Fundamentals of

Accountancy,
Business, and
Management

MIDTERM
(Summary)
Part I. Introduction to Accounting
Part II. Types of Business According to Ownership
Part III. Types of Business According to Activities
Part IV. Users of Accounting Information
Part V. Accounting Concepts and Principles
Part VI. Major Accounting Accounts and Accounting Equation
Part VII. Effects of Transactions to the Accounting Equation
Introduction to
Accounting

Part I
 What is Accounting?

• Use to maintain a systematic and chronological

record of financial transactions.

• Accounting is the systematic process of measuring

and reporting relevant financial information about
the activities of an economic organization or unit.
 Nature of Accounting

• Accounting is a systematic process.

• Accounting is an art.
• Accounting is a service activity
Four Aspects of Accounting

• Recording
• Classifying
• Summarizing
• Interpreting
 Basic Function of Accounting in
Business

• Generation of relevant and timely financial

information for interested parties.
Types of Business
According to
Ownership

Part II
 Types of Business
According to Ownership

• Sole Proprietorship
• Partnership
• Corporation
 Sole Proprietorship

• A business that is owned by only one individual for the

practice of trade or profession or other purpose.

• It is the simplest and least costly form of ownership.

 Partnership

• A business that is owned by two or more individuals

pooling their resources together as common fund.
 Corporation

• Is a business required to have 5 (five) to 15 (fifteen

incorporators).
Types of Business
According to
Activities

Part III
 Types of Business
According to Activities

• Service Business
• Merchandising Business
• Manufacturing Business
 Service Business

Type of business that focuses on providing intangible

products, such as professional skills, proposals, expertise.

Example: Accounting firms, law firms, schools, medical

clinic, banks, hair salons and spas, repair shops.
 Merchandising Business

This type of business is commonly known as the “buy and

sell” business. Products are bought from manufacturers and
are sold at a higher amount.

Example: Grocery stores, hardware stores, department

stores, drug stores, convenience stores
 Manufacturing Business

Type of business wherein raw materials are bought to create

a new product.

Example: Food factories, garment factories, and car

manufacturing companies.
 Users of
Accounting
Information

Part IV
Internal Users

The primary users of financial

information who are inside the
reporting entity and are directly
involved in managing the company’s
daily operations.
Internal
Users
Stockholders Board of Directors

Vice-president/s Managers

Supervisors
Internal Investors / Owners / Stockholders

• Provide financial resources to keep the business going.

Users • Interested in information about the stability and profitability
of the
reporting entity in order for them to decide on whether to sell or
hold investments in stocks.

Management
(Board of Directors, Vice-president/s, Managers, Supervisors)

Use financial information to set goals for their companies and for
decision making.

Employees

They are not directly involved in the decision making of the

company. But, they contribute to the operations.
External
Users

Secondary users of financial

information who are parties outside
the company.
External
Users Government
Investors agencies

Creditors Consumers
External • Financial Institutions/ Creditors

Users • Lenders their resources (usually money) to the business in exchange

for a fee.
• Uses financial information to enable them to determine whether
loans and the related interest will be paid when due

Government

Check if businesses follow guidelines provided by

law in their operations.

Potential Investors

Unlike creditors who are assured to earn the

interest and fees, investors may win or lose in
their investment.
 Accounting
Concepts and
Principles

Part V
 Generally Accepted
Accounting Principles (GAAP)

These are measurement techniques, rules, and standards

used in the presentation and preparation of financial
statements.
 Accounting System

Comprises the methods used by a business to keep record

of its financial activities and to summarize these accounts
in periodic accounting records.
 Fundamental Concepts

• Entity Concept
• Periodicity (Calendar year, Fiscal year)
• Going Concern
 Entity Concept

Regards the business enterprise as a separate and

distinct from its owners and from other business
enterprises.
 Periodicity

The concept behind providing financial accounting

information about the economic activities of an enterprise
for a specified time periods.
An accounting period may be classified
as either of the following:

1. Calendar year 2. Fiscal year

A twelve-month period that starts A twelve-month period that starts on any

on January 1 and ends on December month of the year other than January
31. and ends twelve months after the
starting period.
 Going Concern

Is a concept which assumes that the business

enterprise will continue to operate indefinitely or
continuously.
Basic Accounting Principles

• Objectivity Principle
• Historical Cost
• Accrual Principle
• Adequate Disclosure
• Materiality
• Consistency
 Objectivity Principle

States that all the financial transactions that will be

entered in the accounting records must be duly
supported by verifiable evidence.
 Historical Cost

Means that all properties and services acquired by the

business must be recorded at their original acquisition
cost.
 Accrual Principle
• States that income should be recognized at the time it is
earned such as when goods are delivered or when
services have been recorded.

• Income is recognized when rendered even without

receiving payment

• Expenses are recognized when incurred even without

payment.
 Adequate Disclosure

States that all material facts that will significantly

affect the financial statements must be indicated.
 Materiality
Means that financial reporting is only concerned
with the information significant enough to affect
decisions.

This refers to the relative importance of an item or

event. An item is considered significant if
knowledge of it would influence prudent users of
the financial statements.
 Consistency

Means that approaches used in reporting must be

uniformly employed from period to period to allow
comparison of results between time periods. Any
changes must be clearly explained.
 Major Accounting
Accounts
and
Accounting Equation

Part VI
 Types of Major Accounts

Assets Liabilities Owner’s Income / Revenue Expenses

Equity/ Capital

• Resources
owned and Owner’s claims
in the business.
controlled by Legally binding Money that a Reduction in
the firm. It is the residual value of an asset
obligations that person or entity
interest in the as it is used to
are payable to receives in
• An expenditure assets of the
another person exchange for their generate
that has utility enterprise after
or entity. labor or products. revenue.
through deducting all its
multiple
liabilities
accounting
periods.
 Accounting Equation
• The principle that a company’s assets are equal to the sum
of its liabilities and equity.
• Accounting equation is always balance or equal.
A=L+E
Assets
Liabilities Equity
• Cash
• Accounts Receivable
• Accounts Payable • Stockholder’s Equity
• Inventory (Raw
• Loans Payable • Owner’s Equity
materials)
• Wages Payable • Retained Earnings
• Plant, Property and
• Taxes Payable
Equipment
• Land and Buildings
• Investments
 Sample Computation
Shingaling’s Pest Control has total assets of P600,000 and owner’s equity of P450,000.

A=L+E
A = L + E

P600,000 = = 150,000
? + P450,000

A=L+E
600,000
- 450,000

= 150,000
 Sample Computation
Shingaling’s Pest Control has total assets of P600,000 and owner’s equity of P450,000.

A=L+E
A = L + E

P600,000 = 150,000 + P450,000

P600,000 = P600,000
 Sample Computation
AtShingaling’s
the beginning
Pest of the year,
Control AEC assets
has total Printing
of Shop’s total
P600,000 andassets were
owner’s P360,000
equity and its
of P450,000.
owner’s equity was P200,000. During the year, assets increased by P120,000 and
liability by P20,000. What is the owner’s equity at the end of the year?

A = L + E

P360,000 = P160,000
? + P200,000

P120,000 = P20,000 + ?
P100,000

P480,000 = P180,000 + P300,000

 Effects of
Transactions to the
Accounting Equation

Part VII
 Effects of Transactions to the
Accounting Equation
Transaction Asset = Liabilities Owner’s Equity
Investment of cash
in the business + = No effect (NE) +
Business paid its
loan on account - = - NE
Firm purchased a
service vehicle on + = + NE
account.
Cash received from
services rendered + = NE +

Paid advertising - = NE -
expense
Billed customer for
services rendered + = NE +
Goodluck! 