PART 1: INTRODUCTION TO ACCOUNTING

Accounting.
TYPES OF BUSINESS ORGANIZATION
According to Ownership
Sole Proprietorship. Owned by only one individual for the practice of trade or profession.
Simplest and least costly form of ownership among other forms of business. The owner assumes
unlimited liability and, in most cases, even his or her personal assets are on the line if the business
cannot pay the creditors.

Advantages
 Full Control of Operations
 Easy to start, easy to dissolve
 All profit goes to the owner
 Less regulation
 The government taxes the owner and
not the business
Disadvantages
 Unlimited Liability – the owner is
legally obliged to pay all business
debts
 Limited life – the business ceases to
operated if the owner dies, becomes
physically or mentally incapacitated,
or is imprisoned
 Difficult in raising capital

Partnership. Owned by two or more individuals pooling their resources together as common
fund. The partners are normally involved in the management and operation of the business. The
profit of the business s divided among the partners as per partner’s agreement.
Articles of Co-Partnership – the written agreement between or among partners.
TWO MAIN PARTS OF PARTNERSHIP

 General Partnership – each partner is a general partner with unlimited liability.

 Limited Partnership - with limited partners ans at least one general partner. The general
partner has unlimited liability while the limited partners enjoy limited liability to the extent
only of their capital contribution.

Advantages Disadvantages
 Increased potentials from two or more  Unlimited liability of one or all
different strengths members
 Easy to form with proper agreements  Limited Life - the business ceases to
on its formation operate if one of the partners dies,
 Less regulations compared to becomes physically or mentally
corporations incapacitated, or is imprisoned
 High possibility of dispute and
conflicts between partners

Corporation. Required to have five to fifteen incorporators. INCORPORATORS refers to those

who originally formed the corporation. Section 2 of the Corporation Code of the Philippines
defines corporation as “an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or incident to
its existence”. It has a legal personality that is separate and distinct from the owners. The owners
have limited liability and limited involvement from the operations. The board of directors, who
are elected by the owners themselves, will take control of the corporation’s activities. A profit
corporation issues to its owners or shareholders shares of stocks which are evidenced by stock
certificates. However, non-profit corporations does not issue shares of stocks and its owners are
called MEMBERS.
The evidence of the corporation is evidenced by the articles of incorporation and
by-laws that are duly approved by Security Exchange Commission (SEC). The ARTICLES OF
INCORPORATION detail the powers and limitations bestowed by the government. It includes
the following: name of corporation; purpose of corporation; location of principal office of
business; term of existence of the corporation; name, nationalities, and addresses of incorporators;
names of board of directors; authorized share capital, types of shares to be issued, and par value
per share; subscription amount, subscribers’ names, and their corresponding subscriptions and the
total paid subscription of each subscriber.
BY-LAWS contain provisions for internal administration of the corporation.
These normally contain the following: the date, place, and manner of calling the annual
shareholders’ meeting; manner of conducting meeting; conditions which may warrant special
meeting; manner of voting and use of proxies; manner of electing board of directors and the
number of directors; term of office of directors; manner of appointing officers; authority and
responsibilities of officers; procedures to amend articles of incorporation; and procedures to
amend by-laws.

Advantages
 More sources of funds
 Easy to transfer ownership
 Liability of owners is limited
 Unlimited commercial life
Disadvantages
 More regulations to be followed
 Profit is taxed at the corporate tax rate
 Costly to incorporate
 Stockholders are taxed again when
profits are distributed to them

Cooperative. Owned by a group of individuals who also serve as benefactors to the business
endeavors. Usually, requires at least fifteen members. Usually, a board of directors and officers
are elected to manage the business operation. Members can become part of the cooperative by
purchasing shares. Cooperative can either be incorporated or incorporated. The BY-LAWS
contain rules and regulations governing the operation of cooperative.
ARTICLES OF COOPERATION provide the details about the following: name
of cooperative; purpose of the cooperative; term of existence of the cooperative; amount of share
capital; names and residences of its contributors; and type of cooperative.
Advantages Disadvantages
 Unlimited life. The change of  Obtaining capital through investors.
members does not dissolve the Cooperative has a “one-member-one-
business. vote” philosophy. Big investors may
 Democratic organization. Social choose to invest their money to other
equality of members is the most firms where their voting power is
important component of equal to their ownership interest
 cooperatives. It ensures that it serves  Lack of membership and
its members’ needs. participation. The cooperative may
not fully function if members do not
involve themselves in the routine
business operation.

According to Activities
Service Business.
Merchandising Business.
Manufacturing Business.

PART 2: CONCEPTUAL FRAMEWORK

i. OBJECTIVE OF FINANCIAL REPORTING
ii. QUALITATIVE CHARACTHERISTICS are the qualities or attributes that make financial
accounting information useful to the users. The objective is to ensure that the information is useful to the
users in making economic decisions.
Application of Qualitative Characteristics:
1 Identify an economic phenomenon that has the potential to be useful.
2 Identify the type of information about the phenomenon that would be most relevant and
can be faithfully represented.
3 Determine whether the information is available.
Fundamental qualitative characteristics relate to the content or substance of financial
information.
Relevance. The capacity of the information to influence a decision.

Faithful Representation.

iii. FINANCIAL STATEMENTS AND REPORTING ENTITY, UNDERLYING

ASSUMPTIONS, BASIC ACCOUNTING PRINCIPLES
 UNDERLYING ACCOUNTING ASSUMPTION 1. Basic notions or fundamental premises on which
the accounting process is based. Also known as postulates.
Going Concern Assumption. A business entity is assumed to remain in existence for an
indeterminate period of time. A company will continue to exist long enough to carry out its
objectives and commitments and will not liquidate in the foreseeable future. (The only
assumption mentioned in the Conceptual Framework for Financial Reporting.)
Accounting Entity or Economic Accounting Assumption. All of the business transactions are
separate from the business owner’s personal transaction.
Accrual Basis Assumption. All business transactions and other events are recognized in the
accounting records when they occur, rather than when the cash or equivalent is received or paid.
Monetary Unit Assumption. Economic activities of a Philippine entity are measured and
reported in Philippine peso. Only transactions that can be expressed in terms of money are
recorded. Non-monetary information that cannot be measured in terms of money are not recorded
in the accounting books. A memorandum entry will be prepared instead.
Time-Period Assumption. The life of an economic entity can be divided into artificial time
periods for the purpose of providing periodic reports on the economic activities of the entity.
BASIC ACCOUNTING PRINCIPLES. Detailed accounting rules and guidelines.
Cost Principle. Cost refers to the amount spent when an item was originally obtained. All assets
acquired should be valued and recorded based on the actual cash equivalent or original cost of
acquisition, not the prevailing market value or future value. Acquisition cost is the most objective
and verifiable basis upon which to an account for assets and liabilities of a business enterprise.
Full Disclosure Principle. Accountant should include sufficient information to permit the
stakeholders to make an informed judgement about the financial condition of the enterprise.
Matching Principle. Expenses should be matched with revenues. Revenue recorded should have
its corresponding expense recorded, in order to show the true profit of the business.
Revenue Recognition Principle. Revenues are recognized as soon as goods have been sold or a
service has been rendered, regardless of when the money is actually received. Revenue is
recognized when the earning process is virtually complete and an exchange transaction has
occurred.
Materiality Principle. Business transactions that may affect the decision of a user of financial
information are considered important or material, and thus, must be reported properly. This
principle allows an accountant to violate another accounting principle if an amount is
insignificant.
Conservation or Prudence Principle. Given two options in the valuation of business
transactions, the amount recorded should be the lower rather that the higher value. Leads
accountants to anticipate or disclose losses, but it does not allow a similar action for gains. Losses

1 Rabo, J., Tugas, F. and Salendrez, H. (2016) Fundamentals of Accountancy, Business and Management 1. Quezon City:
VibalGroup Inc. P. 34 - 40
 and costs are recorded when they are probable and can be reasonably estimated, while gains are
recorded only when they are realized.
Objectivity Principle. Requires business transactions to have some form of impartial supporting
evidence or documentation. It also entails that bookkeeping and financial recording be performed
with independence, that is free from bias and prejudice.

iv. ELEMENTS OF FINANCIAL STATEMENTS

ASSETS.
LIABILITY.
EQUITY.

THE ACCOUNTING EQUATION

A S S E T S = L I A B I L I T Y + O W N E R ’ S E Q U I T Y

v. RECOGNITION AND MEASUREMENT

vi. PRESENTATION AND DISCLOSURE
CONCEPTS OF CAPITAL

PART 2: FUNDAMENTAL ACCOUNTING CONCEPTS

According to the IASB 2010

QUALITATIVE CHARACTERISTICS COMPONENTS

Relevance. Assists a user in predicting a financial

situation or scenario.
Fundamental Faithful Representation. Present what it purports
to present.
“makes information useful”
Completeness.
Neutral.

Enhancing
“Enhances useful information”
Free from Error.
Comparability. Can be compared to another
entity.
Verifiability. Different users can reach an
agreement about the financial information.
Timeliness. Ensures that such information is
available to users when they need it.

Understandability. Clearly and concisely sealed

down in order to be understandable.

PART 5: SERVICE
I. ANALYZING, RECORDING AND CLASSIFYING
II. ADJUSTING ETRIES
III. THE FINANCIAL STATEMENTS
IV. CLOSING ENTRIES
V. POST-CLOSING TRIAL BALANCE
VI: REVERSING ENTRIES
PART 6: MERCHANDISING
PART 7: CONCEPTUAL FRAMEWORK
PART 2: PHILIPPINE ACCOUNTING STANDARDS
PART 2: PFRS
PART 2: IFRIC

CORPORATION ACCOUNTING
PART 1: INTRODCTION TO CORPORATION ACCOUNTING
PART 2: ISSUANCE AND TRANSACTION

REFERENCES