MINDANAO STATE UNIVERSITY

COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

Marawi City

DEPARTMENT OF ACCOUNTANCY

BASIC ACCOUNTING REVIEW PROGRAM

Module 1
Introduction to Accounting

Outline of the Topic Learming Objectives

should be
At the end of the discussion, students
able to:

.Introduction of Accounting
o Definition of Accounting
o Nature of Accounting
o Function of Accounting
o Brief History of Accounting
Types/Branches of Accounting
.Users of Accounting Information
Forms of Business Organization
.Types of Business According
Activities
Accounting Concepts and Principles
1. Define accounting:
2. Describe the nature of accouting;
3. Explain the function of accounting:
4. Relate the history of accounting:
5. Define and differentiate the different
types/ branches of accounting:
6. Explain the services provided by each of
the branches;
7. Know who are the users of accounting
information
8. Explain the decision made by each of
these users;
to 9. Explain and describe the type of
information needed by each of these
users
10. Define, explain and differentiate the 4
forms of business organization;
11. Discuss the different types of business
according to activities
12. Explain the generally accepted
accounting principles.
13. Define and explain the different
accounting concepts and principles, and

Little did we know that in our daily life, we encounter accounting. Simple buying of ballpen, notebooks,
candies and the like, accounting is there. When our parents give us money for our allowance, again
accounting is there. Stil,most of us equated accounting to businesses only. That is a misconception because
accounting is everywhere, be it personal or business. Nonetheless, our discussion will be focus on accounting
for business operations.
Definitlon of Accountng
to
Accounting is the process of identifying, measuring and communicating economic information
permit informed judgment and decision by users of thee information. (American Accounting Association)
 Accounting is a service 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, and in makina
reasoned choices among alternative courses of action. (Accounting Standards Council)

Accounting is an art of recording, classitying and summarizing ina significant manner and in terms
of money, transactions and event which are, in part at least, of a financial character, and interpreting the
results thereof. (AICPA, 1953, par. 9)

Accounting is considered an art because it requires the use of skills and creative judgment.
One has to be trained in this discipline to be able to perform accounting functions well.

Concemed with transactions and events having financial character

For example, hiring an additional employee is qualitative information with no financial
character. Hence, it is not recorded. However, the payment of salaries, acquisition of an office
building, sale of goods, etc. are recorded because they involve financial value.
Business transactions are expressed in terms of money

They are assigned amounts when processed in an accounting system. Using one of
the examples above, it is not enough to record that the company paid salaries for April. t must
include monetary figures - say for example, $20,000 salaries expense

Accounting involves interconnected "phases"

o Recording pertains to writing down or keeping records of business transactions.
Business transactions that are measurable are the business activities that need to be
recorded in the book of an entity. Measurable in the sense that it must be expressed
in tems of common denominator (money), that is peso in the Philippines.
Classifying involves grouping similar items that have been recorded. It reduces the
effect of numerous transactions into useful groups or categories such as Assets,
Liabilities, Owner's Equity, Income and Expenses.

o Once they are classified, information is summarized into reports which we call financial
statements such as Balance Sheet/Statement of Financial Position, Incomme
Statement/Statement of Financial Performance, Statement of Owner's Equity.
Statement of Cash Flow and notes to financial statements. These reports summarize
the effects of all business transactions that took place during the period.

Interpreting results is part of the phases of accounting. Information is useless if they

cannot be interpreted and understood. The amounts, figures, and other data in the
financial reports have meanings that are useful to the users.

Nature of Accounting
D
1. Art
2. Financial
3. Process
4. Information
Functions of Accounting
1. Maintenance of systematic records
2. Financial results of an entity can be communicated
3. Meeting legal requirement
4. Protecting assets of the business
5. Assistance to management
History of Accounting
.Accounting can be traced to ancient civilization;
Accounting has been found in Mesopotamia more than 7,000 years ago
Other early accounting records were also found in the ruins of ancient Babylon, Assyria and
Sumeria;
The Roman Empire had access to detailed financial information as perceived in the Deeds of the
Divine Augustus;
Records of cash, commodities and transactions were kept by miitary personnel in the Roman
Army:
In Asia, the merchant during the Goryeo Dynasty kept track of their businesses and trades through
record keeping methodologies
Luca Bartolomeo de Pacioli, father of accounting;
o
An ltalian
mathematician and Franciscan friar
oAuthor of the book "Suma de arithmetica, geometria, proportioni, et proportionaita publish
in 1494:
t is a mathematics books but there is one chapter in that book the describe the
accounting used by the northern Italian merchant that includes the doble entry
bookkeeping, trial balance, balance sheet, and various tools still used by professional
accountants;

Types/Branches of Accountingg
1. Financial Accounting involves recording and classifying business transactions, and preparing and
presenting financial statements to be used by internal and extemal users. In the preparation of
financial statements, strict compliance with generally accepted accounting principles or GAAP is
observed. Financial accounting is primarily concerned in processing historical data.
It the accounting process itself that involves recording, classifying., summarizing and interpreting the
financial statement to the users.

2. Managerial or Management Accounting focuses on providing information for use by internal users,
the management. This branch deals with the needs of the management rather than strict
with generally accepted accounting compliance
principles. Managerial accounting involves financial analysis,
budgeting and forecasting, cost analysis, evaluation of business decisions, and similar areas.
3. Cost Accounting gives information about all cost incurred by the business.
4. Government Accounting deals with the receipt and disposition of
government funds and property
5 External Auditing refers to the examination of financial statements
by independent party with the
an
purpose of expressing an opinion as to fairness of presentation and compliance with GAAP. Internal
auditing focuses on evaluating the adequacy of a company's internal control structure by
testing
segregation of duties, policies and procedures, degrees of authorization, and other controls
implemented by management.
6. Tax Accounting helps clients follow rules set by tax authorities. It includes tax
planning and
preparation of tax returns. It also involves determination of income tax and other taxes, tax advisory
services such as ways to minimize taxes
legally, evaluation of the consequences of tax decisions,
and other tax-related matters.
7. Accounting Education is an area that guarantees the development of the profession by endeavoring
to clarify and address emerging issues through research and sharing the results with their colleagues.
8.
Accounting Research means creation of new
knowledge that is applicable to accounting. Compose
of academic and economic and industrial research.
 Accounting Information Systems (AIS) involvesthe development, installation, implementation and
systems used in the accounting process. It includes thee
monitoring of accounting procedures and software management.
forms, accounung personnel direction, and
employment of business
involves handling of accounts managed by a person entrusted with the
10 Fiduciary Accounting
of or for the benefit of another person. Examples of fiduciary
custody and management property
of
receivership, and estate accounting.
accounting include trust accounting,

11. Forensic Accounting involves litigation cases, fraud investigation, claims and dispute
court and
matters. This is one of the popular trends in accounting
resolution, and other areas that involve legal
today.
and Cash Flow)
Users of Accounting Information (Resources, Obligation, Profitability, Capital
decisions related to the
1. Internal users refer to managers who use accounting information in making
company's operations.

. Owners/Stockholders
information to determine if
o Owners provide capital to the business and need financial
the business is profitable and whether to continue, improve or dropP it. (proft
generation, returns, and growth)
Stockholders of corporations need financial information to help them make decisions
on what to do with their investments (shares of stock), i.e. hold, sell, or buy more.

Managers
Needs financial information for operational and strategic decisions
o
interest.
2. External Users are not involved in the operations of the company but hold some financial

Lenders- ability of company to pay loans

Suppliers/creditors - ability to settle trade obligations

Government - tax and regulatory purposes

Employees - compensation and job security
Customers - ability to stay in business and deliver promises
The general public - research, financial news, etc.

Forms of Business Organization

1. Sole/Single Proprietorship business owned by one person. Tend to be small service type of
business (physicians, lawyers. and accountants) and retail businesses.

Advantages Disadvantages
Easy to Form Small Size
Effort-Reward Relationship Limited Life
Full Control Lacks Professional Skills and talent
Quick Decision Unlimited Liability
Economic and Efficient Operations Growth Prospects
Personal Touch Limited Capital
Keep the Business Simple, Dynamic and Risk of Wrong Decision
Flexible
hitp./www.economicsdls.cussions.net/business/advantages-of sole-proprietorship/32330
2. Partnership business owned by two or more person who binds themselves to contribute money
property, or industry to a common fund, with the intention of dividing profits among themselves.

Advantages Disadvantages
 Loss of Autonomy
Bridging the Gap in Expertise and knowledge Emotional Issues
More Cash (and Properties)
Future Selling Complications
More Business Opportunities
Moral /support
Unlimited Liability
New Perspective
https://www.americaneXprOSS.COM/en-us/business/trends-and-insights/aricles/what-are-the-advantage-and-disadvantages-of-a-partnership

stockholders. It is an artificial being created by operation of law,

3 Corporation business owned by
attributes, and properties expressly authorized by law
having the right of succession and the powers,
or incidents to its existence.

Disadvantages
Advantages Double Taxation
Limited liability
Source of Capital Independent Management
Forming a Cooperation Cost of More
Ownership Transfers
https://www.accounting tools.com/articles/corporation-advantages-and-disadvantages.html

4. Cooperative are people-centred enterprises owned, controlled

and run by and for their members to
realize their common economic, social, and cultural needs and aspirations.

Disadvantages
Advantages
Lower Cost Big Investors Don't Get Much Attracted
Further Marketing Reach Lack of Membership and Participation
Democratic Organization

Activities Performed by Business Organization

1. Service -
services were performed for a fee just like the services performed by lawyers, physicians,
accountants, hairdressers, tailors, etc.

Merchandising -

business that are engage in buying and selling of goods (retail stores, department
stores, car dealers, supermarkets, etc.)

3 Manufacturing -
business that buys raw material, convert/process this raw materials into product,
companies for further processing or to final consumers (paper mills,
car
and sell them to other
manufacturers, drug manufactures and the like)

are set of guidelines and procedures that constitute

Generally Accepted Accounting Principles
It refers to a set of accounting principles, standards and
acceptable accounting principles at as given time.
Standard Board (FASB). GAAP as applied in the Philippines
procedure issued y the Financial Accounting
are the Phlippine Financial Repoting Standards (PFRS) and the Philippine Accounting Standards (PAS)

Accounting Concepts and Principles

1. Entity Concept. It is the most basic concept of accounting that state the separation of personality of
the owner of the business and the business itself.
is recognized when eamed
2. Accrual Basis of Accounting. Accrual accounting means that income
when incurred regardless of when
regardless of when collection was made; expenses is recognized
it was paid.
for a long period of
3. Going Concern Concept. This refers to the life of the business which normally
time.
4. Periodicity Concept (Time-Period). This refers to the period within which the business will prepare
financial reports.
This refers to the monetary unit of the place the business is located. The
6. Monetary Unit Concept.
Philippine Peso is a reasonable unit of measure in the country.
 6 Cost Principles. Acquired assets
cost)
are
recorded based on actual cost or
acquisition cost (historical
7. Full Disclosure Principles. Sufficient
information for informed
8. Matching Principles. Matching revenue with judgment
expenses know the
to
9. Revenue
Recognition Principles. Revenues are recognized in the profit of the business
10. Materiality. In period it was earned.
accounting, materiality
information in the company's financial refers to the impact of an omission or
statement
misstatement would affect the decision of the on the user of
the statement. If misstatement
the omission
of
user, then it is considered or
11. Conservatism. material.
Taking an option that shows the least favorable outcome.
12. Objectivity. Accounting
verified. Recording and records/statements are based on reliable data available which
bias. reporting process should be performed with can be
independence which is free from
13.
Consistency. Accounting method that is use from
comparability over time within a single year to year must be consistent in order to achieve
enterprise.

REVIEW QUESTIONS
- Essayy
1. Why is
accounting often referred to as the language
2 Can the phases of accounting be done in any order?of the business?
3. Who is responsible for the
4 To make financial preparation of a reliable financial stat ment? Elaborate.
information understandable for as
prepare simple, abbreviated, many users as possible, accountant should
statement? uncomplicated financial statements. What is your view on this
5. Is signing a contract of lease between the lessee and
not? the lessor a business transaction? Why or why
I1-TRUE or FALSE. On the space
is incorrect. provided, Write True if the statement is correct and False
if the statement
1. One of the functions of
decision.
accounting is to provide qualitative information that is useful in making
2. The proprietor's personal assets are considered assets
3. Generally Accepted Accounting Principles of the business.
accounting/reporting process.
are
procedures and guidelines to be followed in the
4. Consistency principle refers to the
the possible outcome. ability of the business
enterprise to take
option at a least an
5. Classification reduces the effect of
numerous transactions into useful
6. Transactions that are recorded twice are groups or categories.
recorded using the double entry
7. Crown paper is a
supplier of the business hence, he is an internal user of thebookkeeping.
financial
8. It is necessary a business transaction in
dollar. statements
9. The purpose of
free from bias.
accounting would not be defeated if the financial statement contains error but are

10. Transactions are analyzed from the viewpoint of the business

owners.
_11. Conservatism is the quality of reliability that supports the immediate
12. Going concern is an recognition of loss.
in the
underlying assumption which suggests the continuation of accounting entity
absence of evidence to the contrary.
_13. Under the going concern, the business is assumed to have a definite life.
14. In a stable monetary unit concept, accountants do not
over time. recognized the value of peso changes
15. The matching of assets and expenses of the business on a periodic basis is referred to as
matching principles.
Ill-1DENTIFICATION. Write your answer on the space provided.

1. This principle requires relevant information to form part of the financial

statements for decision making purposes.
-2. Is a user who needs financial information because he wants to determine
whether the loans and the related interest could be paid by the business enterprise when it falls due.
3. Basis of accounting that records expenses when incurred and not when it is
paid.
4. Specialized accounting services that are concerned with the exanimation of
the financial statement.
5. During the life time of an entity, accountant produced financial statements at
arbitrary points in time in accordance with which basic accounting concept?
6. Language of the business.
7. This principle requires relevant information to form part of the financial
statements for decision making purposes
8.That phase of accounting that produces financial statements/reports.
9. Type of business that is performed by professionals like CPA.
10. The principle that assets should be recorded at acquired cost.

IV-MULTIPLE CHOICEs: Encircle your letter choice.

1. The concept of accounting entity is applicable
a. on the legal aspect of business organization
b. on the economic aspect of the business organization
C. whenever accounting is involved
d. only to business organization
2. The principles of objectivity include the concept of

a. summarization
b. classification
C. conservatism
d. verifiability

3. This principle requires relevant information to form part of the financial statements for decision making
purposes
a. full disclosure
b. materiality
C. objectivity
d. reliability
4 Objectivity is assumed to be achieved when an accounting transaction
a. is recorded in a fixed amount of peso
b. involves the payment or receipt of cash
C. involves an arm's-length transaction between two independent parties
d. allocates revenue or expenses in rational and systematic manner
5. During the life time of an entity, accountant produced financial statements at arbitrary points in time
in accordance with which basic accounting concept?
a. Objectivity
conservatism
c. matching
time-period
6. The concept of matching is best demonstrated by
a. not recognizing expense unless revenue is earned
b. recognizing expenses when incurred
C. associating efforts with accomplishments
d. recognizing revenue when eaned
 to enable them to
7. Which
related users need
interest willfinanclal information
be paid when due?
determine whether loans
granted and the
a. customers
b. lenders/creditors
investors
d. supplier
8. Basis of accounting that records expenses when incurred and not
when it is paid.

b.
single entry bookkeeping
double entry
C. accrual method
bookkeeping d. cash method
9. Specialized accounting services that are concerned with the exanimation of the financial
statement
a. cost accounting b. auditing c. tax accounting d. financial accounting
10. A form of business that buys raw materials and transform
them into finished products is
a. service oriented business C. manufacturing business
b. merchandising business d. outsourcing business