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INTRODUCTION TO ACCOUNTING
The purpose of accounting is to provide financial information to statement users so that they could make
informed judgement and better decisions. Without accounting, a business couldn’t function optimally; it
wouldn’t know whether it’s making a profit and it wouldn’t know its financial situation.
Types of Business
❖ Service business provides intangible products (products with no physical form). They usually offer
professional skills, expertise, advise and other similar products. Example of service businesses are
salons, repair shops, schools, banks, accounting and law firms.
❖ Merchandising business is a business that buys products and sells the same. They are known as
“buy and sell” businesses. They make profit by selling the products at prices higher than their
purchase costs. It sells products without changing its form. Examples are grocery stores, department
stores and convenience stores.
❖ Manufacturing business buys products with the intention of using them as materials in making a
new product. Thus, there is a transformation of the products purchased. The manufactured goods
will then be sold to customers.
❖ Hybrid businesses are companies that may be classified in more than one type of business. A
restaurant, for example, combines ingredients in making a fine meal (manufacturing), sells a cold
bottle of wine (merchandising) and fills customers’ orders (service). Nonetheless, these companies
may be classified according to their major business interest. In that case, restaurants are more of the
service type- they provide dining services.
Financial Statements
The financial statements are the means by which the information accumulated and processed in financial
accounting is periodically communicated to the users. Without accounting information embodied in the
financial statements, users may not be able to arrive at sound economic decisions. Per Philippine
Accounting Standards (PAS) 1, the objective of financial statements is to provide information about the
financial position, financial performance and cash flows of an entity that is useful to a wide range of users
EXERCISES
1. The primary function of accounting is
A. to provide quantitative information, primarily financial in nature about economic entities that is intended
to be useful in making economic decision.
B. to provide information that creditors of an entity can use in decision, whether to make additional loans to
the entity.
C. to measure the resources owned by economic entities and the financial obligation of the entities.
D. to provide information that managers of an entity need to control its operations.
2. It is a specialized field in accounting on which accountants are employed in any governmental unit.
A. Public accounting C. Accounting education
B. Private accounting D. Government accounting
9. Which of the following refers to the resources or the properties of the business which includes cash, accounts
receivable, supplies, fixed assets and others?
A. Assets B. Liabilities C. Capital D. Revenues
Part 2: Identification
____________ 1. They have an interest in information about the continuance of the enterprise, especially when they
have long-term involvement with, or are dependent on, the enterprise.
____________ 2. It deals with the collection, allocation & control of the cost of producing specific goods & services.
____________ 3. They are users of financial information who are found inside the business entity
____________ 4. An entity’s life can be meaningfully subdivided into equal time periods for reporting purposes.
____________ 5. This directs a company to report an expense on its income statement in the same period as the
related revenue is recorded.
____________ 6. It is a business where it produces the goods that it sells.
____________ 7. It enables users to identify and understand similarities in, and differences among, items.
____________ 8. Is an organization which basic resources are assembled and processed to provide goods and services
to customers or clients.
____________ 9. He is the father of accounting.
____________10. It means classifying, characterizing and presenting information clearly and concisely makes it
understandable.
Part 4: Classify the following business as: (A) Service Company; (B) Merchandising and (C) Manufacturing
1 Schools 6 Shoe Factory
2 Grocery 7 Repair Shop
3 Hardware 8 Barber Shop
4 Call Center 9 Appliance Store
5 Pharmacy 10 Computer shop
Part 5: Classify the following as to: Asset (A); Liability (L); Capital (C); Income (I); and Expense (E).
1 Accounts payable 6 Supplies
2 Accounts receivable 7 Professional fees
3 Advertising expense 8 Service Revenue
4 Equipment 9 Taxes expense
5 Berg, drawing 10 Sales
/NaBergonia2018