MODULE 1
INTRODUCTION
TO
ACCOUNTING &
BUSINESS
RONALD GERVACIO
Upon completion of this lesson, the
LEARNING student should be able to:
• Define accounting and
OBJECTIVES
bookkeeping
• Learn how accounting helps
business
• Know the users of accounting
reports
• Learn how to start a business
• Know the types of business
activities
• Understand the different forms
“Is accounting
important to
you?”.
• Do your parents ask how you
spend your allowance?
• When deciding between buying a bottle of
softdrinks or fruit juice, what is the basis of your
decision? Do you compare the prices of both and
then decide?
• When going home, do you sometimes choose to
walk from school rather than riding a jeep
because you want to save?
ACCOUNTING
The American Institute of Certified Public Accountants
(AICPA) defined Accounting as the process of
recording, classifying, summarizing in a significant
manner and in terms of money, transactions and
events which are in part at least, of financial
character, and interpreting the result thereof. The
AICPA definition gives us the functions of accounting
before the financial statements can be completed.
FUNCTIONS OF ACCOUNTING
1. Recording is the writing down of
the business transactions in a record
book called journal. This is termed as
bookkeeping.
2. Classifying means arranging or
organizing transactions in classes of
categories. (e.g., revenue, expenses,
assets).
FUNCTIONS OF ACCOUNTING
3. Summarizing is the summing up of
events to find the total so that financial
statements can be prepared.
4. Interpreting is defined by the Webster
dictionary as to set forth the meaning of; to
understand in a particular way. After the third
function, financial reports can be prepared.
At this point, the business will understand
what happened to the business whether it
realizes an income or suffers a loss.
FLOW OF ACCOUNTING INFORMATION
ECONOMIC ACTIVITIES
BUSINESS DOCUMENTS
ACCOUNTING PROCESS
ACCOUNTING REPORTS
DECISION MAKERS
“Who uses accounting data or
information?”
1. Internal users - include management and the
business itself. Owners/Management would like to
know the progress of their business. They would like
to know how their money is being used.
2. External users - are the people outside the
business like the reading public, government
agencies, creditors, investors, employees. The
business prepares reports about the position or the
status of the business. Through financial
statements, they can get the information they need
about the business.
How to
start a
BUSINESS?
BUSINESS
Business is a field of endeavor. A
person engages in business for the
purpose of attaining an objective
which is profit. It is through
accounting that we can measure the
profitability of the business.
·A business is started by investing the
personal money or funds of the owner.
This money in the meantime becomes
the money of the business. In
Accounting, this is what we call the
"business entity" concept. Under this
concept, the personality of the business
is treated distinct and separate from the
personality of the owner. There is now a
dividing line between the money of the
owner and that of the business.
Types of Business Activity
·1. Service Business
This type of business offers
professional skills, advice
and consultations.
Examples: barber shops and
beauty parlors, repair shops,
banks, accounting and law firms
Types of Business Activity
2. Merchandising Business
This type of business buys at
wholesale and later sells the
products at retail. They make a
profit by selling the merchandise
or products at prices that are
higher than their purchase costs.
This type of business is also known Examples are: book stores, sari-
as "buy and sell". sari stores, hardware stores
Types of Business Activity
3. Manufacturing
Business
This type of business buys
raw materials and uses
them in making a new
product, therefore
combining raw materials,
labour and expenses into a Examples are: shoe manufacturing
product for sale later on. businesses, car manufacturing plants
Note:
Some businesses may be classified under more than
one type of business. A bakery, for example, combines
raw materials in making loaves of bread
(manufacturing), sells hot pan de sal (merchandising),
and caters to customers’ orders in small coffee table
servings of ensaymada and hot coffee (service).
Forms of Business Organization
Suppose you want to open your own sari-sari store that
will need PHP10,000 to start and you used your
PHP10,000 savings to start the said business. You are
the sole owner of the said sari-sari store. This type of
business is called sole/single proprietorship
Forms of Business Organization
1.Sole Proprietorship
A form of business is owned by one person; the
simplest, and the most common form of business
organization. It is not separate from the owner. The
business and the owner are inseparable.
Forms of Business Organization
“What if the needed amount to start your dream sari-
sari store is PHP50,000 and you only have PHP25,000
cash savings. You ask Juan, your friend if he is willing to
invest his PHP25,000 and become part owner of the
sari-sari store. Assuming he agrees, what form of
business organization was created?”
Forms of Business Organization
2. Partnership
⚬ A form of business owned by two or more
persons.
⚬ The details of the arrangement between the
partners are outlined in a written document
called
articles of partnership.
⚬ Profits are divided among partners based on
their agreed sharing.
Forms of Business Organization
Assuming your dream is to open a grocery store and
not just a sari-sari store but you will need
PHP1,000,000 to start the said business. You have only
PHP25,000, your friend Juan has PHP25,000, and your
mother is willing to invest her PHP50,000, but still
these are not enough to start your dream grocery
store. Where will you get the money to raise the PHP1
million? You may consider setting up a corporation?”
Forms of Business Organization
3. Corporation
⚬ A corporation is a business organized as a separate legal entity
(artificial person) under the corporation law with ownership divided
into transferable shares of stocks
⚬ Emphasize that it is the law (Corporation Code of the Philippines) that
creates a corporation.
⚬ The corporation begins its existence from the date the Articles of
Incorporation is approved by the Securities and Exchange Commission
(SEC).
⚬ The SEC (Securities and Exchange Commission) is the government
agency primarily tasked to regulate private corporations in the
Philippines.
⚬ The owners are called stockholders or shareholders.
⚬ The word ‘Corporation/Incorporation/Corp./Inc.’ appears in the name
of the entity.
Forms of Business Organization
Assuming all the mothers in your barangay decided to open a sari-
sari store where all the members can buy in cash or in credit.
Some mothers were also taught how to sew dresses and bags as
part of the project of the group. These bags are then sold to a
certain company. Aside from that, the organization provides
seminars to the members on various topics involving mothers and
their roles. At the end of the year, the profits are distributed
among the members based on their capital contribution. The
amount of their purchases in the sari-sari store during the year is
also computed and they receive something out of the
profit/surplus based on their purchases. This form of business
organization is called a cooperative.
Forms of Business Organization
3. Cooperatives
⚬ A cooperative is a duly registered association of persons
with a common bond of interest, voluntarily joining
together to achieve their social, economic, and cultural
needs.
⚬ The owners are called members who contribute equitably
to the capital of the cooperative.
⚬ The members are expected to patronize their products and
services.
⚬ The word ‘cooperative’ appears in the name of the entity.
⚬ This form of business organization is regulated by the
Cooperative Development Authority (CDA).
·After considering the type of business activity and the form of
business organization, the next step is to register the business
name with the Department of Trade and Industry and pay the
necessary taxes and licenses before starting its operation.
·The necessary things needed in the business for sale or for its use
will be bought.
·Service for income (service business) or sells goods above cost (for
merchandising business) will be rendered.
·At a certain time, the business will close its books of accounts to
determine the result of a period of operation.
Accounting Period
An accounting period is the length of time that covers the business
transaction being reported upon. The accounting period varies depending
on the policy of the owner or management. It may cover a month, a
quarter, six months, or one year. Usually, a period of one year is used. An
accounting period may be:
a. Calendar year or period - a period of twelve months starting January
1 and ending December 31.
b. Fiscal year - any succession of twelve months starting with any month
except January and ending in any month except December.
ACTIVITY
Business Concept Development
- Each group brainstorms and selects a type of business to start
(Service, Merchandising, or Manufacturing).
- Decide on a specific product or service the business will offer.
- Choose a name for the business.
- Discuss and decide whether the business will be a sole
proprietorship, partnership, or corporation. Explain why this form
was chosen.
- Determine the amount of initial investment needed to start the
business.
MODULE 1
ACCOUNTING
CONCEPTS AND
PRINCIPLES
RONALD GERVACIO
BUSINESS ENTITY PRINCIPLE
A business enterprise is separate and distinct from its
owner or investor.
Examples: If the owner has a barber shop, the cash of
the barbershop should be reported separately from
personal cash. The owner had a business meeting with a
prospective client. The expenses that come with that
meeting should be part of the company's expenses. If
the owner paid for gas for his personal use, it should not
be included as part of the company's expenses.
GOING CONCERN PRINCIPLE
A business is expected to continue
indefinitely. (Accounting lang may FOREVER).
Example: When preparing financial
statements, you should assume that the
entity will continue indefinitely
TIME PERIOD PRINCIPLE
Financial statements are to be divided into specific time
intervals. (Ung ngayon, ngayon! Ung dati, nakalipas na yun.
Wag mo na balikan Bes!)
Example:
• Philippine companies are required to report financial
statements annually. (January 1 - December 31) It may also
be required to report in a monthly, quarterly, or semi-
annually.
• It may also be required to report in a monthly, quarterly, or
semi-annually. The salary expenses from January to
December 2015 should only be reported in 2015.
MONETARY UNIT PRINCIPLE
Amounts are stated in a single monetary unit.
(Pesos lang dito sa PINAS)
Example:
• Jollibee should report financial statements in
pesos even if they have a store in the United
States.
• IHOP should report financial statements in
dollars even if they have a branch here in the
Philippines because it's a USA company.
OBJECTIVITY PRINCIPLE
Financial statements must be presented with
supporting evidence. (Hindi pwedeng bintang ka
lang ng bintang, dapat may proof ka.)
Example: When the customer paid Jollibee for their
order, Jollibee should have a copy of the receipt to
represent as evidence.
COST PRINCIPLE
Accounts should be recorded initially at cost.
(Magkano mo nabili)
Example: When Jollibee buys a cash register, it
should record the cash register at its price when
they bought it. When a company purchases a
laptop, it should be recorded at the price it was
purchased.
ACCRUAL ACCOUNTING PRINCIPLE
Revenue should be recognized when earned regardless of
collection and expenses should be recognized when incurred
regardless of payment. On the other hand, the cash basis
principle in which revenue is recorded when collected and
expenses should be recorded when paid. (Cash basis is not
the generally accepted principle today)
Example: When a barber finishes performing his services he
should record it as revenue. When the barbershop receives
an electricity bill, it should record it as an expense even if it
MATCHING PRINCIPLE
Cost should be matched with the revenue generated.
(Pagtapatin mo ung nabenta/sales/revenues mo
against sa nagastos/cost mo for the same transaction
or period)
Example: When you provide tutorial services to a
customer and there is a transportation cost incurred
related to the tutorial services, it should be recorded
as an expense for that period.
DISCLOSURE PRINCIPLE
All relevant and material information should
be reported. (Ung makakatulong na
information, kahit masakit sabihin mo na
bes.)
MATERIALITY PRINCIPLE
In case of immaterial assets to make a difference in
the financial statements, the company should instead
record it as an expense. (ung maliit na bagay,
palampasin mo na)
Ex. A school purchased an eraser with an estimated
useful life of three years. Since an eraser is immaterial
relative to assets, it should be recorded as an
