CHAPTER 1

INTRODUCTION TO
ACCOUNTING
GROUP 1
 Types of information provided by
accounting
Qualitative information
DEFINITION: information expressed in words or descriptive form. Qualitative
information is found in the notes to financial statements as well as
on the face of the other components of financial statements.
USES: • If financial information is to be useful then it must be relevant and must also
faithfully represent what is being reported.

SOURCE qualitative information in accounting, you need to go beyond simply gathering data and
actively seek out a variety of sources, critically evaluate their credibility, and integrate
:
them into your analysis.

IMPORTANCE: refers to how helpful the information is for financial decision-making processes

The accounting information presented through financial statements and reports must
RELEVANCE give a clear picture of both past events and future projections. It will help the
stakeholders make informed decisions
 Types of information provided by
accounting
Financial information
DEFINITION: Financial information is also quantitative information because
monetary amounts are normally expressed in numbers.
If financial information is to be useful then it must be relevant and must also faithfully
USES: represent what is being reported. The usefulness of this information is enhanced if it is
comparable, verifiable, timely and understandable.
Being sourceful with financial information in accounting means ensuring the accuracy, reliability, and
SOURCE traceability of the data used in financial reporting and decision-making. This involves going beyond simply
collecting numbers and actively seeking out credible sources, critically evaluating their information, and
: documenting your findings.
Financial information is relevant if it is capable of making a difference in the decisions
RELEVANCE made by users of that information.
: They provide valuable information to stakeholders such as investors, lenders, and managers,
helping them make informed decisions about investment opportunities, creditworthiness, and
IMPORTANCE: strategic planning.
 Types of information provided by
accounting
Quantitative information
DEFINITION: information expressed in numbers, quantities, or
units.
USES: It helps businesses make informed decisions about investments, pricing,
resource allocation, and overall financial strategy.
Quantitative information in accounting originates from the transactions and events that occur a
SOURCE business. These transactions result in changes to a company's financial position, which can be
: measured and recorded in numbers.

IMPORTANCE: quantitative information in accounting is important for identifying, analyzing, and

recording the financial data of a business, aiming to enhance financial management
and decision-making in the business.

RELEVANCE Accounting personnel uses different quantitative data and methods, such as the
: discounted cash flow model, to estimate the value of an investment.
Accounting as Accounting is art as well as science which
systematical process that identifies, records,
science and art classifies and communicates the economic
facts and figures of an organization.
USES: SOURCES
It follows specific principles and standards
Process of recording, summarizing and
to ensure accuracy and reliability in
analyzing financial transaction.
financial reporting. On the other hand, as
an art, accounting requires creativity and
judgment in applying accounting principles
to solve complex financial issues and make
informed business decisions.
RELEVANCE : IMPORTANCE:

This duality of accounting helps Accounting as a science and an art are

businesses maintain financial essential in managing the financial
transparency, make strategic aspects of a business effectively.
decisions, and comply with legal
requirements.
 ACCOUNTING AS
A system is one that consists of an input, a
process, and an output. Similarly, in an

AN INFORMATION accounting system, the inputs are the

identifi ed accountable events; the processes

SYSTEM are recording. classifying and summarizing;

and the output is the accounting report that
is communicated to the users

USES SOURCES RELEVANCE IMPORTANCE

Accounting as an information Source documents and Book Accounting as an The knowledge and skills
system involves collecting, of account information system is related to accounting
storing, processing, and crucial for organizations to information system are
reporting fi nancial data to eff ectively manage their integral parts of
provide valuable insights for
fi nances, make informed accounting programs, yet
internal users, investors,
decisions, ensure their comparative value
creditors, and tax
authorities, aiding in compliance with within the overall curricula
fi nancial reporting, decision- regulations, and enhance is often overlooked.
making, control and interdepartmental
compliance, and coordination.
interdepartmental
coordination within
organizations.
 Bookkeeping
DEFINITION: USES:
Bookkeeping in accounting involves the daily
refers to the process of recording tracking and recording of financial transactions
the accounts or transactions of to establish financial outcomes, track money
an entity Bookkeeping normally
flow, and provide essential data for informed
ends with the preparation of the
trial balance. decision-making and financial management
within organizations.

SOURCES:

Transactions
 Bookkeeping
RELEVANCE: IMPORTANCE:
Bookkeeping is essential in Bookkeeping keeps track of
accounting as it forms the payments, receipts, purchases,
foundation for accurate financial sales and records every transaction
records, enabling detailed made from and by the business.
analysis, strategic decision-
making, compliance, and financial
reporting.
 Accounting is the process of

Accounting summarizing, interpreting, and

communicating financial transactions
which were classified in the ledger
account.

USES: SOURCES:
Informs decision-making, Old transaction, identifying
tracks financial performance, and recording of
and ensures legal compliance. transactions

RELEVANCE: IMPORTANCE:

Key to managing finances, Helps businesses monitor

planning, and ensuring their financial health and
business sustainability. achieve long-term goal.
 Functions of Accounting in Business
Accounting is often referred to as the "language of business" because it is fundamental to the communication
of financial information.
• 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.

USES: SOURCES: RELEVANCE:

Used to record, classify, Recording Financial, They provide the tools and
and summarize financial Classifying and information necessary for
transactions, ensuring summarizing financial financial management, strategic
accurate financial data, and Financial planning, compliance, and
reporting, informed reporting. stakeholder communication. By
decision-making. fulfilling these functions,
accounting helps businesses
achieve financial stability,
operational efficiency, and long-
term success.
IMPORTANCE:
They provide the financial foundation that supports decision-making, strategy
development, regulatory compliance, and stakeholder communication.
 Users of Accounting Information
Internal users
DEFINITION: Those who are directly involved in managing the
business.
USES: Internal users rely on accounting information in
various ways to manage, operate, and make
strategic decisions within an organization.

SOURCES: From Financial statements, Management reports,

and Budgeting and forecasting report.

RELEVANCE: They examine how management has carried out its

responsibilities to prevent losses and manage the
company's resources.
IMPORTANCE: It ensuring that a company operates
effectively, efficiently, and profitably.
 Users of Accounting Information
External users
DEFINITION: Those who are not directly involved in managing the
business.

USES: To make informed decisions about investing in, lending to,

or doing business with a company.

SOURCES: Financial statements, Annual reports, Auditors

reports.

RELEVANCE: They utilize financial data to assess a company's performance,

make investment decisions, and ensure compliance with
accounting standards.

IMPORTANCE: It is important for the maintaining of financial markets,

the stability of the economy, and the transparency and
accountability of businesses.
 INTERNAL EXTERNAL
USERS USERS
A. Existing and potential
A. Business owners who investors
are directly involved in
B. Lenders and
managing the business
Creditors
C. Government
B. Board of directors agencies
D. Non-managerial
employees
C. Managerial
E. Customers
personnel
F. Public
 Types of accounting information classified
as to users’ needs
GENERAL PURPOSE ACCOUNTING INFORMATION

DEFINITION: USES:

Is information designed to meet the

Help businesses to fulfil their
common needs of most statement
obligations to stakeholders,
users. It is provided by the financial
such as shareholders, lenders,
accounting and is prepared primarily
suppliers, and investors.
for external users.

SOURCES:
used by wide range of stakeholders, creditor
and lenders managements and employee.
 Types of accounting information classified
as to users’ needs
GENERAL PURPOSE ACCOUNTING INFORMATION
RELEVANCE

To provide a full picture of a company’s financial

position, performance, and cash flows.

IMPORTANCE:

To understand how accounting plays an important

role in making business decisions
 Types of accounting information classified
as to users’ needs
SPECCIAL PURPOSE ACCOUNTING INFORMATION

DEFINITION: USES: SOURCES:

Is information designed to meet the Helps managers with detailed internal management, regolatory
specific needs of particular statement reports for budgeting, cost authorities, auditors and legal
users. It is provided by management analysis, and performance professionals.
accounting and is prepared primarily evaluation tailored to specific
for internal users. departments or projects.
 Types of accounting information classified
as to users’ needs
SPECCIAL PURPOSE ACCOUNTING INFORMATION
RELEVANCE IMPORTANCE:

Ability to provide detailed insights

that support decision-making,
To understand how accounting
compliance, and strategic
plays an important role in making
planning, making it essential for
business decisions
addressing specific financial
needs and requirements.
 Common branches of accounting
DEFINITION:
USES:

Refers to the different The common branches of accounting are use to

specialized
handle different financial task within businesses
areas within the field of
or organizations. each branches has specific
accounting,
purpose.
each focusing on specific
aspects
of financial management, SOURCES:

reporting investors and shareholders, Creditors and

or analysis. these branches
Banks, regulatory agency, Auditor, Tax
include:
Professionals, and government agencies.
1.FINANCIAL ACCOUNTING
2.MANAGEMENT ACCOUNTING
3.GOVERNMENT ACCOUNTING
 Common branches of accounting
RELEVANCE:

The relevance of the “Common branches of accounting”

lies in their ability to provide essential information and
support for various aspects of business and financial
management.
IMPORTANCE:

The importance of the common branches of accounting

lies in their foundational role in ensuring the financial
health, transparency, and efficiency of organizations.
 Management Accounting
DEFINITION:
INVOLVES THE ACCUMULATION AND COMMUNICATION OF INFORMATION FOR USE BY INTERNAL
USERS.
An offshoot of management accounting is management advisory services which include services to clients
on matter of accounting, finance, business policies, organization procedures, product costs, distribution and
many other phases of business conduct and operations.

USES:

It is used for budgeting, forecasting, performance evaluation, and cost management

within an organization.

RELEVANCE:
Management accounting helps businesses optimize their resources, improve
efficiency, and achieve strategic goals.

IMPORTANCE:
It provides the detailed financial information that managers need to make short-
term and long-term decisions that drive business success.
 Forms of business
organization

Sole Partnershi Corporatio Limited Liability

n Company (LLC)
Proprietorship p
 Sole
DEFINITION:
Proprietorship
An unincorporated business that has just one owner who pays
personal income tax on profits earned from the business.

USE SOURCE RELEVANCE IMPORTANCE

S S
Best option for An individual who Automatically Gives you
very small established his own tied to you complete control
businesses where business. personally, and over your business
no employees are this gives you without approvals
needed. If you are complete control from partners or
in a low-liability over the other stakeholders
profession and do company and its
not need trajectory.
investors,.
 Partnershi
DEFINITION A legal arrangement that allows two or more people to share responsibility for a

p
business. Those partners share the ownership and profits, but they also share
the work, responsibility, and potential losses.

USES USE
SOURCE RELEVANCE IMPORTANCE:
S S Partnering with
It can be easier to Help you meet
manage your A 2 or more and work with someone means you
workload. Working individuals who new people who gain their
together with a agree to form a can potentially experience, expertise
partner can help you partnership (to help you grow and knowledge. A
complete tasks have a partner to your business good partnership will
quicker than if you share when you need it help two parties
did them alone. It responsibilities and most. bridge the gaps that
may also help you to profit. exist in their solo
be more efficient in operations.
your business.
DEFINITION
Artificial being created by operation of law, having

CORPORATION
the right of succession and the powers, attributes
and properties expressly authorized by law or
incident to its existence.

USE
They can enter into contracts, loan and borrow money,
S
sue and be sued, hire employees, own assets, and pay
taxes.
SOURCE
S
5 or more individuals who works together that
has legal rights and responsibilities.

RELEVANCE
Ability to provide several significant advantages and
address various needs for both businesses and their
stakeholders.
IMPORTANCE:
It must be established by at least five individuals
known as incorporators, corporations possess many of
the same rights and responsibilities as individuals
DEFINITION
Cooperativ
Form of business organization where the purpose is to share resources to establish a

e
business that can uplift the standard of living of its members and cater the needs of the
community.

USES SOURCE RELEVANCE IMPORTANCE:

S Allow people to take
Creates shared control of their
prosperity, allowing Individuals who economic future
more people to joined together to Balance the need and, because they
participate in the achieve a common for profitability with are not owned by
economy. Instead of goals the needs of their shareholders, the
a few people owning members and the economic and social
the bulk of every wider interests of benefits of their
business, ownership the community. activity stay in the
resides with the communities where
people. they are
established.
Types of business
according to activities
 Service Business
DEFINITION:
One of the business that offers services as it's main product rather than
physical goods.
USES:
It is to provide a solution for a need or want that is not based on a
physical product.
SOURCES

Expertise and
profession
RELEVANCE
It drives economic growth, create jobs, and adapt to meet evolving
consumer needs, boosting overall satisfaction, and economic stability.
IMPORTANCE
This is vital as they foster innovation, improve customer satisfaction,
and play a key role in maintaining a balanced and thriving economy.
 Merchandising
DEFINITION:
Business
Is the one that buys and sells hoods without
changing their physical form.
USES:
This provide customers with items such as food or personal supplies
after purchasing the items from a manufacturer.
SOURCE
inventor
y
RELEVANCE
It is crucial for retail businesses as it will increase the sales of your
products and services.
IMPORTANCE
It assists with store organization, project ideas, reminding customers of
things they might have forgotten, and promoting sales.
 Merchandising
(Trading)

Engages In the purchase Carefully tracks and manages Generates revenue by

and resale of tangible inventory levels to ensure that selling products at a
products, offering a wide sufficient stock is available to higher price than the
variety of goods directly to meet consumer demand, while cost of acquisition, with
consumers in physical or minimizing the cost associated profit margins reflecting
online store. with excess inventory. the markup added to
the cost of goods sold.
 Manufacturing Business
DEFINITION:
Is the one that buys raw materials and processes them into final
products. This changes the physical form of the goods it has purchased
in a production process.
USES:
Produces goods from raw materials, transforming them into finished
products that are used by consumers or other business.
SOURC
E
Raw materials, production equipment and
RELEVANCE labor
This is essential as they produce goods from raw materials, driving
economic growth, creating jobs, and providing products needed by
consumers, and other industries.
IMPORTANCE
This is crucial for driving economic growth, creating employment, and
supplying essential products to consumers and industries.
 SOURCES
financial accounting & reporting (fundamentals) by
Zeus Vernon B. Millan

Retolaza, J. L., & San-Jose, L. (2021b). Understanding social

accounting based on evidence. SAGE Open, 11(2),
215824402110038.
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Tamplin, T. (2023, June 9). Understanding the Definition

of Accounting & Its Importance. Finance Strategists.
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on-to-accounting/
 SOURCES
Twin, A. (2024, June 18). What is a sole proprietorship? Investopedia.
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Leonard, K. (2024b, April 17). 7 Partnership advantages in 2024.

Forbes Advisor.
https://www.forbes.com/advisor/business/partnership-advantages/?
fbclid=IwZXh0bgNhZW0CMTEAAR2tArIdYfMgqtPoukJxlhYWcSQ4aCk
twFuMq8UYb_WfU7GJccnyYJFmW00_aem_gcRWVfxpTg95jVf_ng7dy
w#:~:text=Partnering%20with%20someone%20means
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 SOURCES
Admin. (2020, September 11). Forms of business organisations:
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The 4 major business organization forms. (2023, April 18).
https://www.rifkindpatrick.com/the-4-major-business-organization-
forms of Accounting Information Written by True Tamplin, BSc, CEPF®
Users
https://www.financestrategists.com/accounting/introduction-to-
accounting/users-accounting-information/
Lumen Learning Users of Accounting Information | Financial Accounting
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%20primary%20users,information%20to%20be%20presented
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