Bill Gates (richest

man in the world)

Net Worth: $79.2B

Source of wealth:
Microsoft
Carlos Slim Helu
from Mexico –
net worth $77.1B
Source wealth:
telecom
What is accounting?
 is a
Accounting Identifies
system that

Records

information
Relevant Communicates
that is

Reliable
to help users make
Comparable better decisions.
 Identifying  Recording
Business Business
Activities Activities

Communicating
Business
Activities
– means the recognition or non-
recognition of “accountable”
events.
 An event that has an effect on assets,
liabilities and equity.

 Only economic activities are emphasized and

recognized in financial accounting.
– is the process of determining the
monetary amounts at which the
elements of the financial statements
are to be recognized and carried in
the balance sheet and income
statement.
 - the process of preparing and distributing
accounting reports to potential users of
accounting information.

 It is for this reason that accounting has been

called the “language of business”.
 It is the art of recording, classifying,
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.
 Art – language of business – medium of
communication between the firm and
stakeholders

 “Science” – a systematized body of

knowledge
 RECORDING
What Journalizing & Committing
to writing business
transactions
Where Books of Accounts – Journal
and Ledger Books
How Systematically and
chronologically
 Classifying

What Classifying into asset,

liability and owner’s
equity
 Summarizing

What Preparation of Financial

Statements – Financial
Position, Financial
Performance, Changes
in Owner’s Equity, Cash
Flows
What Preparation of Financial
Statements – Financial
Position, Financial
Performance, Changes
in Owner’s Equity, Cash
Flows
 Interpreting

What Knowing the

profitability, stability,
managerial
effectiveness and
growth potential of the
company
 The basic purpose of accounting is
to “provide quantitative financial
information about a business that
is useful to statement users
particularly owners and creditors,
in making economic decisions.”
 Sole Proprietorship
 Partnership
 Corporation
 Cooperative
 This business organization has a single
owner called the proprietor who generally is
also the manager.

 Sole proprietorships tend to be small service-

type (e.g. physicians, lawyers, and
accountants) businesses and retail
establishments.
 It is a business owned and operated by two
or more persons who bind themselves to
contribute money, property, or industry to a
common fund, with the intention of dividing
the profits among themselves.

 Each partner is personally liable for any debt

incurred by the partnership.
 It is a business owned by its stockholders.

 It is an artificial being created by operation

of law, having the rights of succession and
the powers, attributes and properties
expressly authorized by law or incident to its
existence.
 It is a business that is exempted from
taxation.

 The owners are called members.

Proprietorship Partnership Corporation Cooperative

1. one owner 1. two or more 1. unlimited 1. unlimited

owners owners owners

2. unlimited 2. unlimited 2. limited liability 2. limited liability

liability for liability for the of the of the members
unpaid debts partnership stockholders for of the
debts corporate debts cooperative’s
debts
3. owner 3. there is a 3. management 3. management
manages the managing is vested in the is vested in the
business partner board of board of
directors (BOD) directors (BOD)
 entities that provide services to customers

(e.g. schools, insurance companies, accounting

or law firms, repair shops, transportation
companies, etc.)
 – entities that purchase products from other
businesses and sell them to customers (e.g.
retailers, wholesalers, groceries, department
stores, hard wares, drugstores, etc.)
 – entities that convert raw materials into
finished products which are sold to customers

(e.g. manufacturer of food, clothing,

medicines, toys, furniture, fixtures,
equipments, etc.)
 These are the basic notions or fundamental
premises on which the accounting process is
based.

 Accounting assumptions are also known as

postulates.
 Ground rules that govern how
accountants measure, process and
communicate financial information
 Financial accounting practice is governed by
concepts and rules known as generally accepted
accounting principles (GAAP).

Relevant Affects the decision of

Information its users.

Reliable Information Is trusted by users.

Comparable Is helpful in contrasting

Information organizations.
 Financial Accounting
Standards Board is the private
group that sets both broad and
specific principles.

The Securities and Exchange Commission is

the government group that establishes
reporting requirements for companies that
issue stock to the public.
 Objectivity Principle Cost Principle
Accounting information is Accounting information is
supported by independent, based on actual cost.
unbiased evidence.

Now Future
Going-Concern Principle
Reflects assumption that the
business will continue operating
instead of being closed or sold.

Monetary Unit Principle
Express transactions and events in
monetary, or money, units.
Business Entity Principle
A business is accounted for
separately from other business
entities, including its owner.
Revenue Recognition Principle
1. Recognize revenue when it is
earned.
2. Proceeds need not be in cash.
3. Measure revenue by cash
received plus cash value of items
received.
 It requires that “the indefinite life of an entity
is subdivided into time periods or accounting
periods which are usually of equal length for
the purpose of preparing financial reports on
financial position, financial performance and
cash flows”.
 Quality of information assures
users that the information is free
from bias and faithfully
represents what it purports to
represent
 Income is recognized when
earned regardless of when cash
is received
 Expense is recognized when
incurred regardless of when paid
 Costs and expenses incurred in
earning a revenue should be
reported in the same period
 Money is used as the unit of
measure

Quantifiability – measurable in
terms of cash
Stability – stable or constant
 Significant and relevant
information in the preparation of
financial statements should be
clearly reported
 When items are not significant
enough to affect the fairness of
the financial statement, strict
adherence to GAAP is not
required
 Also known as doctrine of
convenience
 Methods and practices should be
applied on a uniform basis from
period to period
 When alternative exist, the
alternative which has the least
favourable effect on owner’s
equity should be chosen
 primary users

 other users
 -are the parties to whom general purpose
financial reports are primarily directed.

1. Existing and potential investors are

concerned with the risk inherent in and return
provided by their investments.
2. Lenders and other creditors

Existing and potential lenders and other

creditors are interested in information which
enables them to determine whether their
loans, interest thereon and other amounts
owing will be paid when due.
 - are users of financial information other than
the existing and potential investors, lenders
and other creditors.
 They are parties that may find the general
purpose financial reports useful but the
reports are not directed to them primarily.
1. Employees are interested in
information about the stability and
profitability of the entity.
 2. Customers have an interest in information
about the continuance of an entity especially
when they have a long-term involvement
with or are dependent on the entity.
3. Government and their agencies are
interested in the allocation of resources and
therefore the activities of the entity.

 These users require information to regulate

the activities of the entity, determine
taxation policies and as a basis for national
income and similar activities.
 Public. Entities affect members of the public
in a variety of ways.

 Financial statements may assist the public by

providing information about the trend and
the range of its activities.
 Public Accountants – serve the
general public and collect
professional fees for their work;
includes auditing , income tax
planning ; consulting
 Private Accountants – works for
a single business or a career in
education or research
 Certified Public Accountant (CPA)
-professional accountant who earns his
title through education, qualifying
experience and acceptance in the
written national examination by the
Board of Accountancy
-must be of good moral character and
practices according to the code of
professional conduct
 The elements directly related to the
measurement of financial position are
assets, liability and equity.

 The elements directly related to the

measurement of financial performance are
income and expenses.
 Assets are defined as “resources controlled
by the entity as a result of past transactions
or events and from which future economic
benefits are expected to flow to the entity”.
 Controlled by the entity
 Result of a past transaction or event
 Provides future economic benefit
 Cost of an asset that can be
measured reliably
 Liabilities are “present obligations of the
entity arising from past transactions or
events the settlement of which is expected to
result in an outflow from the entity of
resources embodying economic benefits”.
 Present obligation
 Arises from past transactions or
events
 Settlement of liability requires
an outflow of resources
embodying economic benefits
 Equity is the “residual interest in
the assets of the entity after
deducting all of its liabilities”.
 Excess of assets over liabilities
 Income is “increase in economic benefit
during the accounting period in the form of
an inflow or increase of asset or decrease of
liability that results in increase in equity,
other than contribution from equity
participants.”
 Expense is “decrease in economic benefit
during the accounting period in the form of
an outflow or decrease of asset or increase of
liability that results in decrease in equity,
other than distribution to equity
participants.”
 Public Practice
 Commerce and Industry
 Government Service
 Education/Academe.
What are the branches of
Accounting?
 They are concerned with the
provisions and use of accounting
information to managers within
the organization.
 The main purpose of financial
accounting is to prepare financial
reports that provide information
about a firm’s performance to
external parties such as investors,
creditors, and tax authorities.
 Auditing focuses largely on financial
information and the process may
also involve examination of non-
financial documents that would
show information about a business’s
conduct.
 This is the method of accounting
that focuses on tax issues.
 Emphasizes the determination and
the control of costs particularly the
costs of manufacturing processes
and of the manufactured products.
 It mainly focuses on the proper
custody of government funds
and their purposes.
 Gives you an insight into a
company’s compliance issues,
risk assessment, fraud
prevention, corporate
governance, IT auditing, and
many other topics.
 Bookkeeping refers to the process of
accumulating, organizing, storing, and
accessing the financial information base of an
entity
- procedural element of accounting

 Accounting encompasses the problems in

measuring the financial effects of economic
activity.
True or False.
1. A corporation is a business owned by its
stockholders.
2. One characteristics of a corporation is that its
owners are personally liable for any losses
incurred by the business.
3. A separate legal entity organized in accordance
with codes and laws and in which ownership is
divided into shares of stock is referred to as a
corporation.
4. For accounting purposes, a business and its
owner are considered one and the same.
5. The liability of corporate stockholders is
limited to the amount of their investment.
6. The entity concept states that the
transactions of different entities should not
be accounted for.
7. The Philippine accountant considers peso as
the common unit of measure for all business
transactions.
8. Accounting is often characterized as the
“language of business”.
9. A partnership is a business owned and
operated by two or more persons who bind
themselves to contribute money, property or
industry to a common fund, with the
intention of dividing the profits among
themselves.
10. A partnership is always owned by two
individuals.
11. A business transaction is the occurrence of
an event or of a condition that must be
recorded.
12. Accounting is a service activity whose
function is to provide qualitative
information, about economic entities that is
intended to be useful in making economic
decisions.
13. For reporting purposes, the personal assets
and debts of a business owner should be
combined with the assets and debts of the
business.
14. A corporation is an economic unit that is
legally separate from its owners.
15. The owners of a cooperative are called
proprietors.
16. The set of guidelines and procedures that
constitute acceptable practice at a given time is
GAAP, which stands for generally accepted
accounting principles.
17. The terms bookkeeping and accounting are
synonymous.
18. The personal liability of a partner is limited
to the amount of his investment
19. A partnership is always owned by two
individuals.

20. Manufacturing companies buy raw

materials, convert them into products and then
sell the products to other companies or to final
consumers.
1. The basic purpose of accounting is
a. to provide the information that the managers of
an economic entity need to control its operation
its operations.
b. to provide information that the creditors of an
economic entity can use in deciding whether to
make the additional loans to the entity.
c. to measure the periodic income of the economic
entity.
d. to provide quantitative financial information
about an entity that is useful in making rational
economic decision.
2. Continuation of an accounting entity in the
absence of evidence to the contrary is an
example of the basic concept of
a. Accounting entity
b. Time period
c. Going concern
d. Accrual
3. The elements directly related to the
measurement of financial position are
a. assets, liabilities, equity, income and
expenses
b. assets, liabilities, and equity
c. income and expenses
d. assets and liabilities
4. The elements directly related to the
measurement of financial performance are
a. assets, liabilities, equity, income and
expenses
b. assets, liabilities and equity
c. income and expenses
d. sales and cost of sales
5. These are resources controlled by the entity
as a result of past transactions or events and
from which future economic benefits are
expected to flow to the entity.
a. assets
b. liabilities
c. equity
d. income
6. These are present obligations of an entity
arising from past transactions or events the
settlement of which is expected to result in
an outflow from the entity of resources
embodying economic benefits.
a. assets
b. liabilities
c. equity
d. expenses
7. It is the residual interest in the assets of the
entity after deducting all of its liabilities.
a. income
b. expenses
c. net income
d. equity
8. It is an increase in economic benefit during
the accounting period related to an increase
in asset or a decrease in liability that results
in increase in equity other than contribution
from owners.
a. asset
b. liability
c. income
d. expense
9. It is a decrease in economic benefit during
the accounting period related to a decrease in
asset or an increase in liability that results in
decrease inequity other than distribution to
owners.
a. asset
b. liability
c. income
d. expense
10. Which of the following is an appropriate
definition of accounting?
a. the measurement, processing, and
communication of financial information about
an identifiable economic entity.
b. a means of recording transactions and
keeping records
c. the interconnected network of subsystems
necessary to operate business
d. electronic collection, organization, and
communication of vast amounts of information
11. The consistency concept means that
a. Firms in the same industry must account for
similar items in the same way
b. Firms may never change the way in which
they prepare their accounts
c. When preparing the accounts of a firm, one
should normally account for similar items in the
same way from one accounting period to the
next
d. None of the above
12. The financial statements should
be stated in terms of a common
financial denominator
a. Stable monetary unit
b. Accrual
c. Time period
d. Going concern
13. The principle of objectivity includes the
concept of
a. Summarization
b. Classification
c. Conservatism
d. Verifiability.
14. Which accounting process is the
recognition or non recognition of
business activities as accountable
events?
a. Recording
b. Identifying
c. Communicating
d. Measuring
14. Accountants employed by a particular
business firm or not-for-profit organization,
perhaps as chief accountant, controller, or
financial vice president, are said to be engaged
in
a. Practice in commerce and industry
b. Independent accounting
c. Government accounting
d. Public accounting
15. The communication phase of
accounting is accomplished by
a. Storing data
b. Reporting to decision makers
c. Recording data
d. Processing data