L1: Overview of Accounting

Accounting for Service and

Merchandising Entities
ACC11

By:
Leandro Ador A. Dizon, CPA, MBA
 LEARNING OBJECTIVES

⚫ Definition of Accounting
⚫ Legal basis of accounting in the Philippines and related
Authoritative bodies
⚫ Classification of businesses
⚫ Forms of business
⚫ Kinds of Business
⚫ Economic Size of Business
⚫ Accounting assumptions and principles
⚫ The Accounting Equation
⚫ The Elements of the Financial Statements (ALPIE)
 What is Accounting?

Accounting is an art of creating a detailed financial

history of a business. However, unlike the typical history
storylines which is full of dates and narrations of the
past, accounting provides quantitative information.

It is through numbers that the company tells its story.

And from that story, lessons are made to correct mistakes
and improve the present and the future business
operations.

Thus, accounting is known as the basic language of

business.
 History of Accounting

8000 B.C. – Birth of civilization in ancient Jericho

(modern day Israel/ Palestine) where salt mines, clay
tokens, spheres, and other survival items are
exchanged.

1494 – Double-entry bookkeeping invented by Luca

Pacioli

Accounting in the Philippines

 Legal basis of accounting in the Philippines and related Authoritative bodies

Republic Act 9298 – The Philippine Bureau of Internal Revenue

Accountancy Act of 2004 (BIR)
Board of Accountancy (BOA)
Securities and Exchange
Financial Reporting Standards
Commission (SEC)
Council (FRSC)
Cooperative Development
Philippine Interpretations Committee Authority (CDA)
(PIC)

International Accounting Standards Insurance Commission (IC)

Board (IASB)
Bangko Sentral ng Pilipinas
Philippine Institute of Certified (BSP)
Public Accountants (PICPA)

Commission on Audit (COA)

 Types of Accounting

1. Management accounting
2. Financial Accounting
3. Tax Accounting
 Classification of Business

Forms of Business

1. Single- Proprietorship (Sole Ownership)

2. Partnership
3. Corporation
4. Cooperative
 Classification of Business

Business Economic Size

by the Securities and Exchange Commission

1. Large enterprise
2. Medium enterprise
3. Small enterprise
4. Micro enterprise
 Classification of Business

Kinds of Business

1. Service-concern
2. Merchandising
3. Manufacturing
4. Hybrid
 Accounting Assumptions

Accounting Assumption:

Going Concern

Implied assumptions:
Monetary Unit
Accrual
Time Period
Accounting Entity
 Accounting Principles

1. Revenue recognition principle

2. Matching principle
3. Cost principle
4. Full Disclosure principle
5. Consistency principle
 The Accounting Equation

The accounting entity theory follows this basic

formula:

Asset = Liability + Proprietorship

Creditors Owner
 The Elements of the Financial Statements
(ALPIE)
Assets = Liabilities + [Proprietorship + (Income – Expenses)]

The Permanent accounts in the Balance Sheet:

Assets, Liabilities, and Proprietorship

The Temporary accounts in the Income Statement:

Income and Expenses
 Normal Balance

Elements of FS Normal Balance

Assets Debit
Liabilities Credit
Proprietorship Credit

Income Credit
Expense Debit