Gambing, Chermae Shane Fe B.

Bachelor of Science in Accountancy – 1

Review on Accounting 1

Assignment No. 1 – Introduction to Accounting

1. Definition of Accounting
Accounting is the systematic process of identifying, recording, classifying, summarizing,
and interpreting financial information of a business to aid in making economic decisions. It
involves the analysis and reporting of financial transactions to provide relevant information
for internal management and external stakeholders, such as investors, creditors, and
regulatory authorities.

2. Nature of Accounting
Accounting is both an art and a science. It is an art because it requires creativity and
judgment in applying accounting principles to record financial transactions. It is a science
because it follows a systematic and structured approach to analyze and interpret financial
data. Additionally, accounting is dynamic, adapting to changes in economic and business
environments.

3. Functions of Accounting in Business

 Recording Transactions: Accountants record all financial transactions systematically.
 Classification: Transactions are categorized into various accounts for proper
organization.
 Summarization: Financial data is summarized in financial statements like balance
sheets and income statements.
 Interpretation: Accountants analyze and interpret the financial data to provide insights
for decision-making.
 Communication: Accounting information is communicated to stakeholders through
reports and statements.

4. Brief History of Accounting

Accounting has ancient roots, with early records found in civilizations like Mesopotamia
and ancient Egypt. Modern accounting principles were formalized in the 15th century by
Luca Pacioli, an Italian mathematician. Since then, accounting practices have evolved in
response to economic and business developments, leading to the establishment of various
accounting standards and principles globally.

5. Common Branches of Accounting

 Financial Accounting: Focuses on external reporting for stakeholders.
  Managerial Accounting: Provides internal management with financial information for
decision-making.
 Cost Accounting: Deals with analyzing and controlling costs within a business.
 Tax Accounting: Focuses on tax-related matters and ensures compliance with tax
regulations.

6. Users of Accounting Information

 Management: Uses accounting data for planning, decision-making, and controlling
operations.
 Investors: Analyze financial statements to make investment decisions.
 Creditors: Assess a company's financial health before providing credit.
 Government: Uses accounting information for taxation and regulatory purposes.
 Employees: Might use it to assess the financial stability of their employer.

7. Forms of Business Organizations

 Sole Proprietorship: Owned and operated by a single individual.
 Partnership: Business owned by two or more individuals who share profits and
liabilities.
 Corporation: A legal entity separate from its owners (shareholders), providing limited
liability to the owners.
 Limited Liability Company (LLC): Combines features of a corporation and a
partnership, providing limited liability to owners and flexibility in management.

8. Advantages and Disadvantages of Different Forms of Business Organizations:

Sole Proprietorship:
 Advantages: Easy to establish, complete control by the owner, direct tax benefits.
 Disadvantages: Unlimited personal liability, limited access to capital, business
continuity challenges.

Partnership:
 Advantages: Shared responsibilities, more resources and capital, potential for diverse
skills and expertise.
 Disadvantages: Unlimited liability for general partners, potential conflicts between
partners, shared profits.

Corporation:
 Advantages: Limited liability, access to capital markets, perpetual existence,
specialized management.
 Disadvantages: Complex legal requirements, double taxation (on corporate profits and
dividends), potential loss of control for shareholders.
Limited Liability Company (LLC):
 Advantages: Limited liability, flexible management structure, pass-through taxation,
fewer regulatory requirements.
 Disadvantages: Complexity in formation, potential for disputes among members,
specific regulations vary by jurisdiction.