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Accounting- it is the process of - Financial Statements is the most

identifying, recording, and common form of accounting report.
communicating economic information that
Nature of Accounting- Accounting is a
is useful in making economics decision.
process with the basic purpose of
a. Identifying- accountant analyzes providing information about economic
each business transaction and activities that is intended to be useful in
identifies whether the transaction is making economic decision.
“accountable event” or “non-
Types of Information Provided by
accountable event”
accounting
- Accountable Event- are recorded
in the books. It has also effect in 1. Quantitative Information-

the asset, liabilities, equity, income information expressed in numbers,

or expenses of a business quantities, or units

- Non-accountable Event- not 2. Qualitative Information-

recorded in the book information expressed in words or

b. Recording- accountant recognizes descriptive forms.

the identified “accountable 3. Financial Information-

events”. This process is called information expressed in money. It

“journalizing” is a quantitative information

- After journalizing accountant because monetary amount are

classifies the effect of the event on normally expressed in numbers.

the “accounts” and it is called Accounting as science and art

“posting”
1. As social science, accounting is a
- Account- the basic storage of
body of knowledge which has been
information in accounting e.g.
systematically gathered, classified
cash, land, sales, etc.
and organized
c. Communicating- at the end of
2. As practical art, accounting
each accounting period accountant
requires the use of creative kills
summarizes the information
and judgment.
processed in the accounting system
in order to produced meaningful
reports.
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Accounting as an information system 2. To provide internal users, with

information that is useful in
- It is one that consists of an input, a
managing business.
process, an output.
- In accounting system, the inputs Users of Accounting Information
are the identified accountable
1. Internal Users- directly involved
events; the process are recording,
in managing the business
classifying, and summarizing; and
a. Business owners
the output is the accounting report
b. Board of directors
that is communicated to the users.
c. Managerial personnel
Bookkeeping- process of recording the 2. External Users- not directly
accounts or transactions of an entity. involved in managing the business.
a. Existing and potential investors
- It is normally end with the
b. Lenders and creditors
preparation of trial balance.
c. Government agencies
- It does not require interpretation of
d. Non-managerial employees
the significance of the information
e. Customers
processed.
f. Public
Accounting- it covers whole process of
Types of Accounting Information
identifying, recording, and communicating
Classified as to Users’ Needs
information to interested users.
1. General Purpose accounting
Function of Accounting in Business
information- information designed
- It is often referred as the to meet the common needs of most
“language of business” because it statement users. It is provided by
is fundamental to the financial accounting and it is
communication of financial prepared primarily for external
information. users.

Two Board Function in a Business 2. Special Purpose accounting

information- information designed
1. To provide external users, with
to meet the specific needs of
information that is useful in
particular statement users. It is
making, among others, investment,
provided by management
and credit decision.
accounting or other branches of
 CHAPTER 1

accounting and is prepared primitive as the concept of equality

primarily for internal users for entries was absent.
- Double entry records first came
Brief History of Accounting
out during 1340 A.D. in Genoa
- Accounting can be traced as far
1494
back as the prehistoric times,
perhaps more than 10,000 years - First systematic record keeping
ago ago, methods of recording dealing with “double entry
keeping, and accounting have been recording system” was formulated
invented. by Fra Luca Pacioli, a Franciscan
monk and mathematician.
Early 8500 BC- accounting has already
- Double entry recording system
existed.
wash included in Pacioli’s book
- Archeologist have found clay titled “Summa di Arithmetica
tokens as old as 8500 BC in Geometria Proportioni and
Mesopotamia which were usually Proportionista” published on
cone, disks, spheres and pellets. November 10,1494 in Venice.
- These tokens corresponds to - Double entry recording is being
commodities like sheep, clothing or used to this day
bread. They were used in Middle - Fra Luca Pacioli is considered as
West in keeping records. the father of modern accounting
- Other ancient civilizations keeping
account records are Babylonia,
Egypt, China and Greece Common Branches of Accounting
- In middle ages (13th and 15th
1. Financial Accounting- focuses on
Centuries), trade flourished in
general purpose of financial
places such as Florence, Venice
statements.
and Genoa. This has brought
advancement in account keeping NOTE: the general purpose financial

methods statements are those statements that cater

- In 1211 A.D. one of the systems in to the common needs of external users

accounting was kept by Florentine - It is governed by the Phil. Financial

banker. However, the system was Reporting Standards.
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- Focuses on the information needs understand their impact on

of external users. decisions
2. Management Accounting-
involves the accumulation and
communication of information for Forms of Business Organization

use by internal users. A business is an activity where

- Focuses on the information needs goods or services are exchanged for
of internal users. money. A person who is engaged in
3. Government Accounting- refers business is called entrepreneur or
to the accounting for government businessman.
and its instrumentalities, focusing
1. Sole Proprietorship- owned by
attention on the custody of public
only one individual. It is the
funds.
common and simplest form of
4. Auditing- involves inspection of
business organization
an entity’s financial statements or
business process ascertain their Requirement: Registered with the DTI
correspondence with an established
2. Partnership- owned by two or
criteria.
more individuals who entered
5. Tax Accounting- the preparation
contract (verbal or non-verbal) to
of tax returns and rendering of tax
carry on the business and divide
advice.
among themselves the earnings.
6. Cost Accounting- systematic
Formation & Requirement: Formed by
recording and analysis of costs of
contractual agreement.
materials, labor, and overhead
incident to the production of goods - Registered with the Securities and
or rendering of services. Exchange Commission
7. Accounting Education- refers to 3. Corporation- owned by more than
teaching accounting and one individual. It is created by
accounting-related subjects in an operation of law.
organized learning environment. - Ownership in corporation is
8. Accounting Research- pertains to represented by share of stocks. The
the careful analysis of economic owner’s are called shareholders or
events and other variables to stockholders (incorporators).
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Note: A corporation is an artificial being - Registered with the Cooperative

or a juridical person, meaning in the eyes Development Authority.
of the law, a corporation is like a person,
separate from its owners.
Types of Business According to
- Incorporators of a corporation
Activities
shall not be less than 5 but not
more than 15 individuals. 1. Service Business- offers service as

However, a corporation can have as its main product rather than

many stockholders as its authorized physical goods.

capitalization permits. 2. Merchandising- or trading

business
Formation & Requirement: Formed by
- one that buys and sells good
operation of law.
without changing their physical
- Registered with the Securities and form.
Exchange Commission 3. Manufacturing- is one that buys
4. Cooperative- owned by more than raw materials and processes them
one individual. The owners of into final products.
cooperative are called members.
- From the root word “cooperate”, is
an association of individuals who
joined together to contribute
capital and cooperate in order to
achieve certain goals.
- Cooperative is similar to
corporation because it has juridical
personality.
- Cooperative shall not be less than
15 individuals. However, a
cooperative can have as many
members as its by-laws permit.

Formation & Requirement: Formed in

accordance with the Cooperative Code
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4. C
5. C
6. C
7. C

PROBLEMS 8. C
9. D
Problem 1: True or False
10. D
1. True
Problem 4
2. False
3. True 1. D

4. True 2. A

5. True 3. B

6. True 4. C

7. True 5. D

8. True 6. D

9. False 7. C

10. True 8. A
9. C
Problem 2: True of False
10. D
1. True
Problem 5
2. False
3. True 1. A

4. True 2. B

5. False 3. B

6. True 4. D

7. True 5. A

8. False 6. A

9. False 7. D

10. True 8. A
9. D
Problem 3
10. A
1. D
2. D
3. A