recorded at their actual cost.

3. Revenue Recognition Principle - goods are delivered.

4. Matching Principle - goods and services are used that produce revenue.

5. Consistency Principle - firm uses the same accounting method.

6. Materiality - significant enough to affect decision.

7. Conservatism - assets & liabilities are measured in a context of major uncertainties. - yield lesser
amount of income and asset value. - "anticipate no profits and provide for all losses".

8. Timeliness - early enough

9. Adequate Disclosure - relevant information would be disclosed.

Five Elements of Financial Statements:

1. Assets - things of value. -"resources controlled"

2. Liabilities - financial obligation/claim to creditors. -"present obligations"

3. Owner's Equity or Capital - residual interest.

•Increased: Net Income/ additional contribution by owner

•Decreased: Net loss/ Withdrawal by owner

•Capital - "Proprietorship", "Proprietary interest", or "Net worth"

•"Owner's Equity", "Partnership Equity" or "Stockholder's Equity" - sole proprietorship, partnership, and
corporation.

4. Revenue - gross inflow

5. Expense - gross outflow

•Net Income - excess of revenues over expenses.

•Net loss - expense exceeds the revenue.

Financial Statements

-means thru which information accumulated and processed in financial accounting.

1. Balance Sheet - shows financial position as of particular date. - shows assets and liabilities thru which
solvency could be measured.

2. Income Statement - shows performance of enterprise. -present result of operation which would
either be a net income, net loss, or break-even.
3. Statement of Changes in Equity - summarizes the changes in equity.

4. Statement of Cash Flow - presents cash inflows(receipts) and cash outflows(payments) which are
being classified into: a) Operating Activities b) Investing Activities c) Financing Activities

5. Accounting Policies and Notes to Financial Statements - additional/basic statement.

Users of Financial Statements:

1. Investors - determine whether to add more or withdraw their capital.

• Stockholders - to pay dividend.

2. Employees - stability and profitability of the enterprise. - to provide remuneration, retirement

benefits and employment opportunities.

3. Lenders/Creditors - to determine whether their loans and interest thereon will be collected when
due.

4. Suppliers - to determine whether amounts will be paid on maturity.

5. Customers - continuance of an enterprise

6. Government and their agencies - to regulate the activities of an enterprise

- determine taxation policies.

7. Public - providing information about the trends

8. Management - Planning, Controlling, Directing, Staffing, Organizing, decision-making. - to set goals for
their organization, to evaluate results of past economic decision and to control activities of the entity.

FINANCIAL STATEMENTS - "bridge of communications"

ACCOUNTING - "language of business entity"