Mr. Nestor O.

Dela Cruz
Accounting Teacher
Let us pray:
“Our Father, Who art in heaven,
hallowed be Thy name. Thy Kingdom
come, Thy will be done, on earth as
it is in heaven. Give us this day our
daily bread, and forgive us our
trespasses, as we forgive those who
trespass against us; and lead us not
into temptation, but deliver us from
evil” Amen.
Fundamentals of Accountancy,
Business and Management 1
Branches of Accounting
 Financial Accounting
 Financialaccounting is the broadest branch and is
focused on the needs of external users. Financial
accounting is primarily concerned with the
recognition, measurement and communication of
economic activities. This information is communicated
in a complete set of financial statements. It is
assumed under this branch that the users have one
common information need. Financial accounting
conforms with accounting standards developed by
standard-setting bodies.
 Financial Accounting
Examples of these financial reports include:
 • the balance sheet (statement of financial condition)
 • income statement (the profit and loss statement, or
P&L)
 * the statement of changes in equity
 • statement of cash flows

Financial accounting is primarily concerned with

processing historical data. Although financial accounting
generally meets the needs of external users, internal
users of accounting information also use these
information for their decision-making needs
 Management (or Managerial) Accounting
 Management accounting emphasizes the preparation and
analysis of accounting information within the organization. The
objective of managerial accounting is to provide timely and
relevant information for those internal users of accounting
information, such as the managers and employees in their
decision-making needs. Oftentimes, these are sensitive
information and is not distributed to those outside the business
- for example, prices, plans to open up branches, customer
list, etc.
Managerial accounting involves financial analysis, budgeting and
forecasting, cost analysis, evaluation of business decisions, and
similar areas
 Government Accounting
 Government accounting is the process of recording,
analyzing, classifying, summarizing, communicating
and interpreting financial information about the
government in aggregate and in detail reflecting
transactions and other economic events involving the
receipt, spending, transfer, usability and disposition of
assets and liabilities. This branch of accounting deals
with how the funds of the government are recorded
and reported.
 Auditing
 There are two types of auditing: external and internal
auditing. External auditing refers to the examination
of financial statements by an independent CPA
(Certified Public Accountant) with the purpose of
expressing an opinion as to fairness of presentation
and compliance with the generally accepted
accounting principles (GAAP). The audit does not
cover 100% of the accounting records but the CPA
reviews a selected sample of these records and issues
an audit report.
 Tax Accounting
 Tax accounting helps clients follow rules set by tax
authorities. It includes tax planning and preparation of
tax returns. It also involves determination of income
tax and other taxes, tax advisory services such as ways
to minimize taxes legally, evaluation of the
consequences of tax decisions, and other tax-related
matters
 Cost Accounting
 Sometimes considered as a subset of management
accounting, cost accounting refers to the recording,
presentation, and analysis of manufacturing costs. Cost
accounting is very useful in manufacturing businesses
since they have the most complicated costing process.
 Cost accountants also analyze actual and standard costs
to help managers determine future courses of action
regarding the company's operations.
 Accounting Education
 This branch of accounting deals with developing future
accountants by creating relevant accounting
curriculum. Accounting professionals can become
faculty members of educational institutions. Accounting
educators contribute to the development of the
profession through their effective teaching,
publications of their research and influencing students
to pursue careers in accounting. Accounting teachers
share their knowledge on accounting so that students
are informed of the importance of accounting and its
use in our daily lives.
 Accounting Research
 Accounting research focuses on the search for new knowledge
on the effects of economic events on the process of
summarizing, analyzing, verifying, and reporting standardized
financial information, and on the effects of reported
information on economic events. Researchers typically choose a
subject area and a methodology on which to focus their efforts.
The subject matter of accounting research may include
information systems, auditing and assurance, corporate
governance, financials, managerial, and tax. Accounting
research plays an essential part in creating new knowledge.
Academic accounting research "addresses all aspects of the
accounting profession" using a scientific method.
Users of Accounting Information
“Who uses accounting data or
information?”
There are two broad categories
of users of financial
information:
 INTERNAL USERS
Internal users of accounting information are
those individuals inside a company who plan,
organize, and run the business. These users are
directly involved in managing and operating the
business. These include marketing managers,
production supervisors, finance directors,
company officers, owners and employees.
 Internal Users

 Management  Owners
 Information need:  Information need:
income/earnings for the profit or income for
period, sales, available the period, resources
cash, production cost or assets of the
 Employees business, liabilities of
 Information
the business
need: profit
for the period, salaries
paid to employees
 EXTERNAL USERS
External users are individuals and organizations
outside a company who want financial
information about the company. These users are
not directly involved in managing and operating
the business. The two most common types of
external users are potential investors and
creditors.
Potential Investors use accounting information to make
decisions to buy shares of a company . Creditors (such as
suppliers and bankers) use
accounting information to evaluate the risks of granting
credit or lending money. Also included as external users
are government regulatory
agencies such as Securities and Exchange Commission
(SEC), Bureau of Internal Revenue (BIR), Department of
Labor and Employment (DOLE),Social Security System
(SSS), and Local Government Units (LGUs)
 External Users
 Creditors  Tax Authorities (BIR):
 for
determining the credit  fordetermining the
worthiness of an credibility of the tax
organization returns filed on behalf
 Creditorsinclude suppliers of a company.
as well as lenders of
finance such as banks.
 Investors:  Customers:
 for analyzing the  forassessing the
feasibility of investing in a financial position of its
company. Investors want suppliers which is
to make sure they can necessary for them to
earn a reasonable return maintain a stable
on their source of supply in the
 investment before they long term.
commit any financial
resources to a company
 Regulatory Authorities (SEC, DOLE):
 for ensuring that a company's disclosure
of accounting information is in
accordance with the rules and regulations
set in order to protect the interests of the
stakeholders who rely on such information
in forming their decisions.
 SUMMARY OF THE DIFFERENCES BETWEEN INTERNAL
AND EXTERNAL USERS
 Internal users of accounting  The external users of
information are those who accounting information are
are involved in planning, those individuals or
organizing and running the organizations outside a
business. They need more company who are
detailed information on a interested in its financial
timely basis in order to information. Examples of
support their decisions. these external users are
Examples of these internal potential investors,
users are managers, suppliers and government
employees and owners. agencies.
Forms of Business Organization
“Suppose you want to open your own sari-sari
store that will need PHP10,000 to start and you
used your PHP10,000 savings to start the said
business. You are the sole owner of the said sari-
sari store.
 Single/Sole Proprietorship

• A form of business is owned by one person;

the simplest, and the most common form of
business organization
• It is not separate from the owner. The
business and the owner are inseparable
 Single/Sole Proprietorship
Advantages Disadvantages
• The owner keeps all the • The life of the business is
profits. limited to the life of the
•The owner makes all the owner. Once the owner dies,
decisions. the business will cease to
operate under the name of
• It is easy to form and the proprietor.
operate.
• The amount of capital is
limited only by the wealth of
the proprietor
“What if the needed amount to start your
dream sari-sari store is PHP50,000 and you
only have PHP25,000 cash savings. You ask
Juan, your friend if he is willing to invest his
PHP25,000 and become part owner of the
sari-sari store. Assuming he agrees, what
form of business organization was created?”
 Partnership
• A form of business owned by two or more persons. The
details of the arrangement between the partners are
outlined in a written document called articles of
partnership.
• Profits are divided among partners based on their
agreed sharing.
• The owner is called a partner.
 Partnership
Advantages Disadvantages
• Higher capital because • The profits are divided among
two or more persons will the partners.
contribute to the • A partner can be held liable for
common fund.
the acts of the other partners.
• It is easy to operate • In a lawsuit, the personal
like a sole/single
properties of the partners can be
proprietorship
held beyond their contributions
and may be used to answer for any
liability of the partnership
“Assuming your dream is to open a grocery store
and not just a sari-sari store but you will need
PHP1,000,000 to start the said business. You have
only PHP25,000, your friend Juan has PHP25,000,
and your mother is willing to invest her
PHP50,000, but still these are not enough to start
your dream grocery store. Where will you get the
money to raise the PHP1 million? You may
consider setting up a corporation?”
 Corporations
• A corporation is a business organized as a separate legal
entity (artificial person) under the corporation law with
ownership divided into transferable shares of stocks
• Emphasize that it is the law (Corporation Code of the
Philippines) that creates a corporation.
• The corporation begins its existence from the date the
Articles of Incorporation is approved by the Securities and
Exchange Commission (SEC).
• The SEC (Securities and Exchange Commission) is the
government agency primarily tasked to regulate private
corporations in the Philippines.
• The owners are called stockholders or shareholders.
 Corporations cont...
• The word ‘Corporation/Incorporation/Corp./Inc.’ appears in
the name of the entity.
• The voting rights of a shareholder is generally based on the
percentage of ownership.
• The management of the business is delegated by the
shareholders to the Board of Directors
• The ownership is divided into shares and the value of one
share may be denominated at a smaller amount, for example at
PHP10 per share.
• The proof of ownership is evidenced by a stock certificate
 Corporation

Advantages Disadvantages
 • Can easily raise additional
 • It is relatively complicated to
funds by selling shares of
stocks to the public. set up.
 • Subject to several legal
 • Shareholders are not
personally liable for the debts restrictions as listed in the
of the corporation. The extent Corporation Code of the
of their liability is limited to Philippines
their equity (ownership) in the
corporation
“Assuming all the mothers in your barangay decided to open
a sari-sari store where all the members can buy in cash or in
credit. Some mothers were also taught how to sew dresses
and bags as part of the project of the group. These bags are
then sold to a certain company.
Aside from that, the organization provides seminars to the
members on various topics involving mothers and their roles.
At the end of the year, the profits are distributed among the
members based on their capital contribution. The amount of
their purchases in the sari-sari store during the year is also
computed and they receive something out of the
profit/surplus based on their purchases
 Cooperative
• A cooperative is a duly registered association of persons with
a common bond of interest, voluntarily joining together to
achieve their social, economic and cultural needs.
• The owners are called members who contribute equitably to
the capital of the cooperative.
• The members are expected to patronize their products and
services.
• The word ‘cooperative’ appears in the name of the entity.
• This form of business organization is regulated by the
Cooperative Development Authority (CDA).
 Cooperative
Advantages Disadvantages
• Enjoys certain tax • Limited distribution of surplus
exemption privilege • Requires continuous education
• Promotes the concept of programs for members.
sharing resources • The members have active and
direct participation in the
business of the cooperative
Types of Business According to Activities
 Service Business

This type of business offers professional

skills, advice and consultations.
 Merchandising Business
This type of business buys at wholesale and later
sells the products at retail. They make a profit by
selling the merchandise or products at prices that
are higher than their purchase costs. This type of
business is also known as "buy and sell".
 Manufacturing Business

This type of business buys raw materials

and uses them in making a new product,
therefore combining raw materials, labour
and expenses into a product for sale later
on.
There are businesses that may be classified under
more than one type of business. A bakery, for
example, combines raw materials in making
loaves of bread (manufacturing), sells hot pan de
sal (merchandising), and caters customers’ orders
in small coffee table servings of ensaymada
and hot coffee (service).
 Define what is Accounting?
Identify what branch of accounting renders this service:
1. Preparation of general-purpose financial statements.
2. Evaluation of the performance of a sales department.
3. Review tax compliance of the business.
4. Review whether the financial statements are presented fairly
and in compliance with accounting standards.
5. Report on the total cost of materials and labor used in the
production.
 The nature of accounting
1. This involves selecting economic events that are relevant to a particular
business transaction
2. This involves keeping a chronological diary of events that are measured in
pesos.
3. Occurs through the preparation and distribution of financial and other
accounting reports
4. He is the Father of Accounting.
5. She granted the chartered of Institute of Accountant in Scotland
6. In Cradle Time, what evidence they used as a practice of accounting?
7. In 14th Century, what important event in accounting?
8 -10 What are the Natures of Accounting?