Chapter 3 – Users of Accounting

Information
 ?
Who uses accounting
information?
 ?
What type/kind of
financial statements are
available for these
users?
 Users of Accounting Information

 External Users – those who make their decisions

based on the company’s financial information.
1. Potential investors: need information to help them
decide whether they should invest or not in the
business.
2. Creditors and potential creditors: they assess the
credit worthiness and the capability of the business to
pay its obligation including the related interests on
maturity date.
 Users of Accounting Information
 External Users – those who make their decisions
based on the company’s financial information.
3. Customers: they assess the financial position of their
suppliers which is necessary for them to maintain a
stable source of supply in the long term.
4. Suppliers: they use the financial statements of their
customers to determine whether the debts owed to
them will be paid when due or whether the customer
has enough funds or resources to pay the goods to be
delivered or the service to be rendered.
 Users of Accounting Information
 External Users – those who make their decisions
based on the company’s financial information.
5. Tax authorities: they use financial reports to
determine the credibility of the tax returns filed on
behalf of the company.
6. Regulatory bodies: they want to ensure that the
company’s disclosure of accounting information is in
accordance with the rules and regulations set in order
to protect the interest of the stakeholders who rely on
such information
 Users of Accounting Information
 External Users – those who make their decisions
based on the company’s financial information.
7. Academe: members of the academe (e.g. professors,
researches, students) benefit from the accounting
information in financial statements of a company.
8. Public: they use the financial information to know
how the business helps the economy and whether
employment is available in the company.
 ?
In your own opinion,
which external user
benefits the most from
accounting information?
 ?
Who are the internal
users of accounting
information?
 Users of Accounting Information
 Internal Users – those who make decisions that affect the
internal operations of the company.
1. Management: composed of employees within the company
that can implement decisions affecting the company’s
operations. They plan, organize, and run a business.
2. Employees: they are concerned with the company’s
profitability and stability.
3. Owners: they provide the capital to the business. It will
help them decide whether they would withdraw or increase
their investments.
 ?
What do you think is the
importance of
accounting information
to the employees of a
company?
Chapter 4 – Forms of Business
Organization
 ?
What is a business?
What is a business?
 A business is an organization that utilizes resources
and information, supplying the wants and needs of
the customers through goods or services, in
exchange for money or giving back a different kind
of goods or services.

 Businesses are organizations commonly made to

earn profit
 ?
What is a sole
proprietorship?
Forms of Business
 According to ownership:
1. Sole Proprietorship
A business that is owned by only one individual for the
practice of trade or profession. It is the simplest and
least costly form of ownership among other forms
of business. Owners enter into contract under their
own names.
Forms of Business
Advantages of a Sole Proprietorship
 Ease of formation.
 The owner has full control of the business.
 Owners can mix personal and business assets.
 Owners have all the profit for themselves.
 Simple taxation.

Disadvantages of a Sole Proprietorship:

 Unlimited liability
 Difficulty of raising additional capital
 Owner’s bias
 ?
What is a partnership?
Forms of Business
 According to ownership:
2. Partnership
 A partnership is a business that is owned by two or
more individuals pooling their resources together to a
common fund.
 A contract whereby two or more persons bind
themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the
profits among themselves. (Title IX of the Civil Code
of the Philippines)
Forms of Business

General Features of a Partnership:

1. Separate legal existence: can likewise be defined as
an artificial being created by operation of law. This
results in partnership having juridical personalities
separate and distinct from their owners (called
partners).
Forms of Business
General Features of a Partnership:
3. Unlimited liability: partners are still liable for debt
and obligations that cannot be paid by the
partnership assets. Like in a sole proprietorship ,
creditors and other parties can go after the personal
assets of the partners when partnership assets are not
enough to satisfy their claims.
4. Limited life: the life of the partnership can be easily
ended through partnership dissolution or liquidation.
Forms of Business
General Features of a Partnership:
5. Co-ownership of partnership property: Once a
partner has contributed his or her money and/or
property, it does not belong to him or her anymore.
6. Partnership agreement: the law define partnership
as a contract hence, contracts are perfected through
oral or written agreement/contract.
Forms of Business
General Features of a Partnership:
This written contract is called the articles of partnership, and it
contains the following information:
a. Name of the partnership
b. Location of the principal office of the partnership
c. The names, citizenship, and residence of the partners
d. Terms for which the partnership is to exist
e. The purpose for which the partnership is formed
f. Original capital contribution of the partners
g. Profit and loss sharing agreement
 ?
What is a corporation?
Forms of Business
 According to ownership:
3. Corporation
 A business required to have five to fifteen
incorporators (those who originally formed the
corporation).
 “An artificial being created by operation of law,
having the right of succession and the powers,
attributes, and properties expressly authorized by
law or incident to its existence.”
Forms of Business
The definition of a corporation emphasizes four things:
1. A corporation is an artificial being. It means that it is
an entity separate and distinct from its owners.
2. A corporation is created by operation of law.
Individuals cannot form a corporation by themselves.
The law must play a role information.
3. A corporation has the right of succession. Ownership
rights can be passed to other person.
4. The law is the source of the powers and attributes of a
corporation. Being the source, the law can likewise
restrict the authority of corporation in performing acts.
Forms of Business
General features of a Corporation:
1. Separate legal existence
2. Limited liability
3. Transferable ownership rights
4. Virtually unlimited life
5. Corporation management
6. Government regulations
7. Double taxation
8. Dividends
Forms of Business
 According to ownership:
4. Cooperative
 “A duly registered association of persons, with a
common bond of interest, who have voluntarily
joined together to achieve a lawful common social
or economic end, making equitable contribution to
the capital required and accepting a fair share of the
risks and benefits of the undertaking in accordance
with universally accepted cooperative principles”
 ?
What is a cooperative?
Forms of Business
 According to ownership:
4. Cooperative
 A business owned by a group of individuals who
also serve as benefactors to the business endeavor.
Usually requires fifteen (15) members to function
 ?
What are the form of
business according to
activities?
Forms of Business
 According to Activities:
1. Service Business
Focus on providing intangible products, such as offering
professional skills, proposals, and expertise.
Examples: Accounting firms, law firms, hair salons,
spas, repair shops, etc.
Forms of Business
 According to Activities:
2. Merchandising Business
Commonly known as the “buy and sell” business.
Products are bought from manufacturers or other
merchandisers and are sold as is at an amount
higher than the purchase price.
Examples: grocery stores, department stores, and drug
stores
Forms of Business
 According to Activities:
3. Manufacturing Business
Type of business wherein materials are bought to create
a new products.
Examples: food factories, garment factories, and car
manufacturing companies.