Chapter 01: Introduction to Accounting – One which buys

merchandise and sells at a higher

Forms of Businesses
price.
1.Sole Proprietorship 3. Manufacturing Business
- Set-up and managed by one-person. – One who buys raw
o Advantages: materials, process these into
- Small amount of capital finished goods then sells to
- Managed easily customers.
- Gets all the profits Accounting as a Business Language
- Ease in formation
o Disadvantages: - Defined as a service activity whose
- Difficult to expand function is to prepare financial report
- No indefinite life that will provide relevant information
- Unlimited liability about the business.
2.Partnership - A process of recording, classifying, and
– Owned by two or more persons called summarizing transactions and even
partners who contribute money, property & which are financial in nature and
talent. interpreting results thereof.
o Advantages:
Users of Financial Information
- Ease in formation
- More efficient because of division 1. Investors / Owner (E)
of responsibilities – One who puts in capital.
o Disadvantages: 2. Manager (I)
- No indefinite life – One who is responsible for running the
- Unlimited Liability business.
3.Corporation 3. Lender / Creditor (E)
– Organized as a separate legal entity – Assess the paying ability of the
managed by the Board of Director elected by business-borrower by reading financia
the shareholders. reports.
o Advantages: 4. Supplier (E)
- More Capital – Offers goods or merchandise on cash
- Can afford to hire experts basis or credit term.
- Perpetual Existence 5. Government (E)
- More stable – Through its tax agent, Bureau o
- Higher amounts of profits Internal Revenue (BIR), investigates tax
- Allows a one-man corporation returns and assess truthfulness of the
o Disadvantages: reported profit.
- Has no unlimited liability 6. Employee (Prospect / E)
- More legal and tax requirements – Assess the ability of the business to
- Abuse of Power grant demands. A losing business
cannot afford to give salaries and
benefits
7. Customer (E)
Types of Business Operation – Assess the company’s ability to
continuously supply the goods at the
1. Service Business
right price and quality.
– One which provides
service for a fee Accounting Information System (AIS)
2. Merchandising Business
 o Can be classified into two device is used to record data such
measurements: as pen or keyboard. Data input is
- Measurement System (Processing called journal entry, then
Phase) - Involves analyzing, organized and classified to group
measuring, recording, classifying, to be transferred to ledger.
and summarizing. - Phase 3: Classifying, Storing &
- Communication System Summarizing:
(Reporting & Communicating - Phase 4: Reporting & Interpreting
Phase) – presentations and - Phase 5: Decision Making
decisions.
Financial Reports
AIS Principles
1. Income Statement
1. Control Principle – AIS must have - Shows how wealth is produced by
good internal control. listing the revenues and expenses.
- Internal Control enumerates the Also called the Profit & Loss
methods and procedures necessary Statement.
to monitor the activities of the - Profit (loss) increases (decreases)
business. assets & equity
2. Cost-Benefit Principle – prescribes 2. Statement of Changes in Owner’s
that the advantages enjoyed from Equity
installing the system must outweigh - Shows how and why net worth
its cost. changed by listing the activities
3. Relevance Principle – Information that caused to (de) increase
must be reported promptly and that - Four activities affecting:
information must be useful to enable  Investing – increases
statement users to reach a equity and net worth
conclusion.  Withdrawal or recovery of
4. Compatibility Principle – System is capital – decreases equity
designed to fit unique characteristics  Profit or Loss
of the company 3. Statement of Cash Flows
5. Flexibility Principle – Company’s - What cause the change in cash.
system should allow for changes, if - Inflows: investments & sales
needed, to come up with the timely - Outflows: purchases and payments
and updated information in response - Three activities: Financing
to demand. (investment of owner & cash
loan); Investing (Acquisition and
Components of AIS sale of properties) and; Operating
- Involves people, documents, (revenues and expenses)
records, and methods and 4. Statement of Financial Position
equipment. - Formerly Balance Sheet
- Phase 1: Data Gathering – - Shows how healthy or robust a
Evidences of business transactions business the enterprise when it
such as business documents (OR, shows the accumulated resources
Cash Voucher, Invoice. Internal and liabilities
control is required. - Also shows whether the enterprise
- Phase 2: Analyzing, Measuring & is solvent or liquid
Recording (Bookkeeping) – Books
of Accounts must be maintained
by the Accounting Dept., input
Chapter 02: The Demand of Global E- 3. Government Accounting
Commerce - Non for Profit Accounting
- Budget officer or analyst of
Qualities to be Globally Competitive
government agencies, universities,
1. Effective Communication Skills religious organizations.
- Able to read, write and speak - BIR, BSP, GSIS, etc.
good English 4. Research and Education
- Role of a teacher, reviewer, or
2. Integrity researchers.
- Possessing a sterling character, or - All accounting subjects for BSA
being trustworthy, and of being should be handled by CPAs only.
always on the right side.
Professional Regulatory Bodies
3. Positive Attitude
- Pleasant disposition, exert effort. o Professional Regulation
You must believe in yourself Commission (PRC) – In charge of
4. Competency regulating and licensing the
- Ability to perform well each task practice of a profession.
or function assigned to you. o Board of Accountancy (BOA-
5. Flexible and Adaptable BOARD) – Set-up and
- Aware of the changes taking place promulgate a set of professional
in the environment and accept standards and ethics in the
these and adjust accordingly practice of Accounting Profession
6. Creative and Innovative o Philippine Institute of Certified
- Open to new ideas and appreciate Public Accountants (PICPA) –
viewpoint of others National organizations of CPAs
7. Critical Mind with three sets of accounting
- Identify and define clearly the standards (1) PFRS, (2) PAS, (3)
problem. evaluate options and Interpretation
choose the best
8. Interpersonal Skills
- Organize and delegate tasks and Chapter 03: Analyzing Business
to withstand and resolve conflicts Transactions
9. Intellectual Skills
- Analytical thinker, problem solver Financial Structure of a Business
and decision maker.
o Financial Position – Assets,
Career Opportunities in Accounting Liabilities & Equity
o Financial Performance – Revenues
1. Public Accounting
& Expenses
- Expert services like bookkeeping,
auditing, tax. Popular national Assets
firms include, SGV&Co., Araullo
and Company, Manabat Delgado - Economic resources obtained by
Amper & Co., and others the enterprise as a result of past
event and from which probable
2. Industry Accounting future economic benefits.
- Also called Private Accounting Liabilities
- Employed as Financial
accountant, budget officer, - Economic Obligation to do or pay.
internal auditor May be defined as the debts of the
 business owing to the outside  Materiality – decision
parties. based on nature and size
- Present obligation arising from the  Timeliness – Promptness
past events or within the period
needed
Equity
o Reliability – information is
- Residual Rights or interest of the objective, free from errors or
owner(s) in the enterprise’s assets. misstatements
 Faithful Representation –
Accounting Equation information represents
ASSETS = LIABILITIES & faithfully what the
EQUITY purport to be

The Account  Neutrality – information

should be for all users
- Record the increase and decrease
in the accounting elements
 Prudence – exercise
Demonstration Problem: caution when using
estimates or information
1. Assets Invested by owner: A, marked uncertainty.
inc.; E, inc.
2. Cash borrowed from bank: A,
inc.; L, inc.
3. Asset purchased for cash:
Furniture (A), inc.; cash (A),
inc. Total Assets remain.
4. Purchased on Account:
Furniture (A), inc.; L, inc.
5. Cash withdrawals: Cash (A),
inc.; E, dec.
6. Payment of Liability: Cash (A),
dec.; L, dec.
Statement of Financial Position
- List of Assets, Liabilities and
Equity
- Used to determine liquidity and
solvency of business.
- Formerly Balance Sheet (PAS 1
revised in 2007)
Qualitative Attributes
o Understandability – reason-able
knowledge, terminologies must be
clear, report are in order
o Relevance Principle – the quality of
information that will make a
difference and influenced statement