CHAPTER 1: BASIC BUSINESS ENVIRONMENT  MANUFACTURING – involved in the

conversion of raw materials into some

tangible, physical product.
BUSINESS – is the process of producing goods
 HYBRID – those involved in more than
and services and then selling them to those who
one type of activity.
desire and need them, it includes private and
government organizations that produce goods
and services for the people in the market place. LEGAL FORMS OF BUSINESS ORGANIZATION

FOUR FACTORS OF PRODUCTION.  PROPRIETORSHIP – business owned by a

 NATURAL RESOURCES – land and single person who has a complete
materials that come from the land, control over business decisions.
timber, mineral deposits, oil deposits, o ADVANTAGES
water.  Easy entry and exit
 LABOR (HUMAN RESOURCE) – mental  Full ownership and control
and physical efforts of all workers  Tax savings
regardless of skills and education.  Fewer government
 CAPITAL – buildings, machinery, and regulations
tools used to produce goods and o DISADVANTAGES
services.  Unlimited liability
 ENTREPRENEURSHIP – people willing to  Limitations in rising capital
accept the opportunities and risks of  Lack of continuity
starting a business  PARTNERSHIP – legal arrangement in
which two or more persons agree to
contribute capital or services to the
OBJECTIVE OF A BUSINESS FIRM business and divide the profits or losses
that may derived therefrom.
“to produce goods and services to meet the o ADVANTAGES
desires and needs of customers and to do so at  Ease of formation
a profit.”  Additional sources of
capital
 Broader management base
 SOCIAL RESPONSIBILITIES
 Not subject to tax
o Meeting the needs and desires of
o DISADVANTAGES
customers and making a profit
 Unlimited liability
o Protecting employees’ health and
 Lack of continuity
well-being  Difficulty of transferring
o Exercising community citizenship ownership
o Supporting laws and regulations  Limitations in raising
o Protecting the quality of the capital
environment  CORPORATIONS – artificial being created
by law and is a legal entity separate and
TYPES OF BUSINESS distinct from its owner.
o ADVANTAGES
 SERVICE - provides intangible products,
 Limited liability
offers professional skills, expertise,
 Unlimited life
advice, and other similar products.
 Ease in transforming
 MERCHANDISING - this type of business
ownership
buys products at wholesale price and
 Ability to raise capital
sells the same at retail price, they are
o DISADVANTAGES
known as "buy and sell" businesses.
 Time and cost of formation
o WHOLESALE – company that buy
 Regulation
its products from the
 Taxes
manufacturer and sells it to the
company that sells it to the
consumer. CATEGORIES OF BUSINESS ACTIVITIES
o RETAILER – company that buy its  FINANCING – activities that include
products from the wholesalers obtaining resources from and returning
and sell it to the end consumer. resources to owners as well as obtaining
 resources through borrowings and
repayments of the amount borrowed.
 INVESTING – acquisition and disposition
of PPE, and other long-term assets and
debt and equity instruments of other
enterprises that are not considered cash
equivalents or held for dealing or
trading purposes.
o Cash advances and collections
on loans made to other parties
o Cash payments and receipts for
future contracts, formal
contracts, option and swap
contracts.
 OPERATING – principal revenue
producing activities of an enterprise and
include delivering or producing goods
for sale and providing services.
BUSINESS STAKEHOLDERS – a person or entity
that has an interest in the economic
performance of the business.
 OWNERS – invested resources in the
business, clearly have an interest in how
well the business performs.
 MANAGERS – individuals who the owners
have authorized to operate the business.
 EMPLOYEES – provide services to the
business in exchange for their pay.
 CUSTOMERS – they also have an interest
in the continued success of a business.
 CREDITORS – invest resources in the
business by extending credit.
 GOVERNMENT – they collect taxes from
businesses within their jurisdiction,
including the workers, are taxed on their
wages.
 TAXES
 INTEREST RATES
CHAPTER 2: ROLE OF ACCOUNTING IN
BUSINESS
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.
- accounting is the process of identifying,
measuring, and communicating economic
information to permit informed judgments and
decisions by users of the information.
ACCOUNTING INFORMATIONS: A MEANS TO
AN END
- its main objective is to provide information
that is useful for decision-making purposes
OVERALL OBJECTIVE: is to provide information
that can be used in making economic decisions.
TYPES OF ACCOUNTING INFORMATION
 FINANCIAL ACCOUNTING – refers to
information describing the financial
resources, obligations and activities of
an economic entity.
 MANAGAMENT ACCOUNTING – involves
the development and interpretation of
accounting information intended
specifically to aid management in
running the business.
 TAX ACCOUNTING – preparation of
income tax returns, and are based on
financial accounting information,
 includes preparation of income tax  INTEGRITY – should be straightforward
return and tax planning. and honest in performing professional
o TAX PLANNING – anticipating the services
tax effects of business  OBJECTIVITY – should be fair and should
transactions and structuring not allow prejudice or bias, conflict of
these transactions in a manner interest, or influence of others.
that will minimize the income tax  PROFESSIONAL COMPETENCE AND DUE
burden. CARE
 NOT-FOR-PROFIT-ACCOUNTING – used  CONFIDENTIALITY – should respect the
for government agencies, churches, confidentiality of information acquired
NGOs, charitable institutions, and during the course of performing
schools. professional services and should not use
or disclose any information without
proper and specific authority.
ACCOUNTING INFORMATION: ECONOMIC
 PROFESSIONAL BEHAVIOR – should act
ACTIVITIES AND DECISION MAKING
in a manner consistent with the good
reputation of the profession and refrain
from any conduct that will bring discredit
to the profession.
 COMPLIANCE WITH TECHNICAL
STANDARDS – should carry out
professional services in accordance with
the relevant professional and technical
standards. They should conform with the
technical and professional standards of
the ff:
o BOARD OF ACCOUNTANCY (BOA)
USERS OF ACCOUNTING INFORMATION
o PROFESSIONAL REGULATION
 EXTERNAL USERS – who make decisions COMMISSION (PRC)
concerning their relationship to the o FINANCIAL REPORTING
enterprise
STANDARDS COUNCIL (FPSC)
 INTERNAL USERS – who make decisions
o RELEVANT LEGISTLATION
directly affecting the internal operations
o SECURITIES ND EXCHANGE
of the enterprise
COMMISION (SEC)
 EXTERNAL DECISION MAKERS – include
o AUDITING AND ASSURANCE
those who lack direct access to the
information generated by the internal STANDARDS COUNCIL (AASC)
operations of the business. RELATIONSHIP OF BOOKKEEPING AND
o INVESTORS – ACCOUNTING
o EMPLOYEES  BOOKKEEPING – is the process of
o LENDERS recording financial transactions and
o SUPPLIERS AND OTHER TRADE keeping financial records.
CREDITORS  ACCOUNTING – includes the design of an
o CUSTOMERS information system that meet the user’s
o GOVERNMENT AND THEIR needs.
AGENCIES
o PUBLIC ADDTL INFO:
 INTERNAL DECISION MAKERS –
 FINANCIAL REPORTING – describes all
managers of a business entity,
information provided to external users,
responsible for managing efficiently and
including but not limited to financial
effectively and who have the power and
statements.
authority to whatever economic
 FINANCIAL STATEMENTS – SFP, SCF,
information they need.
SCOE, SCI.
 GENERAL-PURPOSE ASSUMPTION –
PROFESSIONAL VALUES AND ETHICS OF same information is provided to various
ACCOUNTANTS external users, including investors and
ETHICS – refers to a code or moral system that creditors.
provides criteria for evaluating right and wrong.  PUBLIC ACCOUNTING – segment of
accounting that relates to providing
 audit, tax, and consulting services to  BUSINESS ENTITY – means that a
clients. business is accounted separately from
other business entities, including its
owner.
CHAPTER 3: FUNDAMENTAL ACCOUNTING
CONCEPTS AND PRINCIPLES; THE
ACCOUNTING EQUATION. ACCOUNTING CONSTRAINTS
 MATERIALITY – prescribes that only
CONCEPTUAL FRAMEWORK information that influences decisions
need be disclosed.
 OBJECTIVES – to provide useful
 BENEFIT EXCEEDS COST – prescribes
information to investors, creditors and
that only information with benefits of
others.
disclosure greater than the costs of
 QUALITATIVE CHARACTERISTICS – to
providing it need to be disclosed.
require relevant, reliable, comparable
 CONSERVATISM
information.
 INDUSTRY PRACTICES.
 ELEMENTS – to define items that
financial statements can contain.
 RECOGNITION AND MEASUREMENT – to QUALITATIVE CHARACTERISTICS OF
set criteria for an item to be recognized ACCOUNTING INFORMATION.
as an element; and how to measure it.  RELEVANCE – can be used to predict
future outcomes and confirm earlier
ACCOUNTING PRINCIPLES predictions and expectations.
 FAITHFUL REPRESENTATION – should
 MEASUREMENT – also called cost
present numbers and descriptions that
principle, prescribes that accounting
really existed or happened. They should
information is based on actual cost, it is
be complete, free from errors and
measure on cash or equal-to-cash basis.
without bias.
 REVENUE RECOGNITION – prescribes
 ACCRUAL BASIS OF ACCOUNTING – should
that revenue is recognized when:
report the effects of transaction when
o When goods and services are
they occur and are reported in the
provided to customers
period to which they relate.
o At the amount expected to
receive from the customers.
o REVENUE – is the amount THE ACCOUNTING EQUATION
received from selling products
and services.
 EXPENSE RECOGNITION – prescribes
THREE ELEMENTS OF FINANCIAL
that a company record the expenses it
ACCOUNTING
incurred to generate the revenue
reported.
 FULL DISCLOSURE – prescribes that a
company report the details behind
financial statements that would impact
 ASSETS – are present economic
users’ decisions.
resources controlled by the entity as a
result of past events
ACCOUNTING ASSUMPTIONS
 GOING CONCERN – means that
 LIABILITIES – present obligation of the
accounting information reflects a
entity to transfer an economic resources
presumption that the business will
as a result of past events, these are
continue operating instead of being
claims of creditors
closed or sold.
 MONETARY UNIT – means that we can
 OWNER’S EQUITY – residual interest in
express transactions and events in
the assets of an entity that remains after
monetary, or money units.
liabilities are deducted.
 TIME PERIOD – presumes that the life of a
company can be divided into time
o IN PROPRIETORSHIP, OE is
periods, such as months and years, and
represented by the capital of the
that useful reports can be prepared for
owners.
those periods.
 o IN PARTNERSHIP, OE is
represented by the separate
capital accounts of the partners.
o IN CORPORATION, OE is also
known as the shareholder’s equity
and is represented by the ff.
 CONTRIBUTED CAPITAL –
refers to the amount that
shareholders invest in the
company.
 RETAINED EARNINGS –
refer to income (revenues
less expense) that is not
distributed to its
shareholders. The
distribution of assets to
shareholders is called
dividends which reduce
retained earnings.
 REVENUES – assets earned from a
company’s earning activities.
o Consulting services, Sales of
product, Facilities rented to
others, Commissions from
services.
 EXPENSES – cost of assets or services
used to earn revenues.
o Cost of employee time, use of
supplies and advertising, utilities
and insurance services from
others.