HISTORY OF ACCOUNTING An LLC is not incorporated; hence, it is not considered

a corporation. But, the owners enjoy limited liability

In 1458, Benedetto Cotrugli invented the double-entry
like in a corporation. An LLC may elect to be taxed as a
accounting system, which revolutionized accounting.
sole proprietorship, a partnership, or a corporation.
Double-entry accounting is defined as any bookkeeping
Cooperative.
system that involves a debit and/or credit entry for
- A cooperative is a business organization owned by a
transactions.
group of individuals and is operated for their mutual
Luca Bartolomes Pacioli benefit. The persons making up the group are called
members. Cooperatives may be incorporated or
- Father of Accounting and Bookkeeping unincorporated. Some examples of cooperatives are:
- Born in 1445 in Tuscany water and electricity (utility) cooperatives, cooperative
- Italian mathematician and Franciscan monk banking, credit unions, and housing cooperatives.
- invented a system of record keeping that
used a memorandum, journal, and ledger,
wrote many books on accounting.
TYPES OF BUSINESS OPERATIONS
He wrote Summa de Arithmetica, Geometria, Proportioni
1. Service Business
et Proportionalita
- provides intangible products (products with no
("The Collected Knowledge of Arithmetic, Geometry, physical form).
Proportion, and Proportionality") in 1494, which included - offer professional skills, expertise, advice, and
a 27-page treatise on bookkeeping. other similar products.

His book was one of the first published using the historical 2. Merchandising Business
Gutenberg press, and the included treatise was the first - buys products at wholesale price and sells the
known published work on the topic of double-entry same at retail price. They are known as "buy
bookkeeping. and sell" businesses.
One chapter of his book, "Particularis de Computis et - Examples: grocery stores, convenience stores,
Scripturis" ("Details of Calculation and Recording”), on distributors, and other resellers.
the topic of record keeping and double-entry accounting,
became the reference text and teaching tool on those 3. Manufacturing Business
subjects for the next several hundred years. The chapter - buys products with the intention of using them
educated readers about the use of journals and ledgers; as materials in making a new product. Thus,
accounting for assets, receivables, inventories, liabilities, there is a transformation of the products
capital, income and expenses; and keeping a balance purchased. A manufacturing business
sheet and an income statement. combines raw materials, labor, and overhead
costs in its production process.

BUSINESS, ITS MOTIVE AND ROLE IN SOCIETY There are several businesses that are engaged in different
There are other roles that business plays in our society: a type of operations. Example is a hotel business that has a
service provider; product provider; job provider and restaurant inside the hotel. The hotel's primary business
revenue source for the economy. The taxes that these is service for the rooms income, but for the hotel's
businesses pay to the government are being used to restaurant it is a merchandising and manufacturing
construct public schools, hospitals, roads and bridges (processing) type of operations. This type of business that
which improves the lives of its citizen while creating more is engaged in more than one type of operations is called
job opportunities. "hybrid" type of business.

ROLE OF ACCOUNTING IN BUSINESS

Accounting refers to the systematic and detailed DEFINITION OF ACCOUNTING
recording of financial transactions of a business.
- accounting comes from the word “account” which
Accounting is called the “language of business”. is synonymous to a record, narration, or journal.
It is a means of communicating financial information - the word account as a description of facts,
about the business. conditions, or events; and to furnish a justifying
analysis or explanation. (Merriam Webster
dictionary)
FORMS OF BUSINESS ORGANIZATION - “Accounting is a service activity…”
1. Sole Proprietorship - “Its function is to provide quantitative information,
2. Partnership primarily financial in nature about economic
3. Corporation entities…”
- “that is useful in making economic decisions, in
Other types of organizations that are common today: making reasoned choices among alternative courses
Limited Liability Company (LLCs) of action.”
- “the art of recording, classifying, and summarizing
- This is a hybrid form of business that have
in a significant manner and in terms of money,
characteristics of both a corporation and a partnership.
transactions and events which are, in part of least
 financial character, and interpreting the results interested to know the financial soundness of the
thereof.” As financial information is a means to company before granting credit.
communicate the financial condition and
b. Investors – the prospective investors are interested
performance of an entity to its users in making
to see the progress and prosperity of the firm by
sound decisions, accounting is referred to as “the
reviewing the financial statements. This is to
language of business”.
safeguard the investment.
The American Institute of Certified Public Accountants
c. Government – the government is interested in the
(AICPA) provided the following definition for accounting:
financial statements to know the earnings for the
“Accounting is a service activity. Its function is to provide
purpose of taxation.
quantitative information, primarily financial in nature,
about economic entities that is intended to be useful in d. Customers – in situations wherein customers are
making economic decisions, in making reasoned choices dependent on the product of the firm, they become
among alternative courses of action.” interested in the financial statements. This is to ensure
that the customer’s production will not be affected in
FINANCIAL STATEMENTS
the event that the firm closed its operations.
- Shows where a company’s money came from, where
it went and where it is now. e. Vendors and Suppliers - are users of accounting
information as they need to decide whether to trade
1. Statement of Financial Position (balance sheet) is a
with the business, and in particular whether or not to
progress report showing a list of assets, liabilities and
provide credit terms. They are concerned with the
owner’s net worth.
ability of a business to make payment of invoices on
2. Statement of Comprehensive Income (Income the due dates
Statement) is a performance report of revenues against
f. Employees - are stakeholders in the business and
costs and expenses. It shows the net income or profit that
want to know their employer or potential employer is
the owner has generated during a period.
financially stable, and is able to continue to provide
3. Statement of Cash Flows is a cash report showing remuneration, employment opportunities, and
where we got and where we used the money. Was it used retirement benefits
in operation, investing or financing activities?
g. Competitors - Competitors will make use of publicly
4. Statement of Changes in Owner’s Equity (Net Worth). available accounting information in order to assess the
This is a progress report that shows how the capital/ level of competition they face.
owner’s investment had increased or decreased for a
h. Public - The public use corporate financial
given period as a result of additional investments, profit
information, particularly the annual financial
and any withdrawals the owner have made.
statements, to gather information about a business
5. Notes to the Financial Statements are explanatory and its activities during the year.
notes supplemental to the four basic statements that
provides additional information so that the users can
understand what information it is trying to convey.

USERS OF FINANCIAL INFORMATION FIELDS OF PROFESSIONAL PRACTICE

1. Primary or Internal Users: Section 4 of the Philippine Accountancy Act of
20041 enumerate the Scope of Practice of Accountancy,
a. Owner/s – the owners provide capital for the
though not really limited to the following:
business. Owners are interested in knowing
whether their capital is earning or losing. Practice of Public Accountancy - a person, be it his/her
individual capacity, is a partner or a staff member in an
b. Management – the management is interested in
accounting or auditing firm; a qualified person to render
knowing the position and performance of the
professional services as a certified public accountant, or
business. The financial statements serve as the
offering or rendering, or both, to more than one client on
initial source of information in planning the course
a fee basis or otherwise, services such as
of actions by the management.
 The audit or verification of financial transactions and
c. Employees – the demand for salary increase,
accounting records
benefits, bonus and better working conditions of
 Preparation of financial reports to be used by
employees depend upon the profitability of the firm
stockholders for publication or credit purposes, or to
and to its financial position. For this reason,
be filed with a court or government agency, or used
employees are interested in financial statements of
for any other purpose
the business.
 The design, installation, review and revision of
2. Secondary or External Users: accounting systems and controls
 Preparation and/or review of income tax return when
a. Creditors and Financial Institutions – the Creditors
related to accounting and auditing procedures;
are the persons who supply goods on credit, or
bankers or lenders of money. The creditors are
 representing clients before government agencies on based on current technical and professional standards and
tax and other matters related to relevant legislation; and
 accounting
Act diligently and in accordance with applicable technical
 Professional assistance in matters relating to
and professional standards.
accounting procedures and the presentation of
financial information Confidentiality – to respect the confidentiality of
information acquired as a result of professional and
Practice in Commerce and Industry – persons involved in
business relationships.
decision making requiring professional knowledge in the
science of accounting, as well as the aspects of finance Professional Behavior – to comply with relevant laws and
and taxation; or when he/she represents his/her regulations and avoid any conduct that the professional
employer before government agencies on tax and other accountant knows or should know might discredit the
matters related to accounting; or when such employment profession.
or position requires that the holder thereof must be a
certified public accountant. A professional accountant shall comply with the Code.
There might be circumstances where laws or regulations
Practice in the Government – a person who holds, or is preclude an accountant from complying with certain parts
appointed to, a position in an accounting professional of the Code. In such circumstances, those laws and
group in government or in a government-owned and/or regulations prevail, and the accountant shall comply with
controlled corporation, including those performing all other parts of the Code.
proprietary functions, where decision making required
professional knowledge in the science of accounting, or Generally Accepted Accounting Principles (GAAP)
where a civil service eligibility as a certified public GAAP helps govern the world of accounting according to
accountant is a prerequisite. general rules and guidelines. It attempts to standardize
Practice in Education/Academe – persons in an and regulate the definitions, assumptions, and methods
educational institution which involve teaching of used in accounting across all industries. GAAP covers such
accounting, auditing, management advisory services, topics as revenue recognition, balance sheet classification,
accounting aspect of finance, business law, taxation and and materiality.
other technically related subjects; provided, that the The ultimate goal of GAAP is to ensure a
position of either the dean or the department chairman or company's financial statements are complete, consistent,
its equivalent that supervises the Bachelor of Science in and comparable. This makes it easier for investors to
Accountancy program of an educational institution is analyze and extract useful information from the
deemed to be in practice of accountancy in the company's financial statements, including trend data over
academe/education and therefore must be occupied only a period of time. It also facilitates the comparison of
by a duly registered CPA. financial information across different companies.

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS Basic Examples of Generally Accepted Accounting
“A distinguishing mark of the accountancy profession is its Principles
acceptance of the responsibility to act in the public 1. Business entity Principle
interest.” - Distinct and separate
The International Code of Ethics for Professional 2. Going concern Principle
Accountants (“Code”)1 sets out fundamental principles of - Continue to exist indefinitely
ethics, reflecting the profession’s recognition of its public
interest responsibility. The fundamental principles are 3. Monetary Measurement Principle
(directly cited from the Code): - Money value

Integrity – to be straightforward and honest in all 4. Exchange Price or Cost Principle

professional and business relationships. - Actual value/cost/price

Objectivity – not to compromise professional or business 5. Objectivity Principle

judgments because of bias, conflict of interest or undue - Based on supporting documents
influence of others. 6. Reporting period (at least annually)
Professional Competence and Due Care – to: - Calendar and fiscal accounting periods

Attain and maintain professional knowledge and skill at 7. Accrual or Matching Principle
the level required to ensure that a client or employing - Sales revenue is recognized when earned
organization receives competent professional service,
 - Expenses are recognized when incurred
whether paid or not.

8. Consistency Principle
- Ensure comparability and consistency

9. Conservatism Principle
- Accurate presentation of revenues and
expenses
- Sound assumptions on estimates.

10. Materiality Principle

- Financial information with significant impact
must be reported in a correct way.

11. Full disclosure principle

- Disclosure of information of future events that

have material impact on the financial

statements.