INTRODUCTION TO

ACCOUNTING
Accounting 1 - Chapter 1 | Ms. Earviness Dy R. Dueñas,
CPA
 DEFINITION OF ACCOUNTING
• Accounting is a process of identifying, recording and communicating
economic information that is useful in making economic decisions.
ESSENTIAL ELEMENTS:
• Identifying – accountable vs non-accountable events (only
accountable events are recorded)
• Recording – recognizes accountable events; journalizing then
posting
• Communicating – summary; financial statements
 TYPES OF INFORMATION PROVIDED BY
ACCOUNTING

• Quantitative information – information expressed in

numbers, quantities or units
• Qualitative information – information expressed in
words or descriptive form
• Financial information – information expressed in
money
 BOOKKEEPING AND ACCOUNTING

• Bookkeeping – refers to the process of recording the accounts

or transactions of an entity. It normally ends with the
preparation of the trial balance.
• Accounting – covers the whole process of identifying, recording
and communicating information to interested users.
 FUNCTION OF ACCOUNTING IN BUSINESS

• Accounting is often referred to as the “language of business” because it is

fundamental to the communication of financial information.

• BROAD FUNCTIONS
• To provide external users with information that is useful in making, among others,
investment and credit decisions.
• To provide internal users with information that is useful in managing the business.
 USERS OF ACCOUNTING INFORMATION
• Internal Users – those who are directly involved in managing the business.

Examples:
• Business Owners who are directly involved in managing the business
• Board of directors
• Managerial personnel

• External Users – those who are not directly involved in managing the business.

Examples:
• Existing and potential investors
• Lenders
• Government agencies
• Non-managerial employees
• Customers
• Public
 TYPES OF ACCOUNTING INFORMATION
CLASSIFIED AS TO USERS’ NEEDS
• General purpose accounting information – is information designed to
meet the common needs of most statement users. It is provided by financial
accounting and is prepared primarily for external users.

• Special purpose accounting information – is information designed to

meet the specific needs of particular statement users. It is provided by
management accounting or other branches of accounting and is prepared
primarily for internal users.
 COMMON BRANCHES OF ACCOUNTING

Branch of Accounting Type of accounting Users of service

service provided
1. Financial Accounting • General record-keeping • All businesses use
(journals and ledgers) financial accounting in
• Preparation of general the record-keeping.
purpose financial These records provide
statements (FS) information that is also
used in the other
branches of accounting.
• Businesses prepares
general purpose FS at
least annually for the use
of lenders, investors, or
government regulatory
bodies.
 COMMON BRANCHES OF ACCOUNTING

Branch of Accounting Type of accounting Users of service

service provided
2. Management Accounting • Preparation of specifically • Required by management
tailored management to aid them in performing
reports their management
functions.
3. Government Accounting • General record-keeping • Required by the
of financial reports for government and its
the government and its agencies
agencies. It also includes
the preparation of
budgets and
accountability reports.
 COMMON BRANCHES OF ACCOUNTING

Branch of Accounting Type of accounting Users of service

service provided
4. Auditing • Expression of an opinion • Business with gross
on the correspondence annual sales or receipts
between management exceeding Php 3,000,000
assertions and are required to have their
established criteria. FS audited by an
• The most common form independent Certified
of an audit opinion is the Public Accountant (CPA).
Independent Auditors’
Report which is attached
to audited financial
statements.
 COMMON BRANCHES OF ACCOUNTING
Branch of Accounting Type of accounting Users of service
service provided
5. Tax Accounting • Preparation of tax returns • All business are required
• Providing tax advise to file tax returns.
• Some taxpayers may
require the professional
advice of tax practitioner
regarding the
management of taxes.
6. Cost Accounting • Analyses of costs of • Businesses use cost
products or services accounting to analyze the
cost of their products or
services and the effects
of those costs in, among
others, earnings and
pricing policies.
 COMMON BRANCHES OF ACCOUNTING
Branch of Accounting Type of accounting Users of service
service provided
7. Accounting Education • Teaching of accounting • Required by business
and related subjects students, business
owners, accounting
professionals in their
Continuing Professional
Development (CPD), and
other interested parties.
8. Accounting Research • Accounting research • Required by business
papers, articles and owners, professional
similar publications. organizations, and other
interested parties.
 FORMS OF BUSINESS ORGANIZATIONS

Form of business Ownership Formation/Registration

organization
1. Sole proprietorship • One individual (sole • Registered with the DTI.
proprietor)
2. Partnership • More than one (partners) • Formed by contractual
agreement.
• Registered with the SEC.
3. Corporation • One or more (OPC or • Formed by operation of
stockholders) law
• Registered with the SEC
4. Cooperative • More than one • Formed in accordance
(members) with the Cooperative
Code
• Registered with the CDA
 TYPES OF BUSINESS ACCORDING TO
ACTIVITIES
The following are the major types of business according to the activities they
undertake:
• Service business – offers services as its main product rather than physical
goods
• Merchandising (Trading) – buys and sells goods without changing their
physical form
• Manufacturing – buys raw materials and processes them into final
products.