WHAT IS BUSINESS?

• A business is the exchange of goods or services that results in

mutual benefit for both parties involved.
KINDS OF BUSINESS
• Trading or Merchandising
• Manufacturing
• Servicing
TRADING OR MERCHANDISING
• This involves the buying of goods or merchandise which will be sold
at a price higher than the purchase cost.
• Examples are supermarkets, groceries, hardware stores, bookstores,
drug stores, shoe stores etc.
MANUFACTURING
• This involves the conversion of raw materials into finished product,
which will be sold at a price higher than the cost of production.
• Examples are manufacturers of drugs, soft drinks, tables and
chairs, computers, pencils, ball pens etc.
SERVICING
• This involves the rendering of services for a certain fee which is
higher than the cost of the services rendered.
• Examples are repair shops, parlors, movie houses, banks, insurance
companies, educational institutions etc.
FORMS OF BUSINESS ORGANIZATION
• Sole proprietorship
• Partnership
• Corporation
SOLE PROPRIETORSHIP
• This is a business owner and operated by only one person.
PARTNERSHIP
• It is an organization where two or more persons bind themselves to
contribute money, property, or industry into a common fund with
the intention of dividing the profits among themselves.
CORPORATION
• It is 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.
CHARACTERISTICS OF THE DIFFERENT
FORMS OF BUSINESS ORGANIZATION
SOLE PROPRIETORSHIOP PARTNERSHIP CORPORATION
• One owner called proprietor • Two or more owners called • One person, one person
• Unlimited liability partners corporation
• Owner manages the business • Unlimited liability • 5 or more persons
• There is a managing partner • owners called shareholders
• Limited liability
• Management is vested in the
board of directors
USERS OF ACCOUNTING INFORMATION
• Internal user
• External user
INTERNAL USER
• The internal users to the management. As stated earlier, in a
corporation, management is vested in the board of directors (BOD).
In a sole proprietorship, the owner is also the manager. In a
partnership, the partners usually appoint a managing partner.
EXTERNAL USER
• Owner/s (who are not the manager/s)
• Prospective investors
• Suppliers and creditors
• Lending institutions
• Customers
• Employees
• Government
• General public
DEFINITION OF ACCOUNTING
• Accounting is the art of recording, classifying and summarizing in a
significant manner and in terms of money, transactions and events
which are, in part at least, of a financial character, and interpreting the
results thereof.
• Accounting is a service activity. Its function is to provide quantitative
information, primarily financial in nature, about economic entities that
is intended to be useful in making economic decisions.
• Accounting is the process of identifying, measuring and
communicating economic information to permit informed judgments
and decisions by users of the information.
• Accounting is an information system that measures, processes and
communicates financial information about an identifiable economic
entity.
RECORDING
• This involves putting into writing all the business transactions
including significant events which might occur and which will
affect the business.
CLASSIFYING
• This involves grouping together similar items or accounts for
purposes of systematic recording and preparation of reports.
SUMMARIZING
• This involves the preparation of the formal accounting reports or
financial statements at the end of an accounting period.
INTERPRETING
• This involves the analysis of the financial statements by
developing financial ratios and explaining their significance to
make the statements more meaningful.
ROLE OF ACCOUNTING IN BUSINESS
• It helps the owner/s or manager/s make plans and decisions.
• It reports and analyzes business transactions thru the financial
statements.
• It communicates financial information to all interested parties.
BRANCHES OF ACCOUNTING
• Financial Accounting
• Cost Accounting
• Managerial or Management Accounting
• Government Accounting
• Auditing
• Taxation
FINANCIAL ACCOUNTING
• It deals with the reporting of past activities and events and is
intended primarily for the external users.
COST ACCOUNTING
• This branch of accounting primarily deals with the determination
of the cost of goods manufactures and sold. The definition has been
expanded to include the determination of the profitability of the
business as well as the valuation of inventories.
MANAGERIAL OR MANAGEMENT
ACCOUNTING
• It focuses mainly on the information which can be useful to
management when it performs its basic functions or when making
decisions.
GOVENRMENT ACCOUNTING
• This branch of accounting specifically deals with the reporting of
past activities or transactions of the government.
AUDITING
• This deals with the verification of the fairness of the accounting
reports prepared and whether they are in accordance with the
generally accepted accounting principles.
TAXATION
• This deals with the determination of the different taxes imposed
upon a business by the government whether local or foreign.
FINANCIAL STATEMENTS
• Income Statement
• Balance Sheet
• Statement of Changes in Owner’s Equity
• Cash Flow Statement
INCOME STATEMENT
• This is a statement which shows the results of operations of a
business enterprise. It shows whether the business makes a profit or
incurs a loss.
BALANCE SHEET
• This is a statement which shows the financial condition of a
business.
STATEMENT OF CHANGES IN OWNER’S
EQUITY
• This is a statement supplementing the balance sheet. It shows the
increases or decreases in the equity of the owner/s.
CASH FLOW STATEMENT
• This is a statement which shows the sources (inflows) and uses
(outflows) of cash.
 OLD TERMINOLOGY NEW TERMINOLOGY
Income Statement Statement of Comprehensive Income
Balance Sheet Statement of Financial Position
Cash Flow Statement Statement of Cash Flows
GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
• These are principles (including concepts and assumptions), which
have gained international acceptance in the business world and the
accountancy profession.
BUSINESS ENTITY CONCEPT
• Under this concept, the business is treated, as having a separate
personality from the owner/s as such the transactions of the
business must be divorced from the transactions of the owner/s.
GOING CONCERN CONCEPT
• Under this concept, it is assumed that the business will continue
operations indefinitely unless there is evidence to the contrary.
ACCRUAL BASIS OF ACCOUNTING
• This simply means that expenses of the business are recognized or
recorded when incurred whether paid or not and revenue is
recognized when earned whether collected or not.
OBJECTIVITY
• This simply means that transactions recorded or amount reported
can be verified thru the supporting documents. This is necessary to
maintain the trust, faith and confidence of the users or readers on
the financial statements.
COST PRINCIPLE
• This simply means that properties or assets acquired must be
recorded at the actual acquisition cost and not at an estimated cost.
MATCHING COSTS AGAINST REVENUE
• This simply means that all cost and expenses incurred during the
period in generating the revenue, must be matched (subtracted)
against the revenue for the same period.
CONSISTENCY
• This simply means that for the financial statements to be
comparative, the application of the accounting methods, procedures,
or principles must be consistent with the previous period.
ACCOUNTING PERIOD
• Considering that the business is assumed to be a going concern, its
life is divided into periods (usually one year) at the end of which
financial statements are prepared.
FULL DISCLOSURE
• This simply means that the financial statements should reflect all
significant events or facts, which might influence the decisions to
be made by any interested party.
GOVERNMENT REGULATORY AGENCIES
(Applicable to Accounting)
• Professional Regulation Commission (PRC)
• Board of Accountancy (BOA)
• Financial Reporting Standards Council (FRSC)
• Securities and Exchange Commission(SEC)
• Bureau of Internal Revenue (BIR)
• Bangko Sentral ng Pilipinas (BSP)
PROFESSIONAL REGULATION COMMISSION
(PRC)
• They are in charge of administering the professional examination
(including the CPA licensure examination), regulating and
licensing of professionals, promulgation and enforcement of
professional ethics and standards.
BOARD OF ACCOUNTANCY (BOA)
• They are in charge of conducting semi-annually the CPA licensure
examination. It is likewise in charge of regulating the practice of
accountancy.
FINANCIAL REPORTING STANRDS COUNCIL
(FRSC)
• It is formerly known an the Accounting Standards Council (ASC)
is in charge of formulating or developing the accounting
standards, which will guide CPA practitioners.
SECURITIES AND EXCHANGE COMMISSION
(SEC)
• They are in charge of regulating the business operations of a
partnership, corporation and foundations.
BUREAU OF INTERNAL REVENUE (BIR)
• They are in charge with the collection of taxes.
BANGKO SENTRAL NG PILIPINAS (BSP)
• They are in charge of regulating the operations of banks and other
financial institutions.
FIELDS OF ACCOUNTING
• Private Accounting
• Government Accounting
• Public Accounting
PRIVATE ACCOUNTING
• Accountants can be employed in any private firm in any capacity
or position requiring accounting knowledge. They can be employed
as accounting clerks, bookkeepers, internal auditor, chief
accountant or even controller depending on their qualifications and
experience.
GOVERNMENT ACCOUNTING
• Accountants can be employed in any government agency in any
capacity or position requiring accounting knowledge. Statistics
will shows that the government hires the most number of
accountants.
PUBLIC ACCOUNTING
• Accountants can practice their profession by rendering professional
services for a certain fee just like lawyers, dentists, doctors, etc.
• CPAs may offer the following services:
➢Auditing Service
➢Tax Service
➢Management Advisory Services
AUDITING SERVICE
• The CPA (who must be independent) will audit the books and
certify to the fairness of the financial statements oprepared by the
client’s accountant.
TAX SERVICE
• The CPA will prepare the tax return (the form to be filled up when
paying different kinds of taxes) of the client company.
MANAGEMENT ADVISORY SERVICES
• The CPA will act as the management consultant on matters
pertaining to accounting and finance.
BRIEF HISTORY OF ACCOUNTING
Although accpunting (informal recording) was introduced as early
as 2000 BC in Babylonia and in 3500BC in Assyria, it was the book
written by Benedetto Cotrugli entitled Delia Mercatura et del
Mercante Perfetto (Of Trading and the Perfect Trader) sometime in
the 14th century, which included a brief chapter describing many of
the features of double entry, where accounting originated.
BRIEF HISTORY OF ACCOUNTING
In 1494, an Itlaian friar by the name of Frater Luca Bartolomes
Pacioli wrote a Summa de Arithmetica, Geometria, Proportioni et
Proportionalita (Everything about Arithmetic, Geometry, and
Proportion) in which bookkeeping was one of the topics covered.
Although he never claimed to have developed the double entry method
of bookkeeping and he even acknowledged the book of Cotrugli, yet he
was the one recognized as the “Father of Accounting”.
PHILIPPINE ACCOUNTANCY ACT OF 2004
(RA 9298)
• This is an act regulating the practice of accountancy in the
Philippines.
PRACTICE OF ACCOUNTANCY
• It shall refer to the practice of a Certified Public Accountant of
his/her profession providing any service requiring accountancy or
related skills including accounting, auditing, (taxation, and
management accounting) and financial management services.
SCOPE OF THE PRACTICE OF
ACCOUNTANCY
• Practice of Public Accountancy
• Practice in Commerce and Industry
• Practice in Education/Academe
• Practice in the Government
CERTIFIED PUBLIC ACCOUNTANT
• It shall refer to a person who is a holder of a valid certificate of
registration/professional license and professional identification
card issued by the Professional Regulation Commission in
accordance with this Act.
THANK YOU!!