Define Accounting According to FRSC (Financial Reporting Standard Council)

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.

Define Accounting According to AICPA (American Institute of Certified Public Accountant)

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 financial in character, and
interpreting the result thereof.

Shortest definition of Accounting

language of business

Nature of Business Organizations

A business organization may be classified also according to its nature. The term “nature” refers to
products or services that the business produces or sells.
The classification of business entities according to nature as follows:
1. Service concern- sells services to customers.
 Non-professional service- laundry shop, car repair shop, beauty parlor, and banking
institutions
 Professional service- law offices of lawyers, medical clinic of doctors, and auditing and
consultancy office of accountants, and others
2. Merchandising- engaged in the buying and selling of product or goods.
i.e. grocery stores, hardware stores, dry goods stores
3. Manufacturing- producer of goods of products
i.e. furniture shops, car manufacturers, beverage companies, producers of flour
4. Agriculture- engaged in production of agricultural goods and animals.
i.e. production of pineapple or sugar cane, coconut plantations, business concern
raising hogs, poultry products
5. Hybrid business- possess the nature and characteristics of two types of business entities.
6. Special corporation- Nonetheless, though business organizations are classified differently, a
common denominator binds them all, that is, every business entity uses accounting and
applies the same prescribed rules and procedures to record business transactions.
 Cooperative
 Joint Ventures
 Non-profit organizations

Forms of Business Organization

The classification of business according to form refers to the category of business according to the
number of its owner. A business may be owned by one person only or two or more persons. It may
also be owned also by a human person or by a juridical person. A juridical person is an artificial
entity created by the operation of law.
1. Sole proprietorship- business concern owned by only one person
i.e. convenience retail stores, barbershops, pawnshops, repair shops, outlet of
agricultural products.

Sole proprietorship has the following characteristics:

a) simplicity of operation
b) ease in term of formation and management
c) growth is limited to the resources of the owner
d) limited capital
e) unlimited liability

2. Partnership- business entity that is owned by two or more persons. The owners of partnership
are called partners.
The following causes may dissolve the life of a partnership:
a) death of the one partners
b) admission of new partner in an existing partnership
c) permanent withdrawal of the investment of a partner

3. Corporation- business entity formed by at least five, but not more than fifteen persons. The
person originally forming the corporation are called incorporators.
Classification of corporation
 Stock corporation- when it issues shares of stock to the owners as evidence of their
interests and ownership. The owners of stock corporation are called stockholders or
shareholders.
 Non-stock corporation- it is not authorized to issue shares of stocks to the owners.
In a non-stock corporation, the owners are called members.
Category of corporation
 Profit corporation- when it return its income in the form of dividends to the
stockholders.
 Non-profit corporation- does not necessarily mean that it does not earn income, but
rather its profit are not distributed to the members.

Branches of Accounting

 Auditing- independent verification and examination that assumes fairness of presentation of

financial statements.
 Financial Accounting- deals with the preparation and interpretation of financial information
reflected in the financial statements. The person that specialized on this field is usually called
a general accountant.
  Management Application- involves the application of analytical tools and techniques to
economic data in order to provide assistance to the management in the performance of its
basic functions. Management accounting is also termed as managerial accounting.
 Cost Accounting- technique for determining the cost of the product, service, or process
through direct measurement, arbitrary assignment, or systematic rational allocation. The
person handling cost accounting is usually called a cost accounting or cost specialist.
 Tax Accounting- area of specialization of accounting that is primarily concerned with the
application and compliance of taxation laws and regulation. The person that specializes on
tax accounting is usually called a tax specialist or a tax accountant.
 Accounting Education- teaching profession rendered by Certified Public Accountant (CPA) in
various schools, colleges, and universities.
 Accounting System- refers to the different integrated and interrelated systematic procedures
of accumulating economic data designed for proper information and decision making.
 Government Accounting- systematic process of recording, classifying, and summarizing all
transactions involving receipts and dispositions of government funds and property.

Father of Accounting
Franciscan monk Luca Pacioli

Basic Accounting Equation

Sole Proprietorship: Assets = Liabilities + Owner’s Equity
Corporation: Assets = Liabilities + Stockholder’s Equity

Expanded Accounting Equation

Sole Proprietorship: Assets = Liabilities + Owner’s Capital + Revenues – Expenses – Owner’s
Draws
Corporation: Assets = Liabilities + Paid-in Capital + Revenues – Expenses – Dividends – Treasury
Stock

GAAP, AICPA, & FRSC

Generally Accepted Accounting Principles
American Institute of Certified Public Accountant
Financial Reporting Standard Council