OVERVIEW OF ACCOUNTING

Prof. Fornolles|BSA - 1st Semester | INTRODUCTION TO PARTNERSHIPS AND CORPORATIONS

2. Commerce And Industry

OUTLINE 3. Government Sector
4. Education Sector
I. Overview Of Accounting N. Forms Of Business Organization
A. Why Choose Accounting 1. Sole Proprietorship
B. Definition Of Accounting 2. Partnership
1. AICPA 3. Corporation
2. AAA 4. Cooperative
a) Identifying O. Types of Business Activities
b) Measuring 1. Service Firms
c) Communicating 2. Merchandising
3. ASA 3. Manufacturing firms
C. Phases Of Accounting 4. One-step Shop
1. Recording Phase 5. Agri-business
2. Classifying 6. Aqua-culture
3. Summarizing
4. Interpreting
OVERVIEW OF ACCOUNTING
D. Bookkeeping Vs. Accounting
E. Purpose Of Accounting
WHY CHOOSE ACCOUNTING?
F. The Classical Notion Of
Stewardship
● Many of our young people are interested
in pursuing business as a career or
G. Types Of Information Provided
perhaps they were convinced by their
By Accounting
parents, relatives and friends to choose
H. Types Of Accounting
the ABM strand to prepare for their
Information According To Users’
tertiary chosen field of endeavor.
Needs
I. Accounting Standards
ACCOUNTANCY, BUSINESS AND MANAGEMENT
J. GAAP
K. Users And Users Of Accounting ● Accountancy, Business and Management
Information (ABM) strand in senior high school is
L. Branches Of Accounting
one of the four strands in the
1. Business Accounting
Academic track of the K-12 curriculum.
a) Financial
● It focuses on teaching students about
business management concepts such as
Accounting
accounting, finance, operations,
b) Managerial
entrepreneurship, business mathematics,
Accounting
and marketing.
c) Cost Accounting
● These core subjects will help students
d) Tax Accounting
hone their business acumen, acquire
2. Auditing
many other skills, and prepare them to be
a) External Auditing
competitive industry experts in the future.
b) Internal Auditing
Currently, there is an increasing demand
c) Forensic
for accountants across the globe.
Accounting
M. Fields Of Specialization In The
Accounting Profession
1. Public Practice

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ACCOUNTING
IDENTIFYING ● is the process of
● To become an accountant is a smart analyzing events and
choice, but you need to know first transactions to
what accounting is all about. determine whether
● It is a body of knowledge (consisting of or not they will be
principles, postulates, assumptions, recognized.
conventions, concepts and rules)
governing the science of recording,
MEASURING ● involves assigning
classifying and analyzing financial
numbers, normally
transactions
in monetary terms,
to the economic
ACCOUNTANCY
transactions and
● the practice and art of the science of events.
accounting is termed as accountancy.
COMMUNICA ● is the process of
DEFINITION OF ACCOUNTING TING transforming
economic data into
ACCOUNTING (AMERICAN INSTITUTE OF useful accounting
CERTIFIED PUBLIC ACCOUNTANTS) information such as
● The American Institute of Certified Public financial statements
Accountants (AICPA) defined accounting and other
as an art of recording, classifying, accounting reports
summarizing in a significant manner and for dissemination to
in terms of money, transactions, and various stakeholders.
events, which are, in part at least, of a
financial character, and interpreting the
ACCOUNTING (ACCOUNTING STANDARDS
results thereof.
COUNCIL)
● Accounting is regarded both as an art and
a science. It is an art because it entails ● defined accounting as a service activity.
creative skills, intelligence, and Its function is to provide quantitative
professional judgment. It is also information, primarily financial in
considered as a science because it has a nature, about economic entities that is
body of knowledge systematically intended to be useful in making
gathered, classified, and organized. economic decisions.
● LAYMAN’S PARLANCE: accounting is
ACCOUNTING (AMERICAN ACCOUNTING about the explanation of amounts to
ASSOCIATION) businessmen about their resources. It is to
tell them how much they got, how much
● Another definition of accounting was
they used to have, the increases or
introduced by the American Accounting
decreases in what they got, and what they
Association (AAA) which is the process
get in the future.
of identifying, measuring, and
communicating economic information to
permit informed judgments and decisions PHASES OF ACCOUNTING
by users of the information. ● There are four (4) phases of accounting,
● This definition tells us that there are namely: recording, classifying,
three (3) important processes involved summarizing and interpreting.
in accounting, namely:

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RECORDING ● or bookkeeping.
BOOKKEEPING VERSUS ACCOUNTING
PHASE ● Recording the
economic ● Both bookkeeping and accounting are two
activities of the related processes
business or its ● ”Not all bookkeepers can be accountants
historical events but all accountants can be bookkeepers.”
is a significant
function of BOOKKEEPING
accounting. ● is just a part of the accounting process.
● The effects of ● It is an accounting support function that
transactions are involves the systematic recording of
measured and business transactions in financial terms,
recorded. either manually or electronically.
● To be useful in ● It is the “how” of accounting as the
making decisions, bookkeeping process is mainly
the recorded data mechanical or procedural and is largely
must be classified concerned with the development and
and summarized. maintenance of accounting records.

CLASSIFICATION ● involves the ACCOUNTING

grouping of ● compiles and presents the data into
similar reports which are interpreted for use by
accounting its stakeholders.
elements or items ● It functions at a higher level or degree
affected into than bookkeeping does.
useful groups or ● Accountants are responsible for the design
categories. and management of the accounting
information systems that bookkeepers
SUMMARIZATION ● financial data is use. They tend to focus on analyzing and
achieved interpreting financial information.
through the ● They may also supervise the work of
preparation of bookkeepers and certify the reliability
financial reports of the financial statements and income
or financial tax returns of an entity. Remember, the
statements. sphere of accounting starts where the
bookkeeping ends.
INTERPRETING ● To understand the
meaning of the ● In small companies, one person can
numbers perform both the accounting and
contained in the bookkeeping functions. However, in large
financial companies, a separate accounting
statements, they department composed of accounting staff
must be or personnel, is needed to successfully
interpreted or perform the accounting and bookkeeping
analyzed to tasks. For some companies that adopt
evaluate the cost-cutting measures, they may have
liquidity, solvency these tasks outsourced.
and profitability
of the business.

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PURPOSE OF ACCOUNTING TYPES OF INFORMATION PROVIDED BY

● PURPOSE: Accounting is used to provide ACCOUNTING
quantitative, financial information about
economic entities that is intended to be
Quantitative Information are those
useful in making economic decisions.
information expressed in numbers,
● It provides the basis for the two main
quantities or units.
assumptions (monetary unit assumption
and the economic entity assumption) as a
foundation for the accounting process. Qualitative Information are those
information expressed in words or in
ECONOMIC ENTITIES descriptive form.

● Economic entities are a separate and

Financial Information are those information
identifiable combination of persons or
expressed in peso amounts or such other
entities that use economic resources
currency.
(assets) and avail of economic obligations
(liabilities) to achieve goals.
TYPES OF ACCOUNTING INFORMATION
THE CLASSICAL NOTION OF STEWARDSHIP ACCORDING TO USERS’ NEEDS

CLASSICAL NOTION
GENERAL ● which are
● is that everything we own belongs to God
PURPOSE designed to meet
and we ought to use it for the glory of
ACCOUNTING the common
God.
INFORMATION needs of most
stakeholders
STEWARDSHIP
● means the careful and responsible SPECIAL ● which are
management of something entrusted to PURPOSE designed to meet
one’s care. ACCOUNTING the specific needs
● It means custodianship or being a keeper.
INFORMATION of the particular
stakeholder/s.
CLASSICAL NOTION OF STEWARDSHIP
● In accounting, the classical notion of
stewardship applies to the valuation and ACCOUNTING STANDARDS
the stewardship role.
● Financial statements show the results of ACCOUNTING STANDARDS
the stewardship of management, or the ● are authoritative standards for financial
accountability of management for the reporting and are the primary source of
resources entrusted to it. Generally Accepted Accounting Principles
● Hence, accounting places an obligation (GAAP).
on stewards or agents responsible for ● Accounting standards specify how
providing economic and financial transactions and other events are to be
information about the entity, relating to recognized, measured, presented and
resources over which they have control disclosed in financial statements.
but which are owned by others. This
stewardship function of accounting is
carried out by the accountants as
information providers

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DEFINITION, PURPOSE, AND USE OF GAAP

What are the likely results of new policy
decisions on future earnings capacity of the
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES business?
(GAAP)
● is a collection of commonly followed In the light of past performance of the
accounting rules, standards and business, how should it plan for the future to
procedures for financial reporting. Its ensure desired results?
specifications include definitions of
concepts and principles as well as
● These questions can be satisfactorily
industry-specific rules.
answered with the help of suitable and
● PURPOSE: to ensure that financial
necessary information provided by
reporting is transparent and consistent
accounting. Besides, accounting is also
from one company to another. They
useful in the light of the following:
are used to prepare, present and
report financial statements. These will be
explained in detail in your CFAS class. Increased volume of business results in
large number of transactions and no
THE USES AND USERS OF ACCOUNTING businessman can remember everything. So
INFORMATION with accounting records, you can do away
● Accounting plays a vital role by with the necessity of remembering various
developing the information which is transactions.
used to prepare financial statements and
for providing answers to many questions Accounting record, prepared on the basis
raised by various users of accounting of uniform practices, will enable a
information. Examples of these questions business to compare results of one period
are: with that of another period.

Tax authorities are likely to believe the

How good or bad is the financial condition
facts contained in the set of accounting
of the business?
books if maintained according to GAAP.

Has the business activity resulted in a profit

Authenticated records are often used as
or loss?
good evidence in a court of law.

How well the different departments of the

It helps in bargaining proper price for the
business have performed in the past?
business.

Which activities or products have been

profitable? ● Users of financial statements include:

Whether the cost of production is INTERNAL USERS

reasonable or excessive? ● those who make decisions directly
affecting the internal operations of the
What has been the impact of existing entity such as managers, vice
policies on the profitability of the business? presidents, president, and employees.

EXTERNAL USERS
● those who make decisions concerning
their relationship to the entity such as

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potential investors, creditors, suppliers, BRANCHES OF ACCOUNTING

labor unions, government regulatory
bodies such as the Bureau of Internal BUSINESS ACCOUNTING
Revenue, and the Securities and Exchange ● also known as Enterprise or Commercial
Commission. Accounting

● Each of the financial statement users FINANCIAL ACCOUNTING

has varying objectives to be met in
● is concerned with general purpose
using the financial statements. Internal
financial statements including
users are using the financial statements
consolidated financial statements.
to evaluate their key financial
● It applies to the financial statements of all
performance vis-à-vis their financial
commercial, industrial, and business
objectives. External users are as follows:
reporting entities, whether in public or in
private sectors.
POTENTIAL ● are interested in ● Financial accounting is guided by the
INVESTORS knowing about Philippine Financial Reporting Standards
the return of (PFRSs) or the Generally Accepted
investments (ROI) Accounting Principles (GAAP) and for
as well as profit external reporting.
margin.
MANAGERIAL ACCOUNTING
CREDITORS ● are focused on the ● refers to processing or preparation of
(BANKS AND debt ratios and special purpose financial reports for
OTHER current ratios that management needs, such as,
FINANCIAL will determine the prospectus, management reports on
INSTITUTIONS) long- term and cost analysis, cost and benefit analysis,
short-term investment analysis, and such other
solvency and internal management reports.
compliance with ● Managerial accounting uses GAAP and
their debt Non-GAAP. It also uses statistical data,
covenants. environmental scanning results from
internal strengths and weaknesses as
SUPPLIERS ● are interested on well as from external opportunities and
the inventory threats.
turnover in order ● Managerial accounting starts with
to prepare a planning where the qualitative plans will
forecast of be quantified through the preparation of
supplies budget. Secondly, organizing and leading
where the actual implementation of plans
GOVERNMENT ● Is interested in the will happen, and finally controlling where
AGENCY (BIR) taxpayer’s the actual results will be compared with
remittances the plans.

GOVERNMENT ● for regulating COST ACCOUNTING

AGENCY (SEC) corporations ● is that branch of accounting which helps
especially the the company in determining and
publicly listed exercising control over the cost of the
companies. manufactured product or service
provided by the company.

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FIELDS OF SPECIALIZATION IN THE ACCOUNTING

TAX ACCOUNTING PROFESSION
● is based on the enacted tax laws. It ● CPAs may choose in any of the four (4)
includes the preparation of tax returns sectors, namely
and the consideration of the tax
consequences (withholding taxes, value PUBLIC ● for CPAs who are
added tax, percentage taxes, and other PRACTICE engaged in
taxes) of business transactions. practicing their
● If conflict between financial accounting profession as an
and tax accounting will arise, tax individual
accounting will prevail and reconciliation practitioner or
will be prepared. those who joined
an accounting or an
auditing or a
AUDITING
consulting firm who
will provide services
EXTERNAL AUDITING to the general public
● is the independent examination intended for a fee
to support the expression of an impartial
expert opinion on the fairness of the COMMERCE ● for CPAs employed
financial statements. AND INDUSTRY in the private firms
SECTOR working as
INTERNAL AUDITING controller, chief
● is an independent, objective assurance accountant, budget
and consulting activity designed to add officer and such
value and improve an organization's other related jobs
operations. in the banks,
● It helps an organization accomplish its manufacturing,
objectives by bringing a systematic, merchandising, and
disciplined approach to evaluate and service entities
improve the effectiveness of risk
management, control, and governance GOVERNMENT ● for those CPAs
processes (ISPPIA). SECTOR working in
government offices
FORENSIC AUDITING or public enterprises
● is defined by Horty as the science that
deals with the relation and application EDUCATION ● for those CPAs in the
of finance, accounting, tax and auditing SECTOR teaching profession
knowledge to analyze, investigate, including academic
inquire, test and examine matters in civil administrators.
law, criminal law and jurisprudence in an
attempt to obtain the truth from which PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC
to render an expert opinion. ACCOUNTANTS (PICPA)
● It includes the use of accounting,
● is a duly recognized national
auditing as well as investigative skills to
professional organization of CPAs in the
assist in legal matters.
Philippines. It recognizes the four (4)
sectors by which a CPA may be in
practice, namely:

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FORMS OF BUSINESS ORGANIZATION

CPAs in Public Practice
● There are four (4) common forms of
CPAs in Commerce and Industry business ownership or forms of
business organization, namely:
CPAs in Education/Academe
SOLE PROPRIETORSHIP
CPAs in Government Sector
PARTNERSHIP
● All CPAs whose names appear in the
Registry of Professionals of the CORPORATION
Professional Regulation Commission (PRC)
are automatically members of PICPA and COOPERATIVE
shall continue to be one except in the
following:
● These organizations can be classified
according to their nature of operations;
Those who are deceased

TRADING
Those who, by choice, no longer practice
their profession but whose names appear in
MANUFACTURING
the Register maintained by the Professional
Regulation Commission and have formally
SERVICE
filed with the Commission their intention
to retire from practice. (Sec.1 of Article V,
Others may engage in Agri business or in
2005 Amended PICPA By-laws)
Aqua business

● It was in 1994 that PICPA entered into a

memorandum of agreement (MOA) with SOLE PROPRIETORSHIP
the four (4) sectoral organizations,
namely: SOLE PROPRIETORSHIP
● (which is owned and operated or
Association of CPAs in Public Practice managed by one person) is the simplest
(ACPAPP)
form of business ownership. That is why,
the vast majority of small businesses
begin their existence as sole
Association of CPAs in Commerce and
proprietorship.
Industry (ACPACI);
● It is common among small service-type
businesses and retail establishments.
Association of CPAs in Education (ACPAE)

SOLE PROPRIETOR
Government Association of CPAs (GACPA)
● The sole owner oftentimes called sole
proprietor may engage in any form of legal
● It was agreed that PICPA shall have the business activity.
policy-making role while the 4 sectoral ● He must secure funds either from his
organizations shall be its implementing personal existing financial resources or
arm in developing programs and projects from outside sources such as those funds
for its members. provided by individual creditors, banks
and such other lending institutions.

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business debts would be P120,000.

ADVANTAGES Individuals holding somewhat extensive
● They are easy to start up or organize, has personal assets do not resort to sole
few legal restrictions or subject to fewer proprietorship form of ownership.
regulations relative to other types of Instead, an alternative form of ownership
business ownership, the owner has full will be used such as partnership or
autonomy with regards to business corporation.
decisions, easy to discontinue or dissolve ● A sole proprietorship is terminated upon
and only the owner is subject to tax and the sale or transfer of ownership
not the business. interest to another person or group of
● He gets all the profits derived from persons, or when the business is
business operations and likewise bears abandoned by the owner or if when
solely all possible losses. He has the the owner becomes personally
authority to make all decisions relating bankrupt.
to his business and must bear the ● This potential risk of sudden
responsibilities that accrue from the termination place sole proprietorship at
decisions made. a serious disadvantage in attracting
top-caliber employees who may not wish
DISADVANTAGES to tie their future to an entity that may
suddenly vanish or become inoperative.
● Unlimited liability is one of the
● Over-all direction may become a burden
disadvantages of a sole proprietorship.
to the owner as the business grows.
● There is no limit as to the extent to which
There are limited opportunities for
their personal assets are subject to claims
employees as it is not permanent, and by
of business creditors, thus his liability is
reasons of death, imprisonment, or
generally unlimited.
insanity of the owner, the firm is
● Existing liabilities of the sole proprietor
automatically terminated. Even if a
will not be extinguished upon the
spouse, relative or friend of the deceased
dissolution or sale of the sole
owner assumes ownership and keeps the
proprietorship. A sole proprietor has total
business going under the same business
flexibility in managing and controlling the
name, legally a new business entity has
day-to-day operations of his business.
been formed.
● The organizational expenses and level of
formality in a sole proprietorship are
PARTNERSHIP
minimal compared to other business
organizations.
● It lacks business continuity and does not PARTNERSHIP
have a perpetual existence. Its capital is ● is a business owned and operated by two
generally limited to the sole contribution or more persons (called partners) who
of the owner, along with any loans bind themselves to contribute money,
obtained from outside sources, who are property, or industry to a common
willing to provide the extra capital fund, with the intention of dividing the
needed. profits among themselves.
● Assuming the total liabilities of a sole ADVANTAGE
proprietorship amounted to P200,000 and
● Its advantages include greater source of
its capability of paying these liabilities
capital than sole proprietorship, allows
from its business assets would be
for specialization of managerial skills as
P80,000, hence the extent to which the
well as pooling of partner’s knowledge,
owner’s personal assets of P550,000
few legal restrictions than a corporation,
(assuming there is no personal liabilities)
and the individual partner is taxed, not
must be used to settle the remaining
the partnership business.

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● It enjoys better credit standing than a sole equitable contributions to the capital
proprietorship. required and accepting a fair share of the
risks and benefits of the undertaking in
DISADVANTAGE accordance with universally accepted
● Its disadvantages include restricted cooperative principles.
transfer of ownership, unlimited liability of ● Every cooperative shall conduct its affairs
partners for debts of the business, a in accordance with Filipino culture and
partner’s action can legally bind the experience and the universally accepted
business, partnership friction may principles of cooperation which include
terminate the partnership agreement, and the following:
a limited life.
OPEN AND VOLUNTARY MEMBERSHIP
CORPORATION
DEMOCRATIC CONTROL
CORPORATION
● is an artificial being created by operation DIVISION OF NET SURPLUS
of law, having the rights of succession and
its powers, attributes, and properties COOPERATIVE EDUCATION
expressly authorized by law or incident
to its existence (Section 2, Corporation COOPERATIVE AMONG COOPERATIVES
Code of the Philippines).
● The owner is called a stockholder or
● Compliance of these generally accepted
shareholder.
principles of cooperative can be used as a
criterion in identifying the advantages and
ADVANTAGES
disadvantages of cooperatives.
● Its advantages include a term of corporate
existence with a maximum of 50 years but These various forms of business ownership will
subject to renewal for another fifty (50) apply the entity theory which considers the entity
years, ownership is easily transferable, as a separate and distinct person. Thus, personal
stockholders have limited liability for the transactions of the owner will be accounted for
debts of the corporation, greater source of separately from its business transactions. In a sole
capital, and permits the use of proprietorship, an owner’s withdrawal account or
management specialists. an advances account will be established.

DISADVANTAGES The complexity of accounting will depend on the

● Its disadvantages include more difficult size, regulatory requirements set by:
and costly to organize than the other
forms, subject to more legal Bureau of Internal Revenue (BIR)
restrictions, subject to higher tax on
business income, stockholders have little Securities and Exchange Commission
control over management of business, and (SEC)
subject to more government control.
Central Bank
COOPERATIVE
● Cooperative is a duly registered Cooperative Development Authority (CDA);
association of persons, with common
bond of interest, who have voluntarily as well as that of multinational parent
joined together to achieve a lawful company requirements.
common social or economic end, making

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that earns most or all of its revenues from

agriculture.
TYPES OF BUSINESS ACTIVITIES ● It includes farming and contract
● Companies can be grouped or classified farming, wholesale and retail
by the type of business activities they distribution of farm supplies and
perform such as: equipment as well as agri-tourism
farming.
SERVICE FIRMS
● are those that perform services for a AQUA-CULTURE
fee such as consulting firms, law firms, ● also known as aqua farming is the
hospitals, funeral parlors, hotels, beauty farming of aquatic organisms such as
salons, printing press and recruitment fish, shellfish and aquatic plants.
agencies ● It involves breeding, raising and harvesting
aquatic organisms. Fish farming, shrimp
MERCHANDISING farming, oyster farming, alga culture
● (otherwise known as trading) firms are such as seaweed farming, and the
those that will buy and sell cultivation of ornamental fish are
merchandise or goods that are in included. Basically, it is farming in water.
salable form to its customers such as
car dealers, department stores, hardware, SUMMARY:
drugstore, sari-sari store and
supermarkets.

MANUFACTURING FIRMS
● are those that buy raw materials,
convert them into finished products and
then sell the manufactured products to
other companies or to its individual
customers such as paper mills, car
manufacturers, steel mills and soft drinks
companies.

ONE-STOP SHOP
● is a business that offers multiple products
or services to its customers, all under one
roof.
● A one-stop shop can refer to a single
physical location where the business
can be carried out or it can refer to a
company that handles a variety of goods
or services.

AGRI-BUSINESS
● a large-scale business operation, that
involves the production, processing, and
distribution of agricultural products and
the manufacture of farm machinery,
equipment and supplies. It is a business

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