Patrick John Rifil

BSOA 2-3N

Discussion Questions

1. Define Accounting.
2. Describe accounting as an information system.
3. What are the three forms of business organizations? Explain each.
4. What are the three types of business as to operation? Describe each.
5. Explain Generally Accepted Accounting Principles (GAAP). Mention at least five
Generally Accepted Accounting Principles and explain each.
6. What is meant by Business Entity concept?
7. Differentiate accounting from bookkeeping.
8. What are the specialized field in accounting? Explain each.
9. Who are the users of financial information? Why do they need said information?
10. What are the basic financial statements? Explain each.
11. What are the basic elements of financial statements?
12. What are assets? Give examples.
13. What are liabilities? Give examples.
14. What is capital?
15. What are revenues? Give examples.
16. What are expenses? Give examples.

Answers:

1. Accounting is a service activity. It is the process of recording financial

transactions pertaining to a business. Its function is to give quantitative
information, primarily financial in nature, and about economic entities. It is also
defined as an art of recording, classifying, and summarizing.
2. Accounting as an information system involves collecting, storing, and processing
of financial and accounting data that are used to report information. It is also
described as measuring of business activities, processing information into reports
and communicating the reports to decision makers.
3. The three forms of business organizations are Sole Proprietorship, Partnership,
and Corporation. Sole Proprietorship is defined as a business owned and
managed by only one person. Partnership is defined as a business owned by two
or more person whose owners are called partners who agreed to manage the
business. Corporation is a legal entity owned by people that are called as
shareholders or stockholders.
4. The three types of business as to operation are Service, Merchandising, and
Manufacturing. Service business is a type of business that renders services or
provides products to its customers or clients for a fee. Merchandising is a
 business that buys products and sells it for a profit. Manufacturing is a business
that produces products from raw materials and unassembled parts and sells it.
5. General Accepted Accounting Principles or GAAP are a set of accounting rules
that is used for financial reporting. The purpose of GAAP is to ensure a
transparent financial reporting and a consistent from one organization to other
organization. Business Entity Concept is a principle that treats the business entity
as a separate and distinct from its owner/s and from other business entities.
Going Concern or Continuity Assumption is a principle that assumes that any
organization will continue to operate for an indefinite period of time. Time Period
Assumption is a principle that requires the company to divide its activities into
time periods to make and prepare financial reports to make decisions. Unit of
Measurement Assumption is an assumption that the company should use a
standard monetary unit for its financial statements and business economic
activities for an effective reporting of a company’s financial information. Matching
Principle is a principle that is relative to the expense recognition principle which
requires that costs and expenses incurred in generating the revenue should be
properly matched against the related revenue in determining the net income or
net loss for the period.
6. Business Entity Concept is Generally Accepted Accounting Principle that treats
the business entity as a separate and distinct from its owners from other
businesses. This concept is important because is it limits the economic data in
the accounting system to data related to the activities of the business.
7. The difference between accounting and bookkeeping are accounting uses the
information that are provided by bookkeeping to prepare financial reports and
statements while bookkeeping records, categorizes and provides daily payments
and other activities made by the business.
8. The specialized accounting fields are public accounting, financial accounting,
government accounting, management accounting, and tax accounting. Public
Accounting focuses in investigating the financial statements and supporting
accounting systems of companies to provide transparent financial statements.
Financial Accounting is concerned in collecting financial information and making
it into financial reports. This requires detailed knowledge about accounting
framework. Government Accounting uses a unique accounting framework to
create and manage funds, from which cash is disbursed to pay for a number of
expenditures related to the provision of services by a government entity.
Management Accounting focuses in accumulating accounting information for
internal operation reporting. Tax Accounting is concerned with the proper
compliance with tax regulations, tax filings, and tax planning to reduce a
company’s tax burden in the future.
9. The users of financial information are Customers, Employees, Governments and
their Agencies, Financial Analysts and Advisors, Investors, Creditors and
Suppliers, Management, Owner/s of the firm, and Trade Association. They need
 the financial information to access the company’s financial information about its
expenses, revenues, debt, and its profitability.
10. The five basic financial statements are the Statement of Comprehensive Income,
Statement of Financial Position or the Balance Sheet, the Statement of Changes
in Owner’s Equity, Statement of Cash Flows, and the Notes to the Financial
Statement. Statement of Comprehensive Income is the financial statement that
shows the summary of the company’s revenue and expenses for a given period.
This statement shows if the company gain a profit or incur a loss. The Statement
of Financial Position or the Balance Sheet is a financial statement that shows the
lists of company’s assets, liabilities, and owner’s equity as of a specific date. It is
usually at the close of the last day of a month or a year. Statement of Changes in
Owner’s Equity or the Capital Statement is the summary of changes in the
owner’s equity that have occurred during a specific period of time, such as a
month or a year. Statement of Cash Flows provides information about the cash
receipts and cash payments of an entity for a given period of time. Recorded in
this statement are the sources of cash and the uses or disbursements made by
the company. Notes to the Financial Statement is a statement that is presents
the significant accounting policies and other related explanatory notes that is
affecting and affected the preparation of financial statement in narrative form.
11. The basic elements of financial statements are Assets, Liabilities, Capital,
Revenue or Income, and Expenses.
12. Assets are defined as resources controlled by the enterprise as a result of past
transactions and events and from which future economic benefits are expected to
flow to the enterprise. In Layman’s language, assets are the properties owned by
the business. The examples of assets are Cash, Accounts Receivable, Notes
Receivable, Merchandise Inventory, PLE or Property, Land, and Equipment,
Prepaid Expenses, and Intangible Assets.
13. Liabilities are defined as obligations of a company or business made from past
transactions or events. In simple terms, liabilities are the financial obligation or
debt of a business. Example of liabilities are Accounts Payable, Notes Payable,
Mortgage Payable, Unearned Revenue, and Accrued Expenses.
14. Capital represents the equity or claim of the owner on the assets of the business.
It is the residual interest in the assets of the business after deducting all its
liabilities. The capital account consists of Owner’s Equity and Owner’s Drawing.
15. Revenue or Income is the gross inflow of economic benefits during the period in
the form of inflows or enhancements on assets or decrease in the liabilities that
resulted in increase in equity. The examples of revenue are Sales, Service
Revenue, Rent Income, Commissions Earned, and Professional Fees.
16. Expenses are defined as the gross outflow of economic benefits during the
period in the course of ordinary activities when these outflows result in decrease
in equity other than those relating to distribution to owners. In simple terms,
expenses are costs incurred to produce revenue. The example of expenses are
Rent Expense, Advertising Expense, Repair and Maintenance, and Salaries and
Wages Expense.