GOLDEN HERITAGE POLYTECHNIC COLLEGE

Formerly: Northern Mindanao Polytechnic School

Vamenta Boulevard, Carmen, 9000
Cagayan de Oro City, Misamis Oriental, Philippines
Tel. No’s: (088) 858-7326 / (08822) 71-15-22 / (0927) 4989927
Email Address: [email protected]
KNOWLEDGE SKILLS CHARACTER REFINEMENT

COURSE MODULE 1
Basic 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.
Four (4) Constructive or Mechanical Phases of Accounting:
1. Recording- putting business transactions into writing. Technically
referring to journalization.
2. Classifying- sorting or grouping of similar things and segregating
them from others of different nature.
3. Summarizing- expressed in terms of financial statements and reports
already prepared in condensed form.
4. Interpreting- the process that supplies answer to questions about the
profitability, stability, solvency & liquidity of an enterprises
a) Profitability- is the ability of the enterprises to generate profits from
its operations.
b) Stability – refers to the ability of the enterprises to stay viable.
Example : generate profits for the owners, sustain operations and pay
for long term financial obligations
c) Solvency - should means that the enterprises is capable of paying its
short term obligation.
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d) Liquidity – refers to the enterprises having sufficient cash
The Role of Accounting in Business and Why It’s Important
Why Is Accounting Important?
Accounting plays a vital role in running a business because it helps you
track income and expenditures, ensure statutory compliance, and
provide investors, management, and government with quantitative
financial information which can be used in making business decisions.
There are four key financial statements generated by your records.
● The income statement provides you with information about the profit
and loss
● The balance sheet gives you a clear picture on the financial position
of your business on a particular date.
● The cash flow statement is a bridge between the income statement
and balance sheet and reports the cash generated and spent during a
specific period of time.
● Statement of changes in owners equity
It is critical you keep your financial records clean and up to date if you
want to keep your business afloat. Here are just a few of the reasons
why it is important for your business, big or small!
It Helps in Evaluating the Performance of Business
Your financial records reflect the results of operations as well as the
financial position of your small business or corporation. In other words,
they help you understand what’s going on with your business
financially. Not only will clean and up to date records help you keep
track of expenses, gross margin, and possible debt, but it will help you
compare your current data with the previous accounting records and
allocate your budget appropriately.
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It Ensures Statutory Compliance
Laws and regulations vary from state to state, but proper accounting
systems and processes will help you ensure statutory compliance when
it comes to your business.
The accounting function will ensure that liabilities such as sales tax,
VAT, income tax, and pension funds, to name a few, are appropriately
addressed.
It Helps to Create Budget and Future Projections
• Budgeting and future projections can make or break a business,
and your financial records will play a crucial role when it comes to
it.
• Business trends and projections are based on historical financial
data to keep your operations profitable. This financial data is most
appropriate when provided by well-structured accounting
processes.
It Helps in Filing Financial Statements
• Businesses are required to file their financial statements with the
Registrar of Companies. Listed entities are required to file them
with stock exchanges, as well as for direct and indirect tax filing
purposes. Needless to say, accounting plays a critical role in all
these scenarios.
Importance of Business Record Keeping
An up-to-date database is one of the most useful resources which can
help you when it comes to planning new marketing and sales strategies.
Unfortunately, most businesses fail to tap into this resource effectively.
Other business records which must be kept include documents which
provide a record of your business transactions, or which enable these

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transactions to be tracked and verified through the accounting system
from start to finish. These include invoices, receipts, cash register tapes,
banking records, cheque butts.
The essence of good record keeping is good bookkeeping. Efficient
bookkeeping will save you time and money in the long run.
Proper business record keeping provides the business a real
advantage over the competition in different ways.
● It helps you to manage your accounts, interests, taxes and working
costs effectively.
● Tells about cash in hand
● Act as resource for new strategies
● Helps in finding solutions for business issues.
● Tells about the customer service and employee efficiency.
● Helps in monitoring company growth rate and profit.
● How your business performs against your competitors.
● Tells about hidden and unexpected costs.
● And most of all it is the most resourceful adviser whenever your
business is in serious trouble.
Today's database management and recording keeping solutions make
record keeping a simple task. These systems help in digitalizing the
whole business data and arrange and keep them in most convenient
manner. Now you do not require paper work, large storing facilities
become a thing of the past.
Having your business records up to date is also important when it
comes time for your business to access the right business loans. Most
financiers today will want to be able to get a good understanding of

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how your business is travelling before lending you money. If you have
accurate, current records this will show the financier that you have
your business under control and will also give them a great insight into
how finance ready your business is. This can also help you when setting
up your loan pre-approval.
Users of Financial Statements:
Internal users - refer to managers who use accounting information in
making decisions related to the company's operations.
External users - on the other hand, are not involved in the operations
of the company but hold some financial interest. The external users
may be classified further into users with direct financial interest –
owners, investors, creditors; and users with indirect financial interest –
government, employees, customers and the others.
Eight (8) Users of Financial Statements:
1. Owners and investors
Stockholders of corporations need financial information to help them
make decisions on what to do with their investments (shares of stock),
i.e. hold, sell, or buy more.
Prospective investors need information to assess the company's
potential for success and profitability. In the same way, small business
owners need financial information to determine if the business is
profitable and whether to continue, improve or drop it.
2. Management
In small businesses, management may include the owners. In huge
organizations, however, management is usually made up of hired
professionals who are entrusted with the responsibility of operating the
business or a part of the business. They act as agents of the owners.

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The managers, whether owners or hired, regularly face economic
decisions – How much supplies will we purchase? Do we have enough
cash? How much did we make last year? Did we meet our targets? All
those, and many other questions and business decisions, require analysis
of accounting information.
3. Lenders
Lenders of funds such as banks and other financial institutions are
interested in the company’s ability to pay liabilities upon maturity
(solvency).
4. Trade creditors or suppliers
Like lenders, trade creditors or suppliers are interested in the company’s
ability to pay obligations when they become due. They are nonetheless
especially interested in the company's liquidity – its ability to pay short-
term obligations.
5. Government
Governing bodies of the state, especially the tax authorities, are
interested in an entity's financial information for taxation and regulatory
purposes. Taxes are computed based on the results of operations and
other tax bases. In general, the state would like to know how much the
taxpayer makes to determine the tax due thereon.
6. Employees
Employees are interested in the company’s profitability and stability.
They are after the ability of the company to pay salaries and provide
employee benefits. They may also be interested in its financial position
and performance to assess company expansion possibilities and career
development opportunities.

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7. Customers
When there is a long-term involvement or contract between the
company and its customers, the customers become interested in the
company’s ability to continue its existence and maintain stability of
operations. This need is also heightened in cases where the customers
depend upon the entity.
For example, a distributor (reseller), the customer in this case, is
dependent upon the manufacturing company from which it purchases
the items it resells.
8. General Public
Anyone outside the company such as researchers, students, analysts and
others are interested in the financial statements of a company for some
valid reason.
Four (4) types of Business Organization:
1. Sole or Single Proprietorship- a business owned and whose capital is
provided by one individual.
2. Partnership- a contract whereby two or more persons bind themselves
to contribute money, property or industry into a common fund with the
intention of dividing profit among themselves.
3.Corporation- an artificial being created by operation of law having the
right of succession and the powers , attributes expressly authorized by
law or incident to its existence.
4.Cooperative – is a duly registered association of persons, with a
common bond of interest, who have voluntarily joined together to
achieve a lawful common social or economic end; making equitable
contributions to the capital required and accepting a fair share of the
risks and benefits of the undertaking in accordance with the universally
accepted cooperative principles.
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Five (5) Types of Business concerns:
1. Service Concern – the business derived its income from services
rendered to clients. In the case of professional services like Accountants,
Lawyers, Doctors, Dentists, etc, or to customers in the case of non-
professional services like Laundry, Shop, Vulcanizing, Car Repair Shop,
Janitorial Services, etc.
2. Merchandising Concern- the business is engaged in buying goods and
commodities or any form of finished products and sells these at a profit.
It might be a retail or wholesale basis.
Example : Grocery, Hardware, Bookstore
3. Manufacturing Concern- the business is engaged in buying raw
materials and supplies to be processed or manufactured, converting
them into finished product for sales at a profit.
Example : Process foods, manufacturing of electronic devices
4. Hybrid - are those involved in more than one type of activity which are
manufacturing, merchandising, and services.
Example : Hotel, Mall, Restaurant
5. Agriculture - the business is engaged in planting crops, livestock’s and
sells its products either in raw materials or finished form at a profit.
Example : Poultry, fish pound, Horticulture, Piggery

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