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INTRODUCTION TO ACCOUNTING
ACCOUNTING DEFINED
Accounting is a service whose function is to provide quantitative
information, primarily financial in nature about economic entities
that is intended to be useful in making economic decisions
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ROLE OF ACCOUNTING BUSINESS
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TYPES OF BUSINESS
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g schools, insurance, companies, accounting or law firms,
repair shops, transportation companies, etc
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Merchandising Business - entities that purchase products
from the other businesses and sell them to customers ( e
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)
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( e
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Proprietorship is a business that is owned and operated by a
single individual ( The owner is called proprietor)
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Corporation is a business whose capital is divided into shares
of stock and is created by operation of law
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Cooperative is a business that is exempted from taxation
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One owner
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Owner manages the business
Partnership
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Unlimited liability for partnership debts
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There is a managing partner
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Unlimited owners
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Unlimited owners
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Management is vested in the BOD
Statement of Financial Condition Elements
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Included in this element are cash,
receivables, inventory, land, building, machinery, furniture
and equipment
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Liabilities - economic or legal obligations that a businesses or
individuals included in this element are accounts payable,
notes payable, loan payable, payables to government and
unpaid expenses
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Owner’s Equity is the owner’s interest in, or claim to the
assets and the amount of liabilities
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Revenues - inflows of assets resulting from the sale of goods
or services
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Expenses
decrease owner’s equity
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Net Income - the excess of revenue over expenses for a given
accounting period Net income increases owner’s equity while
net loss decreases owner’s equity
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Its functions are
the following:
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This can be done manually, with the use of
mechanical devices or electronically, or with the use of
computers
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Classifying this involves the grouping of similar items together
in order to make the recording of the different transactions
and events more systematic
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Summarizing this involves the preparation of financial
statements
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Interpreting this involves the analysis of financial statements
(by developing financial ratios and explaining their
significance) for the benefit of the readers or users
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The basic accounting equation is shown below:
Assets = Liabilities + Owner’s Equity or Assets - Liabilities = O
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The peso amount on the left side
of the equation (called DEBIT) should always be equal to the peso
amount on the right side of the equation ( called CREDIT)
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An increase in an asset
may also have a corresponding decrease in another asset or an
increase in a liability may also have a corresponding decrease in
another liability by an equal amount
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The two sides of the equation should always balance
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The effect of every transaction is an increase or decrease in
one or more of the accounting equation elements
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The owner’s equity is increased by the amount invested by the
owner and decreased by withdrawals
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BUSINESS TRANSACTION
Business transaction is an economic event or condition that
directly changes an entity’s financial condition or directly affects its
results of operations
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Business
transactions are recorded in terms of debit and credit
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This is called the dual
effect of a transaction
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Business
transactions will affect the accounting elements but the equality of
the accounting equation will be maintained
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The accounting period usually covers one
year because it jibes with the payment of the annual income taxes
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Financial Statements - are accounting reports pre[pared at the
end of an accounting that provide financial information regarding
the transactions that have been recorded and summarized
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Statement of Comprehensive Income - also called the income
statement, is a statement, which shows the revenue and expenses
for a specified period of time
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Statement of Changes In Equity - is a statement, which shows
the assets, liabilities and owner’s equity of the business as of
specific date
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Statement of the Cash Flows -is a summary of cash inflows and
cash of flows for a specific period of time, such as a month or a
year

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