BOOKKEEPING 01

ACCOUNTING FOR

SERVICE
BUSINESS
Presented by:
MS. ALICIA G. BAÑAS
DEFINITION OF
ACCOUNTING
Philippine Institute of Certified
Public Accountants (PICPA)
“A system that measures business
activities, processes given information
into reports, and communicates those
findings to decision-makers.”

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DEFINITION OF
ACCOUNTING
Financial Reporting Standards
Council (FRSC)
“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 decision.”

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DEFINITION OF
ACCOUNTING
American Institute of Certified
Public Accountants (AICPA)
“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
financial character and interpreting the
results thereof.”

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NATURE OF Profitability Stability
ACCOUNTING
Liquidity Capital
A service activity
Structure
A process, an art and a discipline
The language of business Solvency Financial
Flexibility

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BOOKKEEPING &
ACCOUNTING
Bookkeeping
It deals primarily with the systematic
method of recording and classifying
financial transaction of business. It is
considered the procedural element of
accounting.

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OBJECTIVES OF
ACCOUNTING
01 To ascertain the result of the
business operations.

02 To ascertain the financial position

of the business.

03 To assist financial users in predicting

the enterprise’s financial capacity
regarding future cash flows,
financial conditions and results of
operations.
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FIELDS OF
ACCOUNTING
Financial accounting
Management accounting
Cost accounting
Tax accounting
Government accounting

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SECTORS OF
ACCOUNTING
PRACTICE
Public Practice
Commerce and Industry
Education and Academe
Government

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USERS OF
ACCOUNTING
INFORMATION
Internal users – those who are
directly involved in the business
enterprise

Owners Management Employees

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USERS OF ACCOUNTING
INFORMATION
External users – those who are not directly involved in the
business enterprise

Potential Creditors
(which includes money Customers
investors lenders, suppliers and
other trade creditors)

Taxing Government Non profit

authorities regulation agencies organizations

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FORMS OF BUSINESS
ORGANIZATION
Based on ownership
Sole or single proprietorship
Partnership
Corporation

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SOLE
PROPRIETORSHIP
Business owned by a single person
who has complete control over
business decisions. This individual
owns all the firm’s assets and is
responsible for all its liabilities.

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SOLE PROPRIETORSHIP

Advantages Disadvantages

Ease of entry and exit Unlimited liability

Full ownership and Limitations in raising
control capital
Tax savings Lack of continuity
Few government
regulations

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PARTNERSHIP
Legal arrangement in which two or
more persons agree to contribute
capital or services to the business and
divide the profits or losses that may
be derived therefrom.

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PARTNERSHIP

Advantages Disadvantages

Ease of formation Unlimited liability

Additional sources of Lack of continuity
capital Difficulty in transferring
Management base ownership
Tax implication Limitations in raising
capital

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CORPORATION
An artificial being created by law and
a legal entity separate from its
owners. The legal entity may own
assets, borrow money and engage in
other businesses without directly
involving the owners.

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CORPORATION

Advantages Disadvantages

Limited liability Time and cost formation

Unlimited life Regulation
Ease in transforming Taxes
ownership
Ability to raise capital

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FORMS OF BUSINESS
ORGANIZATION
Based on operations or activity
Service concern
Merchandising or trading
concern
Manufacturing concern

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FORMS OF BUSINESS
ORGANIZATION
01 Service – performs an activity
for a fee

02 Merchandising – involved in
selling of finished goods
produced by other businesses.

03 Manufacturing – involved in the

conversion of raw materials into
some tangible, physical product.

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BASIC ACCOUNTING
CONCEPTS
These are the ground rules that govern
how the accountants measure, process
and communicate financial information.

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PURPOSE OF BASIC
ACCOUNTING CONCEPTS
01 They help increase the confidence of financial statement users that
the financial statements are representationally faithful.

They provide companies and accountants who prepare the financial

02 statements with guidance on how to account for and report
economic activities.

03 They provide independent auditors of financial statements with

basis for evaluating the fairness and completeness of those
statements.

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ENTITY CONCEPT
The business is regarded as having a
separate and distinct personality from that of
the owner/s
generating its own revenue, incurring its
own expenses, owning its own assets and
owing its own liabilities.
Personal transactions of owners must not be
combines with transactions of the business.

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MONETARY
CONCEPT
Money is used as the unit of
measure in preparing the various
financial reports of the company.

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TIME PERIOD CONCEPT OR
PERIODICITY
It divides the life of the business
into regular intervals (usually one
year) at the end of which financial
statements are prepared.
The economic activities
undertaken during the life of an
accounting entity are assumed to
be divisible into various artificial
time periods for financial reporting
purposes.
Calendar Year – A twelve-month
period beginning January 1 and
ending December 31.
Fiscal Year – The length of the fiscal
period is determined by the nature
of the business and the frequency of
the need of data regarding the
financial condition and progress of
the business.
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REVENUE
REALIZATION
CONCEPT
It provides that income is recognized
when earned regardless whether cash is
received.
a. Income is considered earned when
services are fully rendered.
b. Income is considered earned when
goods or merchandise are fully
delivered.
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ACCRUAL
CONCEPT
It requires that income be recorded
when earned regardless of whether cash
is received and expense be recognized
when incurred regardless whether
payment is made.

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MATCHING
CONCEPT
This concept states that all expenses
incurred to generate revenues must be
recorded in the same period that the
income are recorded to properly
determine net income or net loss of
the period.

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COST
CONCEPT
It assumes that the assets are acquired in
business transactions conducted at arm’s
length transactions (transactions
between a buyers and a seller at the
fair value prevailing at the time of
transaction).

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GOING CONCERN
CONCEPT
It assumes that the business is to
continue its operations indefinitely.
The business will stay in operation for
a period of time sufficient to carry out
contemplated operations, contracts
and commitments.

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CONSERVATISM
CONCEPT
It assumes that when uncertainty
exists, the users of financial statements
are better served by understatement
than overstatement of net income and
assets.

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DISCLOSURE
CONCEPT
All relevant and material events affecting
the financial condition/position of a
business and the results of its operations
must be communicated to users of
financial statements.

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MATERIALITY
CONCEPT
An item/event is considered material if
knowledge of it would influence the
decision of prudent users of financial
statements.

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CONSISTENCY
CONCEPT
It states that once a method is adopted, it
must not be changed from year to year
to allow comparability of financial
statements between years and between
businesses.

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ORGANIZATIONS THAT AFFECT
ACCOUNTING PROFESSION
Philippine Institute of Certified Public Accountants
Financial Reporting Standards Council
Auditing and Assurance Standards Council
Professional Regulations Commission
Board of Accountancy
Securities and Exchange Commission
Bangko Sentral ng Pilipinas
Commission on Audit

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BASIC PROFESSIONAL
VALUES AND BUSINESS
ETHICS
Ethical values provide the foundation on
which a civilized society exists.
The purpose of ethics is to direct
businessmen and women to abide by the
code of conduct that facilitates, if not
encourages, public confidence in their
products and services.
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FUNDAMENTAL
ETHICAL PRINCIPLES
Professional behavior
Professional competence and due care
Objectivity
Integrity
Confidentiality
Independence

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BOOKKEEPING 01

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THANK