OPENING PRAYER & DEVOTION

Read the bible verse and reflect on it with one minute of silence.
Then make your personal prayer.
1
 ACCOUNTING
AND ITS
ENVIRONMENT

Chapter 1
2
 Technical Knowledge
• Fundamental business model
1 • Types, Forms, Size and Activities of Business

• Definition of Accounting and Bookkeeping

2 • Fundamental Concepts of Accounting

• Accounting Information System

3

3
 Fundamental Business Model

Sales
Capital

Business
Owner Products
Operating Asset
Cash Use or
Assets
services
Banks

Return
Costs

4
 1. The investors provide the capital for the business.
The cash investment will then be held in a bank account.

Sales
Capital
1
Business
Owner Products
Operating Asset
Cash Use or
Assets
services
Banks

Return
Costs

Fundamental Business Model 5

 2. The cash in the business can be:
- Converted into another type of asset that will be used in the
business or sold
- Spent on operating costs such as salaries, rentals & utilities

Sales
Capital
1
Business
Owner Products
Operating Asset
Cash Use or
Assets
services
Banks
2
Return
Costs
2

Fundamental Business Model 6

 3. The combination of business resources provides the basis
for producing the products or services

Sales
Capital
1
Business
Owner Products
Operating Asset
Cash Use or
Assets
services
Banks 3
2
Return
Costs
2

Fundamental Business Model 7

 4. The sale of product or service generates an asset called
receivable. This asset once collected will produce a cash
inflow for the business.

Sales
Capital 4
1
4
Business
Owner Products
Operating Asset
Cash Use or
Assets
services
Banks 3
2
Return
Costs
2

Fundamental Business Model 8

5. The cash inflow from collections will be used to:
a. pay debts with interest on their loans to the company.
b. return some cash to the owner.
c. the rest of the cash can be sent back to the cycle. (stage 2)

Sales
Capital 4
1
4
Business
Owner Products
Operating Asset
Cash Use or
Assets
services
Banks 3
2
5
Return
Costs
2

Fundamental Business Model 9

 Types of business
• Services
• Trader
• Manufacture
• Raw materials
• Infrastructure
• Financial
• Insurance

10
 Types of business - SERVICE

Activity • Selling people’s time

Structure • Hiring skilled staff and selling their time

• Software developer
Examples •
•
Accounting Firm
Law firm / Legal services
11
 Types of business - TRADER

Activity • Buying and selling products

• Buying a product,
Structure •
•
Making them available for sale as is
No conversion happens

• Wholesaler
Examples • Retailer

12
Types of business - MANUFACTURE
• Designing products, aggregating
Activity components and assembling finished
products

• Taking raw materials and using

Structure equipment and staff to convert them
into finished goods

• Vehicle assembly, construction,

Examples electricity, water, food, drink,
chemicals, media, pharmaceuticals
13
Types of business – RAW MATERIALS

Activity • Growing and extracting raw materials

• Buying blocks of land and using them to

Structure provide raw materials

• Farming
Examples •
•
Mining
Oil
14
 Types of business -
INFRASTRUCTURE

Activity • Selling the utilization of infrastructure

• Buying operating assets (typically large assets);

Structure selling occupancy often in combination with
services

• Transport (airport operator, airlines, trains,

Examples ferries, buses)

• Hotels, telecoms, sports facilities, property
management
15
 Types of business - FINANCIAL

Activity • Receiving deposits, lending and investing money

• Accepting cash from depositors and paying them

interest using the money to provide loans to
Structure borrowers, charging them fees and interest
higher than the depositors receive

• Banks
Examples • Investment house

16
Types of business - INSURANCE

• Pooling premiums of many to meet

Activity claims of a few

• Collecting cash from many customers;

Structure investing the money to pay the losses
experienced by a few customers

Examples • Insurance

17
Forms of Business Organizations

Sole proprietorship

Partnership
Corporation
18
 Sole proprietorship
• Single owner called proprietor
• The owner receives all profits and absorbs all
losses and solely responsible for all debts

• Accounting viewpoint:
– Sole proprietorship is distinct from the proprietor

19
 Partnership
• Owned by two or more persons who bind
themselves to contribute money, property or
industry to a common fund, with the intention
of dividing the profits among themselves.
• Owners are called partners
• Each partner is personally liable for the debt
incurred by the business
• Accounting viewpoint:
– Partnership is a separate organization, distinct
from personal affair of the partners. 20
 Corporation
• Owned by the stockholders
• Artificial being created by operation of law,
having rights of succession and the powers,
attributes and properties expressly authorized
by law or incident to its existence.
• The stockholders are not personally liable for
the debt of the corporation
• Accounting viewpoint:
– The corporation is a separate legal entity
21
 Sizes of business

Micro

Small
Small

Medium

Large
Large
22
 Micro
• Net assets of P3M and below
• Less than 10 employees

23
 Small
• Net assets of above P3M to P15M
• 10-99 employees

24
 Medium
• Net assets of above P15M to P100M
• 100-199 employees

25
 Large
• More than P100M net assets
• 200 and above employees

26
 Activities in
Financing Business
Organizations

Investing

Operating
27
 Financing
• Obtaining financial resources
– Primary sources are owners and creditors
• Repaying the creditors
• Paying a return to the owners

28
 Investing
• Acquiring other resources used in the
transformation process
– Land, building equipment etc
• Disposal and replacement of these resources

29
 Operating
• Involve the use of resources to design,
produce, distribute and market goods and
services.

30
 Accountingisisaaservice
Accounting serviceactivity
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. 31
Accounting is the process of
identifying, measuring, and
communicating economic
information to permit
informed judgments and
decisions by users of the
information.

32
Accounting is 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.
33
Accounting is an information
system that measures,
processes and communicates
financial information about an
identifiable economic entity

34
 Accountingisisaaservice
Accounting serviceactivity
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. 35
Bookkeeping
Is an accounting support
function that involves
the systematic recording
of business transaction
in financial terms

36
 Phases of accounting
• Recording
• Classifying Accounting is art of recording,
• Summarizing classifying and summarizing in
• Interpreting 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.
37
Fundamental Concepts
)

COST

Materiality

38
 What is an information system?
• An information system (IS) is a formal,
sociotechnical, organizational system designed
to collect, process, store, and distribute 
information
• Information Systems is an academic study of
systems with a specific reference to
information and the complementary networks
of hardware and software that people and
organizations use to collect, filter, process,
create and also distribute data.  39
 Parts of information system
• People
• Procedure
• Software
• System Software
• Application software
• Hardware
• Input devices
• The system unit
• Secondary storage
• Output devices
• Communication devices
• Data
40
 Accounting information system

The accounting
process
This diagram illustrates how economic
activities flow into the accounting
process, which produces accounting
Economic information, which are used in making The accounting
economic decisions and taking specific information
activities actions thus resulting to economic
activities

Actions Decision makers

(decisions)
41
 Effective AIS should achieve the following objectives

(cost-benefit (control (compatibility (flexibility

principle) principle) principle) principle)
• To process • To protect entity’s • To be in harmony • To be able to
information assets, to ensure with the entity’s accommodate
efficiently at the that data are organizational and growth in the
least cost reliable, and to human factors volume of
minimize wastes transactions and
and the possibility for organizational
of theft or fraud changes

42
 TYPES OF AIS

• MANUAL SYSTEMS
– Utilize paper-based journals and ledger
• COMPUTER-BASED TRANSACTION SYSTEMS
– Utilize computer-based journals and ledger
• DATABASE SYSTEMS
– Embed accounting data within the business event
data on which they are based

43
STAGES OF DATA PROCESSING

PROCESSIN
INPUT OUTPUT
G

44
 CLOSING PRAYER
Read and reflect on the bible verse.
Thank God for everything that you have learned today.

45