produces the goods that it sells
ACCOUNTANCY
CHAPTER 1
Business is a legally recognized
organizational entity existing
within an economically free
country designed to sell goods
and/or provide services to
consumers, usually in an effort
to generate profit.
A profit-oriented enterprise aims
to earn income or profit through
the provision of goods and/or
services to consumers.
A non-profit oriented enterprise
aims to achieve socio-civic or
charitable aims.
Profit is earned if the company
has earnings in excess of the
costs of running the business,
providing services, and/or
delivering goods.
Service business is the simplest
form of business. These
enterprises provide services to
clients or customers in
exchange for fees, rent, interest
or royalties.
Merchandising business-
These enterprises purchase
goods from suppliers and,
without altering the state of the
goods bought, sell the same at a
higher price than cost.
Manufacturing business
Similar to the merchandising
concern, a manufacturer sells
goods at a higher price than
cost. The manufacturer actually
to customers.
Sole proprietorship
Is the most basic legal form of
business. It has only one owner,
the proprietor. The proprietor
may operate on his own or m ay
employ others as business
operations expand.
Advantages
A sole proprietorship is easier to
form compared to partnerships
and corporations.
Proprietorships generally have
uncomplicated business
transactions and minimal
regulatory requirements. With
only one owner, decisions can
be arrived at in less time and
implemented faster. Finally the
proprietor enjoys all the profits
earned by the business.
Disadvantages
As the volume of business
increases, a proprietor faces
financing problems because of
the limited ability of the
enterprise’s limited ability to
raise capital. The business can
only expand in proportion to the
increase in resources
contributed by the proprietor;
and when it expands, the
expansion usually focuses on
familiar territory. Regarding
decision-making, a proprietor
does not receive the benefit of
second opinion on decisions
made. While the proprietor
enjoys all the profits earned by
the business, he/she alone bears
the risks and losses incurred by
the business. Finally, a sole
proprietor has unlimited
personal liability for the debts
incurred by the business.
Partnership
Is an association of two or more
persons who bind themselves to
contribute money, property,
industry to a common fund, with
the intention of dividing the
profits among themselves.
Partners agree, among other
things, on how the business will
be managed, the required
capital contributions from each
partner, how the profits/losses
will be divided among partners,
and the form and mode of
settlement in case of withdrawal
by, or death of, any of the
partners.
Advantages
A partnership is easier to
organize compared to a
corporation. Due to the plurality
of owners, the burden of
management is usually shared
among partners, and more ideas
are exchanged and
brainstormed, resulting to better
decision-making.
Disadvantages
Partnerships can raise more
capital compared to sole
proprietorships, but it sill
depends on the capacity of each
partner to invest resources into
the business. The plurality of
owners may result to
disagreements regarding ideas
and management style,
hampering business operations.
The life of a partnership is
fragile- it may be dissolved by
agreement, by withdrawal of
two or more partners, or by the
death of or incapacity of any of
the partners. Finally, partners
have unlimited personal
liabilities for partnership debts’
Corporation
A person who invests in a
corporation is called a
shareholder and his right is
expressed in the number of
shares he purchased, each
evidenced by a certificate of
stock. A corporation has
standardized procedures for its
creation, organization,
management and liquidation as
specified in the corporation
code. The management ofn
operations is centralized in the
board of directors of the
corporation.
Advantages
A corporation has the greatest
capacity to raise capital. Capital
may be raised by a corporation
by selling shares of stock to the
public as a whole. Shareholders
may transfer their shares
without the need to obtain the
consent of other shareholders.
Corporations may exist for a
period not longer than 50 years,
subject to renewal. The major
advantage of corporations over
other legal forms of business is
the limited liability of powers. If
a corporation goes bankrupt,
lenders cannot take the
personal assets of the
stockholders.

Disadvantages
The cost of forming and
managing a corporation is
relatively high compared to
partnerships and sole
proprietorships. Corporations
are subject to greater scrutiny,
regulation, control and
supervision aby the
government. While corporations
can raise large amounts of
capital, it has limited powers, as
expressly stated in the
corporation code of the
Philippines and its own articles
of incorporation. Finally,
corporations are subject to a
high income tax rate.
Accounting defined
AICPA- accounting is the art of
recording, classifying and
summarizing, in a significant
manner, and in terms of money,
transactions and events which
are in part at least of a financial
character, and interpreting the
results thereof.
ASC- 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.
AAA- accounting is the process
of identifying, measuring and
communicating economic
information to permit informed
judgments and decisions by
users of the information.
The basic purpose of accounting
is to supply financial information
to users of the information to
help them make informed
judgments and better decisions.
Accounting is the language used
to communicate financial
information to interested parties
such as business owners,
management, employees, the
government, etc. through
accounting, different users of
financial information understand
what is happening in the
business enterprise.
Bookkeeping is the procedural
or mechanical aspect of
accounting. It involves the set-
up, update and maintenance of
accounting records.
Accounting is conceptual and
goes beyond bookkeeping.
Accounting includes the
interpretation of information
recorded under bookkeeping.
Accountancy profession
Accounting is a profession
because it has the attributes
required of a profession.
1. mastery of a particular
intellectual skill,
acquired by training
and education.
Accounting requires a
person to finish a
degree in bachelor of
science in accountancy
and to pass a very
rigorous government
examination
administered by
Professional regulatory
board of accountancy.
 Only then can he/she c. the supervision,
use the title certified control, and regulation
public accountant. of the practice of
2. adherence by its accountancy in the
members to a common Philippines.
code of values and
conduct established by Article II of the act creates the
its administrating body, professional regulatory board of
including maintaining accountancy, the agency tasked
an outlook which is to enforce the provisions of the
essentially objective. Philippine accountancy act. It is
The code of ethics is also granted the right to issue,
mandatory for all CPAs. suspend, revoke, or reinstate
It provides guidance for CPA certificates for the practice
CPAs whenever the of the profession. The board is
encounter “what is the composed of a chairman and six
right thing to do” members, all of whom are
situations. appointed by the President of
3. acceptance of a duty the republic of the Philippines.
to society as a whole.
Investors, creditors, Sectors of accounting practice
employers, and other
sectors of business Public practice
community, as well as Commerce and industry
the government and Education or the academe
the public at large rely Government
on CPAs for sound
financial accounting Public practice
and reporting, effective Includes individual practitioners,
financial management small accounting firms, medium
and competent advice sized and multinational
on a variety of business accounting firms that render
and taxation matters. independent professional
services to the public. CPAs
Republic act no. 9298- the charge professional fees for
accountancy act of 2004 these services. Examples of
Republic act 9298, the Philippne services provided by CPAs are:
accountancy act of 2004, was 1. auditing- it involves
signed into law with the independent
following objectives in mind: examination of
a. the standardization and financial statements for
regulation of the purpose of
accounting education; expressing an opinion
b. the examination for on the fairness of these
registration of certified statements. Users of
public accountant; audited financial
 statements have Accountants may be hired as
reasonable assurance staff, auditor, budget officer, or
that the information consultant in government units
they are using are free like the commission on audit,
from material bureau of internal revenue,
misstatements due to department of finance,
fraud or error. department of budget and
2. tax services- this management, and the Securities
includes the and Exchange Commission.
preparation of tax
returns for various Accounting-then and now
clients, provision of
advice on tax matters, Middle east 8500 BC
and representation of Trademen use clay objects to
clients in tax cases. represent commodities such as
3. management flicks of sheep, jars of spices
consulting services- and oil, bolts of clotjhing and
involves providing other goods.
advisory/consulting Clay tablets marred with
services to clients on symbols( mean records of goods
matters of accounting, sold)
finance, business
policies, organization 13th to 15 centuries, record-
procedures, budgeting, keeping methods were
product costing and the developed. Florentine, Venetian
conduct of operations. and genoan merchants used
these methods to keep track of
Commerce and industry their business. Double entry
Accountants in commerce and records first appeared in Genoa
industry assist management in in 1340 AD.
planning and controlling a
company’s operations. 1494, friar luca paciolo wrote a
book “summa de arithmetica,
Education and the academe geometria, proportioni et
This are employs accountants as proportionalita. (everyting about
professors, reviewers, or arithmetic, geometry,
researchers. They take steps to proportions and proportionality)
clarify and address emerging a summary of the existing
accounting issues encountered mathematical knowledge at that
by accountants in other sectors. time. Father of double-entry
Educators also prepare aspiring bookkeeping.
CPAs for the licensure
examinations. Accounting for the costs
involved in assembly-line
Government manufacturing, particularly
overhead costs. Costs,
accounting, mthe specialized summarizing and
field of accounting which deals communicating all transactions
with the allocation of costs to involving the receipt and
products, was developed to disposition of government funds
address this problem. and property and interpreting
the results thereof.
With the birth of corporations, a
business can have many
owners. The owners are
gradually separated from the
business operations, and other
people are hired to manage the
enterprise. Because of this,
there was a need for those who
manage the enterprise. Because
of this, there was a need for
those who manage the business
to periodically account for the
performance of the corporation.

Field of accounting

Financial- focuses on the

preparation and presentation of
general-purpose financial
statements with the aim of
meeting most of the needs of
external users.

Management- concerned
primarily with financial reporting
for internal users, such as
management.

Cost- measures a business’s

costs to help management in
controlling
expenses.

Tax- compliance with the tax

laws and minimizing the
company’s tax bill through legal
means.

Government- encompasses the

process of analyzing, classifying,