1.

Introduction to Accounting • usually adopted by large business organizations

• can generate large amounts of capital from
Topics: investments
• not easy to set-up and organize
1. Definition and purpose of a business • ownership is usually represented by shares of stock.
2. Forms and types of business • owners (stockholders) enjoy limited liability but have
3. Business requirements limited involvement in the company's operations.
4. Definition and purpose of accounting • easy to transfer ownership
5. Definition, purpose and scope of bookkeeping
6. Functions of a bookkeeper Basic Types of Business
7. The Accounting Cycle There are major types of businesses:

Business 1. Service Business

• A person or organization engaged in the regular • a business that provides intangible products (products
conduct of commercial, industrial or professional with no physical form) for a fee
activities, whether for profit or not, in order to fulfill • offers professional skills, expertise, advice, and other
a purpose, goal, mission or cause. similar products.
• The regular conduct or pursuit of a commercial • examples are: repair shops, beauty care, health and
activity or an economic activity, including recreation, transportation, communication,
transactions incidental thereto, by any person consulting, professional, medical and other service
regardless of whether or not the person is engaged companies.
therein is a non-stock, non-profit private organization
or government entity. (Sec 105, NIRC) / TAX CODE 2. Merchandising Business

Business • a business that buys products and sells the same at a

higher price for a profit.
• Person or organization • known as "buy and sell" businesses.
• Regular conduct • sells a product without changing its form.
• Commercial, industrial or professional activities • Examples are: grocery stores, convenience stores,
• Lawful transactions distributors, and other resellers.
• Whether for profit or not
• To fulfill a purpose, goal, mission or cause 3. Manufacturing Business

Forms of Business Organization • a business that buys materials and converts them into
These are the basic forms of business ownership: a new product.
• combines raw materials, labor, and overhead costs in
1. Sole Proprietorship its production process, and sells the manufactured
goods to customers.
• a business owned by only one person
• usually adopted by small business entities 4. Mixed/Hybrid Business
• easy to set-up and requires low capital
• owner faces unlimited liability • companies that can be classified in more than one
• not easy to transfer ownership type of business.
• example: A restaurant, combines ingredients in
2. Partnership making a fine meal (manufacturing), sells a cold
bottle of wine (merchandising), and fills customer
orders (service).
• a business owned by two or more persons
• the partners contribute resources into the entity
• the partners divide the profits among themselves. Not considered engaged in business:
• generally, all partners have unlimited liability. In
limited partnerships, creditors cannot go after the • Government agencies and instrumentalities
personal assets of the limited partners. • Pure compensation employment (local or abroad,
private or government)
3. Corporation • Directorship in a corporation
• Gratuitous transfer of properties by succession or
• a business organization that has a separate legal donation
personality from its owners
 • Isolated or casual transactions by persons not transactions and events which are, in part at least of a financial
engaged in trade or business character, and interpreting the results thereof (American
Institute of Certified Public Accountants).
Considered engaged in business:
Accounting is a service activity. Its function is to
provide quantitative information, primarily financial in nature,
• Freelancers, agents and consultants about economic entities that is intended to be useful in making
• Broadcast media talents and artists economic decisions (Accounting Standards Council).

Legal Requirements in Organizing a Business Accounting is the process of identifying, measuring and
communicating economic information to permit informed
1. Register Business Name and Entity judgment and decision by users of the information (American
Depending on the form of the business, it must register with Accounting Association).
the following government agencies:
Accounting is an information system that measures,
1. Sole Proprietorship - Department of Trade and processes and communicates financial information about an
Industry (Business Name Registration) identifiable economic entity.
2. Partnership or Corporation - Securities and Exchange
Commission (Registration System)
3. Cooperative - Cooperative Development Authority Accounting
(Registration System)
• a service activity, a process
2. Secure Business Permits and Licenses • to provide financial information
Depending on the nature of its activities, the business must • about economic entities
secure its permits and licenses in the city or municipality • for the use of interested users
where it conducts its business. Generally, the following will be
obtained:
Purpose of Accounting
1. Business Permit or Professional Tax Receipt - from
the City or Municipal Government Unit • to provide financial information about the business
2. Fire Safety Inspection Certificate - from the Bureau that will be useful in making economic decisions of
of Fire Protection the users of the information
3. Barangay Clearance and Community Tax Certificate
- from the barangay where the business is operating Financial Statements
4. Employer Registration - SSS, HDMF, PHIC, DOLE
(if applicable)
1. Statement of Financial Position (Balance Sheet)
2. Statement of Financial Performance (Income
3. Comply with BIR Requirements: Statement)
The business entity must also comply with the following 3. Statement of Changes in Owner's Equity
requirements of the Bureau of Internal Revenue: 4. Statement of Cash Flows
5. Notes to the Financial Statements
1. Business registration
2. Issuance of receipts and invoices Users of Accounting Information
3. Keeping of tax and accounting records Internal Users (within the business organization)
4. Withholding of taxes on certain payments
5. Filing and payment of taxes
• Owners
• Managers
However profitable or noble the purpose of the business may
• Employees
be, the failure of the business entity to comply with any of
• Officers
these requirements might lead to penalties, fines, surcharges
or, at worst, closure of the business. • Internal Auditors

After the registration and securing all the necessary External Users (outside the business organization)
certificates and permits, the company needs to maintain its
accounting records. • Customers
• Suppliers
Definition of Accounting • Creditors
Accounting is the art of recording, classifying, and • Investors
summarizing in a significant manner and in terms of money, • External Auditors
 • Government Agencies • Record purchase returns, account adjustments and
• Industrial Organizations debit memos from suppliers
• Public • Receive Statement of Accounts from suppliers
• Reconcile accounts payable ledger balance with
unpaid customer invoices.
Branches of Accounting • Maintain Accounts Payable Subsidiary Ledger
• Prepare Accounts Payable reports
1. Financial Accounting
2. Management Accounting
3. Tax Accounting Inventory Accounting
4. Auditing
• Record receipts of inventory from suppliers.
Bookkeeping • Record release of inventory to customers
Bookkeeping is the recording of financial transactions and is • Record inventory returns and adjustments
part of the process of accounting in business (Financial • Prepare purchase requests and Inventory issuance
Accounting 2003, Weygandt; Kieso; Kimmel). It is largely slips
concerned with the implementation of the accounting • Reconcile physical count of inventory to ledger
procedures manual and maintenance of the accounting balances
records. Bookkeeping is the procedural implementation of • Maintain inventory subsidiary ledgers
Accounting. • Prepare Inventory reports

Bookkeeper is the person who keeps and maintains the books

of accounts of the business organization. The bookkeeper is The Bookkeeper may also be assigned to handle other
responsible for recording the transactions of the business. functions, such as:

Functions of a Bookkeeper • Property control and monitoring

General Accounting • Payroll preparation
• Remittance of statutory deductions and reports
• Tax bookkeeping
• Verify deposit of cash collections
• Treasury and banking
• Verify petty cash disbursements
• Audit assistance
• Prepare bank reconciliation
• Managerial and administrative functions.
• Record transactions in the journals
• Post to the subsidiary and general ledgers
• Reconcile general and subsidiary ledgers
The scope and variety of functions depends on the nature,
• Prepare a draft of the Trial Balance
type, size, organization structure of the business and other
• Assist the Accountant in the closing of the accounts
factors.
and finalization of the financial statements.
• Maintain proper filing and retrieval of accounting Due to the importance of his or her functions, the Bookkeeper
records must possess the knowledge, abilities and temperaments
required to properly fulfill his or her duties and functions. One
of the knowledge requirements would be the basic knowledge
Accounts Receivable in Accounting.

• Record sales invoices

• Record cash receipts from customers
• Record sales returns, account adjustments and credit
memos from suppliers
• Issue Statement of Accounts to customers
• Reconcile accounts receivable ledger balance with
unpaid customer invoices.
• Maintain Accounts Receivable Subsidiary Ledger
• Prepare Accounts Receivable reports

Accounts Payable

• Record purchase invoices

• Record payments to suppliers
Recording

1. Identification of Accountable Transactions. Business

transactions or events are analyzed and identified whether they
are accountable or not.

2. Journalizing. The accountable transactions are recorded

in the book of original entry known as the journal. The
transactions are recorded chronologically using the
appropriate accounts and amounts.

3. Posting. The transactions from the journal are classified

in the book of final entry known as the ledger. The ledger
classifies the transactions effecting the increases and decreases
for each account.

Summarizing

4. Trial Balance. The summary of accounts balances from

the ledger is prepared in the list of accounts known as the trial
balance. This is the proof that the ledger debit balances and
credit balances are equal and is in balance.

5. Adjusting Entries. Adjusting journal entries are made at

the end of the accounting period to assign revenues to the
period in which they are earned and expenses to the period in
which they are incurred.

Reporting

6. Financial Statements. The following financial statements

are prepared: statement of financial position, statement of
financial performance, statement of changes in equity,
statement of cash flows and the notes to the financial
statements. These financial statements provide useful
information to interested parties for their decision-making.

7. Closing Entries. The temporary nominal accounts are

eliminated from the accounts by recording and posting the
closing entries. This will prepare the accounting records for
the next accounting period.

8. Post-Closing Trial Balance. After the closing entries are

posted, the post-closing trial balance is prepared to check that
the debit and credit balances of the remaining accounts are
correct.

Optional

9. Recording of Reversing Entries. At the beginning of the

next accounting period, selected adjusting journal entries
made at the previous accounting period are reversed to
“normalize” the recording of the related actual transactions.